<PAGE>
As filed with the Securities and Exchange Commission on February 4, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
PETsMART.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 5999 95-4742348
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
35 Hugus Alley, Suite 210
Pasadena, CA 91103
(626) 817-7100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------
Thomas P. McGovern, Jr.
Chief Executive Officer
35 Hugus Alley, Suite 210
Pasadena, CA 91103
(626) 817-7100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
<TABLE>
<S> <C>
Michael A. Woronoff, Esq. Bruce R. Hallett, Esq.
Troy Vigil, Esq. Paul S. Bernstein, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP Brobeck, Phleger & Harrison LLP
300 South Grand Avenue, Suite 3400 550 South Hope Street
Los Angeles, CA 90071 Los Angeles, CA 90071
(213) 687-5000 (213) 489-4060
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same
offering. [_]. . . . . . . . . . . . . . . . . . .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]. . . . . . . . . . . . . . . . . . .
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]. . . . . . . . . . . . . . . . . . .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Aggregate Amount of
Title of Each Class of Securities to be Offering Registration
Registered Price(1) Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock ($0.001 par value)................ $115,000,000 $30,360
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to such Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 2000
PROSPECTUS
Shares
PETsMART.com, Inc.
Common Stock
---------
PETsMART.com, Inc. is selling shares of its common stock. The
underwriters named in this prospectus may purchase up to additional shares
of common stock from PETsMART.com to cover over-allotments.
This is an initial public offering of common stock. PETsMART.com currently
expects the initial public offering price to be between $ and $ per
share, and has applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "PSCM".
---------
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------
<TABLE>
<CAPTION>
Per
Share Total
------ ------
<S> <C> <C>
Public Offering Price............................................ $ $
Underwriting Discount............................................ $ $
Proceeds to PETsMART.com (before expenses)....................... $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about ,
2000.
---------
Salomon Smith Barney
Chase H&Q
J.P. Morgan & Co.
, 2000
<PAGE>
You should rely on the information contained in this prospectus. PETsMART.com
has not authorized anyone to provide you with different information.
PETsMART.com is not making an offer of these securities in any state where the
offer is not permitted. You should not assume that the information provided by
this prospectus is accurate as of any date other than the date on the front of
this prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 5
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 23
Selected Financial Data.................................................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
Business................................................................. 30
Management............................................................... 40
Principal Stockholders................................................... 51
Related Party Transactions............................................... 53
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 62
Legal Matters............................................................ 64
Experts.................................................................. 64
Additional Information................................................... 64
Index to Financial Statements............................................ F-1
</TABLE>
PETsMART.com, Inc. has the right to use PETsMART(TM), R.C. STEELE(TM) and
PETsMART.com(TM) and the PETsMART.com logo. We have certain trademark
applications pending, including applications for Cat Food Calculator(TM) and
Dog Food Calculator(TM), PAWsPECTIVES(TM), Pet Family Quilt(TM), and "You Stay,
We Fetch(TM)". All other brand names or trademarks appearing in this prospectus
are the property of their respective holders. Use or display by PETsMART.com of
other parties' trademarks, trade dress or products is not intended to and does
not imply a relationship with, or endorsement or sponsorship of, PETsMART.com
by the trademark or trade dress owners.
----------------
Until 2000, all dealers that buy, sell or trade the common stock, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
3
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Since this is only a summary, it does not contain all of the information that
may be important to you. You should read the entire prospectus carefully and
consider the information under "Risk Factors" and in our financial statements
and the notes relating to these financial statements, together with the
information included elsewhere in this prospectus, before deciding whether to
invest in our common shares. The terms "PETsMART.com," "we," "us," "our," and
the "Company" as used in this prospectus refer to PETsMART.com, Inc.
PETsMART.com
We are the most popular Internet destination for pet products, information
and community. Our online store is designed to provide a convenient,
informative and fulfilling shopping experience, with a high level of customer
service that encourages consumers to purchase products and services to satisfy
their pet care needs. The PETsMART.com site contains extensive product and pet
information, expert advice and community activities, allowing our visitors to
learn about pet care issues and interact with other pet owners. We have been
the top-ranked pet product Web site every month since our first full month of
commerce operations, according to Media Metrix, Nielsen NetRatings and PC Data.
We were the only pet product retailer ranked among the top 50 online shopping
sites according to Media Metrix's December statistics. From the commercial
launch of our online store on June 29, 1999 through January 2, 2000, we sold
pet products to over 180,000 customers and generated net revenues of $10.4
million.
We have entered into a strategic alliance with PETsMART, Inc., the world's
largest pet products specialty retailer and have the exclusive, worldwide right
to use the PETsMART trademark royalty free for online retailing. This strategic
alliance provides an immediately identifiable brand that is known and trusted
by millions of pet owners and enables us to differentiate ourselves from other
online competitors by marketing our "click and mortar" relationship with
PETsMART, Inc. Through this relationship, we are able to leverage PETsMART,
Inc.'s infrastructure to gain significant economies of scale in purchasing,
distribution, and customer service, enabling us to operate with limited direct
investment in inventory, warehouses and support systems. PETsMART, Inc. also
provides us with numerous co-promotional and marketing opportunities and access
to PETsMART, Inc.'s popular proprietary branded products. We believe the
industry experience of our management, several of whom have come from PETsMART,
Inc., is a key competitive advantage and differentiates us from other online
pet product companies.
We believe the market for pet products and services represents an attractive
online opportunity due to its size, anticipated growth and suitability to the
online marketplace. The American Pet Product Manufacturers Association
estimates the market for pet products and services was $23 billion in 1998 and
will grow to $29 billion by 2001, driven in part by increases in the pet
population and a trend toward providing improved pet care. Approximately 60% of
U.S. households own a pet and 40% of those households own more than one pet. We
believe that the industry is well suited to the online marketplace due to
consumers' demand for information to assist in the purchase decision, the
absence of the need to handle products prior to purchase and the need for
frequent orders resulting from the consumable nature of most pet products.
We intend to capitalize on this online market opportunity by offering pet
owners an enhanced shopping experience. We seek to attract and retain consumers
by providing the following:
Selection--We are able to offer a broader product selection than most store-
based retailers because we do not face the same inventory and shelf-space
limitations. We provide products for nearly every type of household pet,
including dogs, cats, birds, fish, reptiles and other small animals.
5
<PAGE>
Convenience--Our online store is open 24 hours a day, seven days a week and
provides an easy and accessible way to identify and order products, combined
with the convenience of home delivery.
Information--Our Web site provides detailed product and pet information,
expert pet care advice, editorials and professional resources. We offer content
on the most popular types of pets, including a library reference section, breed
specific guides and other general care and behavior information.
Community--We believe we operate the largest and most active online pet
community. We provide a variety of interactive opportunities, including our
weekly Vet Expert Chats, message boards and PAWsPECTIVES(TM), our bi-weekly
online newsletter.
Customer Service--We are committed to making every aspect of browsing and
shopping on our Web site an enjoyable experience by emphasizing superior
customer service. We provide knowledgeable and experienced pre- and post-sales
support, timely purchase related information and referrals to pet-related
services.
Our objective is to become the leading retailer of pet products and services.
Key elements of our strategy include continuing to:
. capitalize on our strong brand recognition;
. leverage PETsMART, Inc.'s purchasing power and distribution
infrastructure;
. expand our product and service offering;
. enhance the user experience;
. maintain the largest and most active online pet community; and
. build strategic alliances.
Risk Factors
An investment in shares of our common stock involves a high degree of risk.
You should carefully consider these risks and uncertainties as well as those
other risks and uncertainties described in "Risk Factors" beginning on page 9
of this prospectus before deciding whether to invest in shares of our common
stock.
Corporate History and Information
Interpet Inc. was formed on February 25, 1999. Interpet acquired the assets
of K&K Hansen, Inc. (dba Mason Distributing Company) in March 1999 and the
domain name PetJungle.com in April 1999. Interpet subsequently changed its
corporate name to PetJungle.com, Inc. On May 12, 1999, PETsMART.com was
incorporated and PetJungle.com, Inc. was merged into PETsMART.com. Our
corporate offices are located at 35 Hugus Alley, Suite 210, Pasadena, CA 91103.
Our telephone number at that location is (626) 817-7100. Information contained
on our Web site does not constitute part of this prospectus.
6
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered by
PETsMART.com........... shares
Common Stock outstanding
after the offering..... shares
Use of proceeds......... For general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National
Market symbol.......... "PSCM"
</TABLE>
The number of shares that will be outstanding after the offering is based on
the number of shares outstanding as of , 2000 and excludes:
. shares of common stock issuable upon exercise of stock options
outstanding as of , 2000, with a weighted average exercise price
of $ per share, of which options to purchase shares were then
exercisable;
. shares of common stock issuable upon exercise of outstanding
warrants; and
. shares of common stock reserved for future grant under our stock
option plans.
----------------
Unless specifically stated, the information in this prospectus:
. assumes no exercise of the underwriters' over allotment option;
. assumes an initial offering price of $ per share, the midpoint of our
initial public offering price range;
. reflects a -for- stock split which will be effected prior to this
offering;
. assumes the automatic conversion of all shares of preferred stock into
common stock upon completion of this offering on the following basis:
each share of Series A preferred converts into shares of common
stock; each share of Series C preferred converts into shares of
common stock; and each share of Series B preferred stock and
Series D preferred stock converts into shares of common stock (in
each case on a post stock split basis); and
. reflects the filing, as of the closing of the offering, of our Second
Amended and Restated Certificate of Incorporation, referred to in this
prospectus as the restated certificate of incorporation, and the
adoption of our Amended and Restated By-Laws, referred to in this
prospectus as the restated by-laws, implementing the provisions
described below under "Description of Capital Stock--Delaware Anti-
Takeover Law and Our Restated Certificate of Incorporation and Restated
By-Law Provisions."
7
<PAGE>
Summary Financial Information
The summary financial information for the period from inception (February 25,
1999) to January 2, 2000 is derived from our audited financial statements
included elsewhere in this prospectus and should be read in conjunction with
those financial statements and the related notes. The historical statement of
operations data for the thirteen weeks ended October 3, 1999 and January 2,
2000 have been derived from our unaudited financial statements. The unaudited
statements have been prepared on substantially the same basis as the audited
financial statements and include all adjustments consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
the financial position and results of operations for the period. The historical
results are not necessarily indicative of results that may be expected for any
future period. The balance sheet data displayed in the "As Adjusted" column
reflect the application of the net proceeds from this offering, after deducting
the underwriting discount and estimated offering expenses. See "Use of
Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks From Inception
Ended Ended (February 25, 1999)
October 3, 1999 January 2, 2000 to January 2, 2000
--------------- --------------- -------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations
Data:
Net revenues.............. $ 2,090 $ 7,787 $ 10,446
Costs of net revenues..... 3,287 13,034 16,739
-------- -------- --------
Gross margin............ (1,197) (5,247) (6,293)
Operating expenses:
Sales and marketing..... 9,949 23,213 33,476
Product development..... 784 1,102 2,359
General and
administrative......... 1,389 1,474 3,351
Equity-based charges.... 359 1,496 2,542
-------- -------- --------
Total operating
expenses............. 12,481 27,285 41,728
-------- -------- --------
Loss from operations...... (13,678) (32,532) (48,021)
-------- -------- --------
Interest income, net...... 84 387 526
-------- -------- --------
Net loss................ (13,594) (32,145) (47,495)
Deduction for beneficial
conversion feature....... -- -- (4,548)
-------- -------- --------
Net loss attributable to
common stockholders...... $(13,594) $(32,145) $(52,043)
======== ======== ========
Basic and diluted net loss
per common share......... $
========
Shares used to calculate
basic and diluted net
loss per common share....
========
Unaudited pro forma net
loss per common
share(1)................. $
========
Unaudited pro forma shares
used to calculate pro
forma net loss
per share(1).............
========
</TABLE>
<TABLE>
<CAPTION>
As of
January 2, 2000
-------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $26,350
Working capital............................................. 8,735
Total assets................................................ 38,269
Notes payable, net of current portion....................... 156
Total stockholders' equity.................................. 18,674
</TABLE>
- --------
(1) See notes 1 and 7 of notes to financial statements for an explanation of
the number of shares used in per share computations.
8
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below and
the other information in this prospectus before deciding whether to invest in
shares of our common stock. Additional risks and uncertainties not presently
known to us or that we currently believe are not important may also impair our
business operations. If any of the following risks actually occur, our
business, financial condition or operating results could be materially
adversely affected. In such case, the trading price of our common stock could
decline and you may lose part or all of your investment.
Risks Related to Our Business
Because We Have a Limited Operating History, It Is Difficult to Evaluate Our
Business
We began selling products on our Web site in June 1999. Because of our
limited operating history, you have limited operating and financial data about
us upon which to assess our performance and an investment in our common stock.
In addition, we have insufficient results for investors and securities analysts
to use in order to identify historical trends or even to make quarter to
quarter comparisons of our operating results. You should consider our prospects
in light of the risks, expenses and difficulties we will encounter as an early
stage company competing in a new and rapidly evolving market. To the extent our
revenues and operating results fall below the expectations of investors and
securities analysts, the trading price of our common stock may fall
significantly.
We Are Not Currently Profitable and Anticipate Future Losses
We expect operating losses and negative cash flow to continue for the
foreseeable future. We anticipate our losses will increase from current levels
because we expect to incur additional costs and expenses related to:
. marketing and other promotional activities;
. the continued development of our Web site, the systems that we use to
process customer orders and payments and our computer network;
. the expansion of our product and service offerings and Web site content;
. development of relationships with strategic business partners;
. providing our customers with shipping below our actual costs to attract
customers; and
. increasing our general and administrative functions to support our
growing operations.
We incurred net losses of $32.1 million for the thirteen weeks ended January
2, 2000 and cumulative net losses of $47.5 million for the period from our
inception through January 2, 2000. We have not achieved profitability. We only
began selling products in June 1999 and have yet to achieve meaningful revenue.
We cannot be certain that we will obtain enough customer traffic or a high
enough volume of purchases to generate sufficient revenues and achieve
profitability.
Our ability to become profitable depends on our ability to generate and
sustain substantially higher net revenues than we have generated previously
while keeping expenses at reasonable levels. If we do achieve profitability, we
cannot be certain that we would be able to sustain or increase profitability on
a quarterly or annual basis in the future. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
9
<PAGE>
We Expect Our Quarterly Financial Results to Fluctuate, Which May Cause the
Trading Price of Our Common Stock to Fluctuate Significantly
We expect that our revenues and operating results will vary significantly
from quarter to quarter due to a number of factors, including one or more of
the following:
. consumer traffic to our Web site may fluctuate depending on the
effectiveness of our sales and marketing campaign, the timing and level
of promotions in which we engage, and the effectiveness of content on
our Web site and other factors;
. the level of repeat purchases by customers, average order size and mix
of products sold may fluctuate as a result of the experience consumers
have on our Web site, the availability of products we have for sale,
seasonal factors and other factors;
. our revenues may decline as a result of promotional offers made by our
competitors, the introduction of products or services offered by our
competitors, or the introduction of new competitors into our market;
. we may experience consumer dissatisfaction with our Web site as we add
or change features, or as a result of technical difficulties on our Web
site that do not permit a consumer to access our Web site or to complete
a shopping session;
. changes in government regulation of the Internet, particularly the
imposition of sales tax for online transactions, may discourage online
shopping and result in decreased revenues; and
. we may incur costs related to potential acquisitions of technology or
businesses.
To the extent our revenues and operating results fall below the expectations
of investors and securities analysts, the trading price of our common stock may
fall significantly.
Consumers of Pet Products May Not Choose to Shop on Our Web Site or Purchase
Our Products
We may not be able to attract a large number of potential customers who shop
in traditional retail stores to shop on our Web site. Furthermore, we may incur
significantly higher and more sustained advertising and promotional
expenditures than we currently anticipate to attract online shoppers to our Web
site and to convert those shoppers into purchasing customers. As a result, we
may not be able to achieve profitability, and even if we are successful at
attracting online customers, we expect it will take several years to build a
critical mass of these customers. Specific factors that could prevent
widespread customer acceptance of our online solution include:
. shipping charges, which do not apply to shopping at store-based
retailers;
. delivery time associated with Internet orders, as compared to the
immediate receipt of products at a physical store;
. pricing that does not meet customer expectations of finding the lowest
price on the Internet;
. customer concerns about buying products without first seeing them in
person or physically handling them;
. lack of consumer awareness of our Web site;
. our inability to differentiate our Web site from those of our
competitors;
. customer concerns about the security of online transactions and the
privacy of their personal information;
. product damage from shipping, delayed shipments, or shipments of wrong
or expired products, resulting in a failure to establish customers'
trust in buying pet products online; and
. difficulties in returning or exchanging items purchased on our Web site.
10
<PAGE>
We Are Dependent On PETsMART, Inc.
We currently obtain substantially all of our products through our
relationship with PETsMART, Inc. and benefit from PETsMART, Inc.'s marketing
efforts, purchasing discounts, distribution infrastructure and customer service
center. Our inability to obtain these products and benefits for any reason,
including any disruptions in PETsMART, Inc.'s business, would have a material
adverse effect on our business and financial performance.
Our relationship with PETsMART, Inc. will require cooperation in order for us
to achieve its full benefits. PETsMART, Inc. is specifically permitted to
provide procurement, warehousing, distribution and customer support services
for some of our competitors. Any lessening of PETsMART, Inc.'s desire to see us
succeed, including any such lessening that may be caused by PETsMART, Inc.
reducing its ownership of our common stock, could harm our business and
financial performance.
Our Agreements With PETsMART, Inc. May be Terminated by PETsMART, Inc. After
Five Years, or Earlier If We Fail to Perform our Obligations
We have entered into several agreements with PETsMART, Inc., including:
. a Trademark License Agreement, pursuant to which we have been granted an
exclusive, worldwide right to use the PETsMART name royalty-free in
connection with our online business;
. a Marketing Agreement pursuant to which we collaborate with PETsMART,
Inc. to co-market our products and information;
. a Merchandising, Procurement, Distribution and Fulfillment Agreement
pursuant to which PETsMART, Inc. and its affiliates provide us with such
services; and
. a Web and Content Hosting Agreement pursuant to which we provide hosting
services for certain PETsMART, Inc. content.
Other than our Trademark License Agreement, these agreements automatically
terminate on December 31, 2006, and either party may choose not to renew the
initial five year term which expires on December 31, 2004. We believe that the
Merchandising, Procurement, Distribution and Fulfillment Agreement and the
Marketing Agreement contain terms more favorable to us than we could obtain
from any party other than PETsMART, Inc. There can be no assurance that we will
be able to renew such agreements on terms acceptable to us. Should our
relationship with PETsMART, Inc. terminate, and, as a result of such
termination, we were to lose the benefits of the foregoing agreements, it would
harm our business and financial performance. See "Related Party Transactions--
Strategic Agreements with PETsMART, Inc."
Our Trademark Agreement With PETsMART, Inc. May Deter A Third Party From
Gaining Control Of Our Stock
Our trademark license agreement with PETsMART, Inc. may be terminated by
PETsMART, Inc. if any store-based or online retailer acquires 15% or more of
our common stock. This may deter any takeover attempt, resulting in the
inability of our stockholders to realize a premium from a takeover.
Our Agreements With PETsMART, Inc. Impose Limitations On Our Business
Our agreements with PETsMART, Inc. impose limitations on our business,
including:
. prohibiting us from carrying and selling products that would cause
PETsMART, Inc. products to constitute less than a majority of our SKUs;
. prohibiting us from owning or operating catalogs or physical stores that
sell pet related products and reselling to third parties who do the
same;
11
<PAGE>
. limiting our ability to procure, carry and fulfill non-pet products,
such as equine and apparel; and
. limiting our flexibility to increase or decrease product procurement.
These limitations could restrict our ability to expand our product offering
and increase our revenues.
We May Encounter Conflicts of Interest with PETsMART, Inc., Which Will Have
Significant Influence Over Our Actions
Following the offering, PETsMART, Inc. will beneficially own on a primary
basis approximately % of the voting power of all shares of our voting
stock. Certain officers of PETsMART, Inc. hold positions on our board of
directors, including Philip L. Francis, President and Chief Executive Officer
of PETsMART, Inc., Robert F. Moran, President of PETsMART, Inc.'s North
American stores, and Neil T. Watanabe, Executive Vice President and Chief
Financial Officer of PETsMART, Inc. Therefore, PETsMART, Inc. will be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. These relationships could create conflicts
of interest, for example when our directors are faced with decisions that could
have different implications for us and PETsMART, Inc., including the
interpretation, implementation and renewal of our agreements with PETsMART,
Inc., potential acquisitions of businesses, effects of competition, the
issuance or disposition of our securities, the election of new or additional
directors, our payment of dividends and other matters. We have not instituted
any formal plan or arrangement to address potential conflicts of interest that
may arise between us and PETsMART, Inc. and their affiliates.
PETsMART, Inc., And Our Other Existing Stockholders Will Still Control The
Majority Of Our Common Stock After this Offering, Which Could Discourage An
Acquisition Of Us Or Make Removal Of Incumbent Management More Difficult
PETsMART, Inc.'s substantial equity stake in us could also make us a much
less attractive acquisition candidate to potential acquirors because PETsMART,
Inc. would be able to block the acquisition by acting in concert with only a
small number of other stockholders. In addition, executive officers, directors
and entities affiliated with them, including PETsMART, Inc., will, in the
aggregate, beneficially own approximately % of our outstanding common stock
following the completion of this offering. These stockholders, if acting
together, would be able to decide all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
or other business combination transactions. See "Principal Stockholders" for a
description of PETsMART, Inc.'s stock ownership relative to other stockholders,
"Management" for background on Philip L. Francis, Robert F. Moran and Neil T.
Watanabe Directors and "Related Party Transactions" for a description of our
agreements with PETsMART, Inc.
Distribution Centers From Which We Ship Our Products Are Currently Limited
Substantially all of our pet products, regardless of customer location, are
currently shipped from PETsMART, Inc.'s distribution center in Brockport, New
York. Our success depends on our ability to use additional distribution centers
throughout the United States to accommodate increases in customer demand,
reduce our shipping costs and shipping times to customers and increase our
gross margins. We believe PETsMART, Inc. currently intends to build additional
distribution centers located throughout the United States. If they are unable
to build these additional distribution centers and we are unable to make
alternative arrangements, we may lose customers to our competitors, and our
business and financial performance would be harmed.
We May Not Be Able to Compete Successfully Against Store-Based and Online
Competitors
The electronic commerce market is new, rapidly evolving and intensely
competitive. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could seriously harm our business and financial performance. We expect
competition to intensify in the
12
<PAGE>
future because new Web sites can be launched or enhanced quickly and at a
relatively low cost. In addition, the pet product industry is intensely
competitive.
We currently or potentially compete with a variety of other retailing venues,
including:
. online stores that specialize in pet products;
. online stores that offer pet products;
. superstore retailers of pet products;
. specialty pet stores;
. mass market retailers;
. supermarkets;
. warehouse clubs; and
. mail order suppliers of pet products.
Many store-based and online competitors have longer operating histories,
larger customer or user bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do. As a result, many
of our competitors can devote substantially more resources to their Web sites,
physical stores and marketing than we can devote to our Web site and marketing.
In addition, larger, well-established and well-financed entities may join with
online competitors or pet product suppliers to exploit the opportunities
presented by the electronic commerce market.
Our competitors may be able to secure products from vendors on more favorable
terms, fulfill customer orders more efficiently and adopt more aggressive
pricing or inventory availability policies than we can. Store-based retailers
also enable customers to handle products in a manner that is not possible over
the Internet. See "Business--Competition."
We May Be Unable to Effectively Manage Our Rapid Growth
We have rapidly and significantly expanded our operations and anticipate that
further expansion will be required to realize our growth strategy. From June
29, 1999 to January 2, 2000, we grew from 32 to 72 employees. This rapid growth
has placed significant demands on our management and other resources which,
given our expected future growth rate, are likely to continue. We will not be
able to implement our business strategy unless we are able to effectively
manage this strain on our systems and resources. We will not be able to
increase revenues unless we continue to improve our transaction-processing,
operational, financial and managerial controls, reporting systems and
procedures, expand, train, supervise and manage our work force, and manage
multiple relationships with third parties.
Our Future Business Expansions, Including our Planned Expansions Into Equine
Products and Pet Services, May Not Be Successful
If we are presented with appropriate opportunities, we intend to invest in
complementary companies, products or technologies. Among other things, we
intend to enter the equine market and the market for pet services. We may also
expand our operations by developing other new subject areas or product
categories, promoting new or complementary products, expanding the breadth and
depth of products and services offered or expanding our market presence through
relationships with third parties. In addition, we may pursue the acquisition of
new or complementary businesses, products or technologies. If we buy a company
or engage in other types of acquisitions, we could have difficulty assimilating
another company's personnel and operations or acquired technology or products.
In addition, the key personnel of an acquired company could decide not to work
for us. Any new product category that is launched by us but not favorably
received by consumers could damage our brand or reputation and harm our
business and financial performance. Any significant expansion of
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<PAGE>
our business would increase our expenses and strain our management, financial
and operational resources. Furthermore, we may have to incur debt or issue
equity securities to pay for any future acquisitions or investments, the
issuance of which could be dilutive to us or to our existing stockholders. Any
of these difficulties could harm our business and financial performance.
We May Fail to Successfully Expand Our Web Site and the Systems that Process
Customers' Orders
If we fail to rapidly upgrade our Web site in order to accommodate increased
traffic, we may lose customers, which would reduce our net sales. Furthermore,
if we fail to rapidly expand the computer systems that we use to process and
ship customer orders and process payments, we may not be able to successfully
deliver products. As a result, we could lose customers and our net sales could
be reduced.
We May Lose Key Personnel or Be Unable to Attract, Assimilate and Retain
Qualified Personnel in the Future
The loss of the services of one or more of our key personnel could seriously
harm our business. We depend on the continued services and performance of our
executive officers, senior management and other key personnel. In addition, we
have rapidly and significantly expanded our operations and anticipate that
further expansion will be required to realize our growth strategy. We intend to
continue to hire a significant number of additional personnel, including,
software engineers, editorial and customer support personnel and marketing and
merchandising personnel.
We may be unable to retain our key employees or attract, integrate or retain
other highly qualified employees in the future. As a result of our rapid growth
and expansion, we have experienced, and expect to continue to experience,
difficulty in hiring and retaining highly-skilled employees with appropriate
qualifications. There is significant competition for qualified employees in our
industry. If we do not succeed in attracting new personnel or retaining and
motivating our current personnel, our business and financial performance could
be harmed.
Many Members of Our Management Team Are New to the Company or to the Pet
Products Industry or Online Businesses
We have recently experienced significant growth in our management team. Gary
R. Marcotte, our Chief Financial Officer, joined us in January 2000. In
addition, many of the members of our senior management team do not have prior
experience in the pet products industry or in online businesses or in publicly
traded companies. Our business could be seriously harmed if integration of our
management team into our company is not successful. We expect that it will take
time for our new management team to integrate into our company and it is too
early to predict whether this integration will be successful.
We Face the Risk of Systems Interruptions and Capacity Constraints on Our Web
Site
The satisfactory performance, reliability and availability of our Web site,
transaction processing systems and network infrastructure are critical to our
reputation and our ability to attract and retain customers and to maintain
adequate customer service levels. Any future systems interruption that results
in the unavailability of our Web site or reduced order fulfillment performance
could result in negative publicity and reduce the volume of goods sold and the
attractiveness of our Web site, which could negatively affect our revenues. We
may experience temporary system interruptions for a variety of reasons in the
future, including power failures, software bugs and an overwhelming number of
visitors trying to reach our Web site during sales or other promotions. We have
experienced periodic systems interruptions, which we believe will continue to
occur, while enhancing and expanding these computer systems. We may not be able
to correct a problem in a timely manner. Because we are dependent in part on
outside consultants for the implementation of certain aspects of our system and
because some of the reasons for a systems interruption may be outside of our
control, we also may not be able to remedy the problem quickly or at all.
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<PAGE>
Any inability to scale our systems for substantial customer traffic growth
may cause unanticipated system disruptions, slower response times, degradation
in levels of customer service, impaired quality and speed of order fulfillment,
or delays in reporting accurate financial information. If we are unable to
project the rate or timing of increases, if any, in the use of our Web site
accurately or in a timely manner, we may not be able to effectively upgrade and
expand our transaction-processing systems to respond to increased usage.
We May Not Be Able to Respond to Rapid Technological Changes
If we face material delays in introducing new services and enhancements on
our Web site, we may lose customers. To remain competitive, we must continue to
enhance and improve the functionality and features of our online site. The
Internet and the online commerce industry are rapidly changing. If competitors
introduce new services and enhancements embodying new technologies, or if new
industry standards and practices emerge, our existing Web site and proprietary
technology and systems may become obsolete.
To develop our Web site and other proprietary technology entails significant
technical and business risks. We may use new technologies ineffectively or we
may fail to adapt our Web site, systems that we use to process customers'
orders and payments or our computer network to customer requirements or
emerging industry standards.
Our Facilities and Systems Are Vulnerable to Natural Disasters and Other
Unexpected Problems
The occurrence of an earthquake or other natural disaster or unanticipated
problems at our leased facility in Southern California, PETsMART, Inc.'s
distribution center in New York, or at the third-party facilities in California
and New Jersey, that house substantially all of our computer and communications
hardware systems, could cause interruptions or delays in our business or loss
of data or render us unable to accept and fulfill customer orders. Any such
interruptions or delays at any of these facilities would reduce our net
revenues. In addition, our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, break-
ins, earthquake and similar events. We have no formal disaster recovery plan
and our business interruption insurance may not adequately compensate us for
losses that may occur. In addition, the failure by the third-party facility to
provide the data communications capacity required by us, as a result of human
error, natural disaster or other operational disruptions, could result in
interruptions in our service. The occurrence of any or all of these events
could damage our reputation and brand and impair our business.
We May Not Be Able to Deliver Various Services If Third Parties Fail to Provide
Reliable Services to Us
We will rely upon third-party suppliers and carriers in addition to those
affiliated with PETsMART, Inc. for certain product fulfillment and shipments.
We are therefore subject to the risks, including employee strikes and inclement
weather, associated with our carriers' ability to meet our fulfillment and
shipping needs. In addition, failure to deliver products to our customers in a
timely and courteous manner would harm our reputation and brand.
We are dependent on various third parties for software, systems and related
services, including such companies as Sun Microsystems, Inc., Oracle
Corporation, Netscape, Solaris and Apache. Several of these third parties have
a limited operating history and have relatively new technology. In turn, these
third parties are dependent on reliable delivery of services from others. As a
result, our ability to deliver various services to our users may be adversely
affected by the failure of these third parties to provide reliable software,
systems and related services to us.
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<PAGE>
We May Be Subject to Liability for the Internet Content That We Publish
As a publisher of online content, we face potential liability for defamation,
negligence, copyright, patent or trademark infringement, or other claims based
on the nature and content of materials that we publish or distribute.
Liability, particularly if not covered by our insurance or in excess of our
insurance coverage, could damage our reputation and our business.
The Imposition of Sales, Use or Similar Taxes Could Harm our Business
At present, we do not collect sales, use or similar taxes in respect of goods
sold by us, except from purchasers located in Arizona and California. One or
more states or foreign countries, or the federal government may, however, seek
to impose sales, use or similar tax collection obligations on out-of-
jurisdiction companies, such as ours, which engage in or facilitate online
commerce. In addition, while we do not believe that our relationship with
PETsMART, Inc. would subject us to sales, use or similar taxes in any
jurisdiction where PETsMART, Inc. operates a retail store, there can be no
guarantee that a jurisdiction would not seek to impose a sales, use or similar
tax based on that relationship, or that if asserted by a jurisdiction, that we
would be successful in any challenge to such assertion. A successful assertion
by one or more states, other local jurisdictions or any foreign country that we
should collect sales, use or similar taxes on the sale of merchandise could
harm our business.
A number of proposals have been made at the state and local level that would
impose additional taxes on the sale of goods and services through the Internet.
In 1998, the U.S. federal government enacted legislation prohibiting states or
other local authorities from imposing new taxes on Internet commerce for a
three-year period, ending on October 1, 2001. This tax moratorium does not
prohibit states or the Internal Revenue Service from collecting taxes on our
income, if any, or from collecting taxes that are due, if any, under existing
tax rules. In addition, a number of trade groups and government entities have
publicly stated their objections to this tax moratorium and have argued for its
repeal. The Federal Advisory Commission on Electronic Commerce is in the
process of evaluating these issues. It is expected to make its recommendation
to Congress in April 2000. There can be no assurance that future laws will not
impose taxes or other regulations on Internet commerce, or that the three-year
moratorium will not be repealed, or that it will be renewed when it expires.
The occurrence of any of these events could substantially impair the growth of
electronic commerce.
Risks Related to E-commerce
The Success of Our Business Will Depend on the Continued Growth of Internet
Commerce and the Continued Viability of the Infrastructure of the Internet
The market for the purchase of products and services over the Internet is a
new and emerging market. As an electronic commerce business, our future
revenues and profits depend upon the widespread acceptance and use of the
Internet and other online services as a medium for buying and selling goods and
services. If acceptance and growth of the Internet does not occur, our business
and financial performance will suffer. Rapid growth in the use of and interest
in the Internet and other online services is a recent development and this
growth may not continue. A sufficiently broad base of consumers may not adopt,
or continue to use, the Internet as a medium of commerce. Market acceptance of
recently introduced products and services over the Internet is subject to a
high level of uncertainty. For us to grow, consumers who historically purchased
through traditional means of commerce, such as specialty retail stores, must
instead purchase online products and services.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to manage this increased traffic. This will require a reliable
network backbone with the necessary speed, data capacity and security, and the
timely development of complementary products, such as high-speed modems, for
providing reliable Internet access and services.
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<PAGE>
The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure and could face similar
outages and delays in the future. Outages and delays are likely to affect the
level of Internet usage and the processing of transactions on our Web site. It
is unlikely that phone orders could compensate for the level of orders lost in
these circumstances. Further, the Internet could lose favor due to delays in
the development or adoption of new standards to handle increased levels of
activity or due to increased government regulation. In addition, the adoption
of new standards or government regulation may require us to incur substantial
compliance costs.
Consumers May Be Unwilling to Purchase Pet Products Over the Internet Instead
of Through Store-Based Retailers
The online market for pet products, information and services is in its
infancy. The market is significantly less developed than the online market for
books, auctions, music, software and numerous other consumer products. If this
market does not gain widespread acceptance, our business may fail. Demand and
market acceptance for recently introduced services and products on the Internet
are subject to a high level of uncertainty. Our success will depend on our
ability to engage consumers who have historically purchased pet products
through store-based retailers. In order for us to be successful, many of these
consumers must be willing to utilize new ways of buying pet products. In
addition, a substantial proportion of the consumers who use our Web site may be
using our service because it is new and different rather than because they
believe it is a desirable way to purchase pet products. Such consumers may use
our service only once or twice and then return to more familiar means of
purchasing these products.
We May Need to Change the Manner in Which We Conduct Our Business If Government
Regulation Of Electronic Commerce Increases
The adoption or modification of laws or regulations relating to the Internet
could harm the manner in which we currently conduct our business. In addition,
the growth and development of the market for online commerce may lead to more
stringent consumer protection laws, both in the U.S. and abroad, that may
impose additional burdens on us. Laws and regulations directly applicable to
communications or commerce over the Internet are becoming more prevalent. The
U.S. Congress recently enacted Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material and the
European Union recently enacted its own privacy regulations. The law of the
Internet, however, remains largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, libel and
taxation apply to the Internet.
Our Net Revenues and Gross Margin Would Decrease If We Experience Significant
Credit Card Fraud
Under current credit card practices, we are liable for fraudulent credit
card transactions because we do not obtain a cardholder's signature. A failure
to adequately control fraudulent credit card transactions would reduce our net
revenues and gross margins because we do not carry insurance against this risk.
Our Net Revenues Could Decrease If Our Online Security Measures Fail
Our relationships with our customers may be adversely affected if the
security measures we use to protect their personal information, such as credit
card numbers, are ineffective. Our liability could include claims for
unauthorized purchases with credit card information, impersonation or other
fraud claims as well as for misuses of personal information, such as for
unauthorized marketing purposes. If, as a result, we lose many customers, our
net revenues could decrease. We rely on security and authentication technology
that we license from third parties. We cannot predict whether events or
developments will result in a compromise or breach of the technology we use to
protect a customer's personal information.
Furthermore, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. We may need to expend significant
additional capital and other resources to protect against a security breach or
to alleviate problems caused by any breaches. We cannot assure that we can
prevent all security breaches.
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<PAGE>
Risks Related to This Offering
Our Common Stock Price May Be Volatile, Which Could Result in Substantial
Losses for Individual Stockholders
The market price for our common stock is likely to be highly volatile and
subject to wide fluctuations in response to factors including the following,
some of which are beyond our control:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new products or services
by us or our competitors;
. changes in financial estimates by securities analysts;
. conditions or trends in the Internet and/or online commerce industries;
. changes in the economic performance and/or market valuations of other
Internet, online commerce or retail companies;
. announcements by us or our competitors of significant acquisitions,
strategic alliances, joint ventures or capital commitments;
. additions or departures of key personnel;
. release of lock-up or other transfer restrictions on our outstanding
shares of common stock or sales of additional shares of common stock;
and
. potential litigation.
It May Be Difficult for a Third Party to Acquire Us
Provisions of our restated certificate of incorporation and restated by-laws
may make it difficult for a third party to acquire us and therefore could
discourage a third party from attempting to acquire us at a premium price.
These include provisions classifying our Board of Directors, prohibiting
stockholder action by written consent and requiring advance notice for
nomination of directors to our Board of Directors and for stockholder
proposals. Our restated certificate of incorporation does not provide for
cumulative voting in the election of directors. Our restated certificate of
incorporation also allows our Board of Directors to issue, without further
stockholder approval, preferred stock that could have the effect of delaying,
deferring or preventing a change in control and that could adversely affect the
voting power of the holders of our common stock. In addition, Section 203 of
the Delaware General Corporation Law also imposes restrictions on mergers and
other business combinations between us and holders of 15% or more of our common
stock. These and other provisions may deter hostile takeovers or delay changes
in our control or management, even if these transactions were in the best
interests of our stockholders. See "Description of Capital Stock."
We May Be Unable to Obtain Additional Funding on Satisfactory Terms
We require substantial working capital to fund our business. Since our
inception, we have experienced negative cash flow from operations and expect to
experience significant negative cash flow from operations for the foreseeable
future. We currently anticipate that the net proceeds of this offering,
together with our available funds, if any, will be sufficient to meet our
anticipated needs for working capital and capital expenditures through at least
the next 12 months. We may need to raise additional funds prior to the
expiration of this period. We cannot be certain that additional financing will
be available to us on favorable terms when required, or at all.
If we raise additional funds through the issuance of equity, equity-related
or debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of our common stock and our stockholders may
experience additional dilution. Any debt financing or other financing of
securities senior to common stock will likely include financial and other
covenants that restrict our flexibility. These covenants will
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<PAGE>
likely include restrictions on our ability to pay dividends on our common
stock. Any failure to comply with these covenants could negatively impact our
business and financial performance.
The Initial Public Offering Price is Negotiated with the Underwriters without
the Benefit of Any Prior Public Market For Our Common Stock
We will negotiate and determine the initial public offering price of the
common stock in this offering with the representatives of the underwriters
based on several factors, but without the benefit of any prior public market
prices. The market price of our common stock after this offering may vary
substantially from the initial public offering price.
We May Spend The Net Proceeds of This Offering In Ways With Which You Disagree
The net proceeds of this offering are not allocated for specific uses. Our
management will have broad discretion to spend the net proceeds of this
offering in ways with which you may disagree. The ineffective use of these
funds could yield unfavorable returns and harm our business and financial
performance.
Substantial Sales of Our Common Stock Could Harm Our Stock Price
The market price of our common stock could fall if our stockholders sell
substantial amounts of our common stock, including shares issued upon the
exercise of outstanding options and warrants, in the public market following
this offering. These sales could also make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. See "Management--Stock Plans", "Shares Eligible for Future
Sale" and "Underwriting."
Forward-Looking Statements are Inherently Uncertain, and Therefore Actual
Results May Differ Materially From Those Expressed or Implied by Forward-
Looking Statements
This prospectus contains some "forward-looking statements" based on our
current expectations, assumptions, estimates and projections about our business
and our industry. When used in this prospectus, the words "expect,"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
These forward-looking statements involve risks and uncertainties, some of which
are beyond our control. Our actual results could differ materially from those
anticipated in such forward-looking statements as a result of factors more
fully described in this section and elsewhere in this prospectus. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Moreover, neither we nor any other person assumes
responsibility for the accuracy and completeness of such statements. We are
under no duty to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
This prospectus contains market data related to our business and to the
Internet. This data has been included in the studies published by independent
industry sources. Although we believe these sources are reliable, we have not
independently verified this market data. This market data includes projections
that are based on a number of assumptions. If any one or more of these
assumptions turns out to be incorrect, actual results may differ materially
from the projections based on these assumptions.
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the shares being offered hereby at an
estimated public offering price of $ per share are estimated to be $ million,
after deducting the underwriting discount and estimated offering expenses
payable by us.
The principal purposes of this offering are to fund our operating losses,
increase our working capital, create a public market for our common stock,
facilitate our future access to the public capital markets and fund our capital
expenditures. We currently expect to use the net proceeds of this offering
primarily for working capital and general corporate purposes, including
marketing and promotional efforts, capital expenditures and technology and
system upgrades. We have not yet determined the actual expected expenditures
and thus cannot estimate the amounts to be used for each of these purposes. The
amounts and timing of these expenditures will vary depending on a number of
factors, including the amount of cash generated by our operations, competitive
and technological developments and the rate of growth, if any, of our business.
In addition, we may use a portion of the net proceeds for further development
of our product lines through acquisitions of products, technologies and
businesses, although we have no present commitments or agreements with respect
to any such acquisitions. Management will have significant discretion in
applying the net proceeds of this offering. Pending such uses, we will invest
the net proceeds in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying any
cash dividends in the foreseeable future.
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CAPITALIZATION
The following table set forth our capitalization as of January 2, 2000:
. on an actual basis;
. on a pro forma basis after giving effect to:
. the sale of common shares to PETsMART, Inc. in February 2000;
. the issuance of common shares to PETsMART, Inc. in satisfaction
of obligations under an agreement relating to the R.C. Steele and
Pedigree catalog businesses;
. the issuance of common shares upon exercise of options under our
1999 stock plan between January 2, 2000 and , 2000;
. the exercise of warrants for preferred shares after January 2, 2000
and prior to the completion of this offering; and
. the conversion of all outstanding preferred shares into common
shares immediately prior to the completion of the offering; and
. on a pro forma as adjusted basis, after giving effect to the sale of
common shares offered by us at an assumed initial public offering
price of $ per share, after deducting the underwriting discount and
estimated offering expenses payable by us.
None of the columns set forth below reflect:
. common shares issuable upon the exercise of options outstanding at
January 2, 2000 at a weighted average exercise price of $ per share;
. common shares issuable upon the exercise of warrants outstanding at
January 2, 2000 at exercise prices ranging from $ to $ per share;
and
. common shares available for issuance under our 1999 stock plan, our
2000 director stock option plan, and 2000 employee stock purchase plan.
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<PAGE>
The table below should be read in conjunction with our balance sheet as of
January 2, 2000 and the related notes, which are included elsewhere in this
prospectus:
<TABLE>
<CAPTION>
January 2, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands,
except share and per share
data)
<S> <C> <C> <C>
Notes payable, net of current portion.......... $ 156 $ 156 $
-------- -------- ----
Convertible Preferred Stock, 19,063,875 shares
authorized:
Series A Preferred Stock; $0.001 par value;
3,000,000 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding, pro forma and as adjusted...... 3 --
Series B Preferred Stock; $0.001 par value;
1,800,000 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding, pro forma and as adjusted...... 2 --
Series C Preferred Stock, $0.001 par value;
2,400,000 shares issued and outstanding; no
shares authorized, issued or outstanding,
pro forma and as adjusted................... 2 --
Series D Preferred Stock, $0.001 par value;
11,863,875 shares issued and outstanding; no
shares authorized, issued or outstanding,
pro forma and as adjusted................... 12 --
Stockholders' equity:
Common Stock: $0.001 par value, shares
authorized, shares issued and
outstanding actual; shares authorized,
issued and outstanding, pro forma;
shares issued and outstanding, as adjusted.. 2 43
Additional paid-in capital..................... 81,905 106,474
Deferred equity-based charges.................. (8,656) (22,095)
Stockholders' notes receivable................. (2,553) (2,553)
Accumulated deficit............................ (52,043) (52,043)
-------- -------- ----
Total stockholders' equity................. 18,674 29,826
-------- -------- ----
Total capitalization..................... $ 18,830 $ 29,982 $
======== ======== ====
</TABLE>
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DILUTION
Our pro forma net tangible book value as of January 2, 2000 was approximately
$ million or approximately $ per share. Pro forma net tangible book value
per share represents pro forma tangible assets reduced by total liabilities,
divided by the pro forma number of shares of common stock outstanding after
giving effect to:
. the sale of common shares to PETsMART, Inc. in February 2000;
. the issuance of common shares to PETsMART, Inc. in satisfaction
of obligations under an agreement relating to the R.C. Steele and
Pedigree catalog businesses;
. the issuance of common shares upon exercise of options under our
1999 stock plan between January 2, 2000 and , 2000;
. the exercise of warrants for preferred shares after January 2, 2000
and prior to the completion of this offering;
. the conversion of all outstanding preferred shares into common
shares immediately prior to the completion of the offering; and
. the sale of common shares offered by us at an assumed initial
public offering price of $ per share, after deducting the
underwriting discount and estimated offering expenses payable by us.
After giving effect to the sale of the shares of common stock offered by
us at an assumed initial public offering price of $ per share, and after
deducting the underwriting discount and estimated offering expenses payable by
us, our pro forma net tangible book value at January 2, 2000 would have been
approximately $ million or $ per share of common stock. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors of
common stock. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share at January 2, 2000..... $
Increase per share attributable to new investors...................
----
Pro forma net tangible book value per share after the offering.......
-----
Dilution per share to new investors.................................. $
=====
</TABLE>
The following table summarizes on a pro forma basis after giving effect to
the offering, as of January 2, 2000, the differences between the existing
stockholders and new investors with respect to the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid:
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Price
-------------- -------------- Per
Number Percent Amount Percent Share
------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing Stockholders...............
New Investors.......................
--- --- --- ---
Totals............................
=== === === ===
</TABLE>
The preceding tables exclude:
. common shares issuable upon the exercise of options outstanding at
January 2, 2000 at a weighted average exercise price of $ per share;
. common shares issuable upon the exercise of warrants outstanding at
January 2, 2000 at exercise prices ranging from $ to $ per share;
and
. common shares available for issuance under our 1999 stock plan, our
2000 director stock option plan, and 2000 employee stock purchase plan.
If all options and warrants outstanding at January 2, 2000 were exercised,
the pro forma net tangible book value per share immediately after completion of
the offering would be $ , which represents a per share of $ to
purchases of common shares in the offering.
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<PAGE>
SELECTED FINANCIAL DATA
The following historical financial data should read in conjunction with, and
are qualified by reference to, the financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The historical statement of
operations data set forth below for the period from inception (February 25,
1999) to January 2, 2000 and the balance sheet data as of January 2, 2000 have
been derived from our audited financial statements appearing elsewhere in this
prospectus. The historical statements of operations data for the period from
inception to April 4, 1999 and the historical thirteen week periods ended July
4, 1999, October 3, 1999 and January 2, 2000 have been derived from unaudited
financial statements. The unaudited statements have been prepared on
substantially the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, that we
consider necessary for a fair presentation of the financial position and
results of operations for the period. The historical results are not
necessarily indicative of results that may be expected for any future period.
The following unaudited pro forma consolidated statement of operations data
set forth below for the period from January 1, 1999 to January 2, 2000 has been
derived from our pro forma consolidated financial statements which gives effect
to the acquisitions of K&K Hansen Inc. (dba Mason Distributing Company) and
Digital Communities, Inc. (dba AcmePet.com) as if they occurred on January 1,
1999 appearing elsewhere in this prospectus. The unaudited pro forma statement
of operations data is not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
From
From Inception Pro Forma
Inception Thirteen Thirteen Thirteen (Feb. 25, From
(Feb. 25, Weeks Weeks Weeks 1999) January 1,
1999) to Ended Ended Ended to 1999 to
April 4, July 4, October 3, January 2, January 2, January 2,
1999 1999 1999 2000 2000 2000
--------- -------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $ $ 569 $ 2,090 $ 7,787 $ 10,446 $ 11,266
Cost of net revenues.... 418 3,287 13,034 16,739 17,214
---- ------- -------- -------- -------- --------
Gross margin.......... 151 (1,197) (5,247) (6,293) (5,948)
Operating expenses:
Sales and marketing... 4 310 9,949 23,213 33,476 33,504
Product development... 12 461 784 1,102 2,359 2,359
General and
administrative....... 55 433 1,389 1,474 3,351 6,180
Equity-based charges.. -- 687 359 1,496 2,542 2,542
---- ------- -------- -------- -------- --------
Total operating
expenses........... 71 1,891 12,481 27,285 41,728 44,585
---- ------- -------- -------- -------- --------
Loss from operations.... (71) (1,740) (13,678) (32,532) (48,021) (50,533)
Interest income, net.... 55 84 387 526 491
---- ------- -------- -------- -------- --------
Net loss.............. (71) (1,685) (13,594) (32,145) (47,495) (50,042)
Deduction for beneficial
conversion feature..... -- (4,548) -- -- (4,548) (4,548)
---- ------- -------- -------- -------- --------
Net loss attributable to
common stockholders.... $(71) $(6,233) $(13,594) $(32,145) $(52,043) $(54,590)
==== ======= ======== ======== ======== ========
Basic and diluted net
loss per common share.. $
========
Shares used to calculate
basic and diluted net
loss per common share..
========
Unaudited pro forma net
loss per common
share(1)............... $ $
======== ========
Unaudited pro forma
shares used to
calculate pro forma net
loss per share(1)......
======== ========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
As of
January 2, 2000
---------------
(in thousands)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $26,350
Working capital............................................. 8,735
Total assets................................................ 38,269
Notes payable, net of current portion....................... 156
Total stockholders' equity.................................. 18,674
</TABLE>
- --------
(1) See notes 1 and 7 of notes to financial statements for an explanation of
the determination of the number of shares and share equivalents used in
computing per share and pro forma per share amounts.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with our selected financial data and the
financial statements and the related notes contained elsewhere in this
prospectus. The following discussion contains forward-looking statements that
involve risks, uncertainties and assumptions. Our actual results could differ
materially from the results contemplated by these forward-looking statements as
a result of certain factors, including those discussed below and elsewhere in
this prospectus.
Overview
We are the most popular Internet destination for pet products, information
and community. Our online store is designed to provide a convenient,
informative and fulfilling shopping experience with a high level of customer
service that encourages consumers to purchase products and services to satisfy
their pet care needs. The PETsMART.com site contains extensive product and pet
information, expert advice and community activities, which allow our visitors
to learn about pet care issues and interact with other pet owners.
We were incorporated on February 25, 1999 and commercially launched our
online store on June 29, 1999. From inception through the commercial launch of
our Web site, our primary activities consisted of raising funds, developing
strategic alliances and integrating our operations with PETsMART, Inc. We also
designed and developed the underlying technology for the online site, recruited
and trained employees and established customer service and support systems.
Since the commercial launch of our Web site, we have continued these
operating activities and have also focused on building sales, expanding our
product offerings, enhancing vendor relationships, promoting our online brand
and improving the efficiency of our order fulfillment processes and customer
service operations.
In March 1999, we acquired substantially all of the assets and certain
liabilities of K&K Hansen, Inc. (dba Mason Distributing Company), a company
engaged in the wholesale and distribution of pet-related products.
In May 1999, we entered into a comprehensive strategic alliance with
PETsMART, Inc. which provides for the use of the PETsMART name, joint marketing
activities, web and content hosting and merchandise procurement and
distribution support. Substantially all of our sales are fulfilled under this
arrangement. All customer orders are processed through our online site and
billed to the customer's credit card. Generally, we collect cash from credit
card sales in two to five days from the date ordered. We routinely offer
promotional discounts and coupons to customers. In addition, if a customer is
not satisfied with a particular product or service, we refund the sale or
replace the product. Payment for the cost of product sold and for PETsMART,
Inc.'s support services is calculated under an activity-based costing method.
In October 1999, we acquired substantially all of the assets and certain
liabilities of Digital Communities, Inc., (dba AcmePet.com), a pet community
Web site.
We have a limited operating history on which to base an evaluation of our
business and prospects. Our prospects must be considered in light of the risks,
expenses and difficulties encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets, such
as e-commerce. See "Risk Factors" for a more complete description of the many
risks we face.
In view of our limited operating history and the rapidly evolving nature of
our business, we believe that period-to-period comparisons of our operating
results are not meaningful and should not be relied upon as an indication of
future performance. It is likely that in some future quarter our operating
results may fall below the expectations of securities analysts and investors.
In this event the trading price of our common stock may fall significantly.
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<PAGE>
We incurred net losses of $47.5 million from inception to January 2, 2000. We
believe that we will continue to incur net losses for the foreseeable future
and that the rate at which we will incur such losses will increase
significantly from current levels.
Results of Operations
Net Revenues. Net revenues consist of product sales and charges to customers
for outbound shipping and are net of allowances for product returns,
promotional discounts and coupons. We recognize product and shipping revenues
when the related product is shipped. The increasing net revenues during 1999
were driven by significant growth in our customer base and repeat purchases
from existing customers. In the future, the level of our net revenues will
depend on a number of factors including, but not limited to, the following:
. the number of customers we are able to obtain;
. the frequency of our customers' purchases;
. the quantity and mix of products our customers purchase;
. the price we charge for our products;
. the amount we charge for shipping; and
. the extent of sales promotions and discounts we offer.
Cost of Net Revenues and Gross Margins. Cost of net revenues consists
primarily of the costs of products sold to customers, costs of promotional
products and outbound and inbound shipping costs. In 1999 the negative gross
margin reflects our aggressive pricing for products and shipping. In the
future, our gross margin will fluctuate based on a number of factors,
including, but not limited to, the following:
. the cost of our products, including the extent of purchase volume
discounts that we or PETsMART, Inc. are able to obtain from suppliers;
. our pricing, promotion and discount strategy relative to the cost of our
products;
. the mix of products our customers purchase; and
. our shipping pricing strategy relative to the cost of shipping.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of advertising expenditures, and payroll and related expenses for personnel
engaged in marketing, merchandising, customer service and fulfillment and
distribution support activities. We intend to continue to pursue aggressive
marketing strategies and, therefore, expect sales and marketing expenses to
increase significantly. Expenses may also vary considerably from quarter to
quarter, depending on the timing of our advertising campaigns. To the extent
that our sales volume increases in future periods, we expect sales and
marketing expenses to increase as we expand our distribution activities.
Product Development Expenses. Product development expenses consist primarily
of payroll and related expenses for e-commerce development and information
technology personnel, Internet access and hosting charges and online content
and design expenses. We plan to continue to work on a significant number of
development projects that will result in increased product development
expenses. We believe that continued investment in product development is
critical to attaining our strategic objectives.
General and Administrative Expenses. General and administrative expenses
consist of payroll and related expenses for executive and administrative
personnel, corporate facility expenses, professional services expenses, travel
and other general corporate expenses. We expect general and administrative
expenses to increase as we expand our staff and incur additional costs related
to the anticipated growth of our business and our operations as a public
company.
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<PAGE>
Amortization of Equity-Based Charges. We recorded total deferred equity-based
charges of $11.2 million for the period from inception (February 25, 1999) to
January 2, 2000 in connection with stock options granted to employees and
restricted stock and warrants issued to non-employees. The deferred equity-
based charges for stock options represent the difference between the exercise
price of stock option grants and the deemed fair value of our common stock at
the time of such grants. In the case of restricted stock, the deferred equity-
based charges represent the difference between the purchase price of the
restricted stock and the deemed fair value of our common stock on the date of
purchase. For warrants, the equity-based charges are based on the value of the
warrants using the Black-Scholes pricing model. Such charges are amortized to
expense over the appropriate periods of the applicable agreements, resulting in
amortization of equity-based charges totaling $2.5 million for the period from
inception to January 2, 2000. We expect to recognize equity-based charges in
future annual periods as follows:
<TABLE>
<S> <C>
2000 -- $5.0 million
2001 -- $2.2 million
2002 -- $1.0 million
2003 -- $0.5 million
</TABLE>
The actual amounts that we recognize will be reduced to the extent that the
affected options are cancelled before they become fully vested. Subsequent to
January 2, 2000, we expect to record an additional equity-based charge of
approximately $11 million in connection with the issuance of shares to
PETsMART, Inc.
Interest Income, Net. Interest income, net consists of earnings on our cash
and cash equivalents, net of interest expense associated with software
financing.
Income Taxes. As of January 2, 2002, we had approximately $17.8 million of
net operating loss carryforwards for federal income tax purposes, which expire
beginning in 2014. We have provided a full valuation allowance on the deferred
tax asset, consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its realizability. Changes in the ownership of our common
stock, as defined in the Internal Revenue Code of 1986, as amended, may
restrict the utilization of such carryforwards.
Deduction for Beneficial Conversion Feature. We recorded a deduction to fully
recognize the beneficial conversion feature associated with the Series C
Convertible Preferred Stock, based on the deemed fair value at issuance. The
deduction was made as the stock is immediately convertible.
Liquidity and Capital Resources
Since inception we have financed our operations primarily through private
sales of convertible preferred stock. Net cash provided by financing activities
was $58.2 million in the period from inception to January 2, 2000. Net cash
used in operating activities was $26.2 million in the period from inception to
January 2, 2000. Net cash used in operating activities primarily consisted of
net losses and changes in working capital. Net cash used in investing
activities was $5.7 million in the period from inception to January 2, 2000.
Net cash used in investing activities primarily consisted of the acquisition of
AcmePet.com, leasehold improvements and purchases of equipment and systems.
As of January 2, 2000, we had $26.4 million of cash and cash equivalents. As
of that date, our principal commitments consisted of obligations outstanding
under operating and property leases and marketing agreements aggregating
approximately $8.8 million through 2002. Although we have no material
commitments for capital expenditures, we anticipate a substantial increase in
our capital expenditures and lease commitments consistent with anticipated
growth in operations, infrastructure and personnel.
Subsequent to January 2, 2000 we received a $2 million payment on a
stockholder's note receivable in connection with Series D stock, and entered
into leasing facilities providing up to $4 million for the acquisition of
computer equipment, of which $1 million has been utilized. In addition, we will
receive $0.5 million in
28
<PAGE>
connection with the issuance of shares to PETsMART, Inc. Further, we will
receive in February 2000 approximately $10 million from the exercise of certain
warrants.
We currently anticipate that the net proceeds of this offering, together with
our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next 12 months.
We may need to raise additional funds prior to the expiration of such period
if, for example, we pursue business or technology acquisitions or experience
operating losses that exceed our current expectations. If we raise additional
funds through the issuance of equity, equity-related or debt securities, such
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our stockholders may experience additional
dilution. We cannot be certain that additional financing will be available to
us on acceptable terms when required, or at all.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" that was amended by SFAS 137 in July 1999 to delay the
effective date of adoption to fiscal years beginning after June 15, 2000. SFAS
133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains and losses be reported either in the statement of
operations or as a component of comprehensive income, depending on the type of
hedging relationship that exists. We believe the adoption of this statement
will not have a significant impact on our financial position, results of
operations or cash flows.
29
<PAGE>
BUSINESS
Overview
We are the most popular Internet destination for pet products, information
and community. Our online store is designed to provide a convenient,
informative and fulfilling shopping experience, with a high level of customer
service. We have been the top-ranked pet product Web site every month since our
first full month of commerce operations, according to Media Metrix, Nielsen
NetRatings and PC Data. From the commercial launch of our Web site on June 29,
1999 through January 2, 2000, we sold pet products to over 180,000 customers
and generated net revenues of $10.4 million. We have a strategic alliance with
the world's largest pet product and service specialty retailer, PETsMART, Inc.,
providing us with an immediately identifiable brand that is known and trusted
by millions of pet owners. This alliance brings us significant operational
synergies, numerous co-promotional and marketing opportunities and access to
PETsMART, Inc.'s popular proprietary branded products. We believe the market
for pet products and services represents an attractive opportunity due to its
size, anticipated growth and suitability to the online marketplace.
Industry Background
The Growth of the Internet and E-Commerce
The rapid growth of the Internet and e-commerce is transforming the ways in
which businesses and consumers communicate, share information and conduct
business. International Data Corporation ("IDC") estimates that there were 63
million Web users in the U.S. at the end of 1998, and projects this number will
grow to approximately 149 million users by the end of 2002. This growth is
being driven by several factors including: the proliferation of computers at
work and home, advances in computer and network technology, improved
accessibility to the Internet and consumers' increasing comfort with e-
commerce. The unique and powerful characteristics of the Internet differentiate
it from traditional distribution channels and have facilitated its increasing
use as a purchasing medium. As a result, U.S. consumer spending over the
Internet is expected to increase from $37.2 billion in 1998 to $407.2 billion
in 2002, according to IDC.
The Pet Product Industry
The pet product industry is a large and growing market. The American Pet
Product Manufacturers Association ("APPMA") estimates the market for pet
products and services was $23 billion in 1998 and will grow to $29 billion by
2001, driven in part by increases in the pet population and a trend toward
providing improved pet care. Pets have become increasingly prevalent in U.S.
households, numbering approximately 235 million, based on a survey conducted by
the American Veterinarian Hospital Association. Approximately 60% of U.S.
households own a pet and 40% of those households own more than one, according
to a recent APPMA study. On average, U.S. households with pets spent $350 on
their pets in 1998, according to Sloan Trends & Solutions.
We believe that the industry is well suited to the online marketplace due to
the consumer's demand for information to assist in the purchase decision, the
absence of the need to handle products prior to purchase and the need for
frequent orders resulting from the consumable nature of most pet products. We
believe pet owners are loyal and emotion driven consumers. According to Sloan
Trends & Solutions, Inc., over 80% of pet owners consider their pets to be
members of the family and 67% buy their pets holiday gifts. This strong human-
animal bond leads pet owners to seek a variety of products and pertinent, in-
depth information to promote their pets' health, well-being and happiness, thus
making them an attractive consumer base.
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<PAGE>
Limitations of Traditional Channels of Distribution
Historically, this market has been served by a combination of store-based
retailers, including superstores, grocery stores, mass market retailers and
small independent specialty retailers. There are inherent limitations to store-
based retailing, including:
Inconvenience. Shopping at a physical store is time consuming and involves
traveling to the store, searching for the desired products, waiting in line to
make a purchase and transporting large purchases home. Stores are not always
located nearby and may not carry all of the products a consumer might need. As
a result, many geographic markets are under-served or unserved by existing
retail locations. Expansion into new areas is expensive for a traditional
retailer which must make significant investments in inventory, leasehold
improvements and personnel.
Narrow Selection. Product selection is limited because the number of SKUs and
the amount of product inventory that a store-based retailer can carry in any
one store is constrained by the physical space available in the store. Due to
the significant cost of carrying inventory in multiple store locations, store-
based retailers focus their product selection on popular products that produce
the highest inventory turns, thereby further limiting consumer selection.
Merchandising Inflexibility. Shelf space and store layout constraints limit
the merchandising flexibility of store-based retailers. As a result, these
retailers generally display products by brand, category or packaging and cannot
easily adjust or blend these merchandising strategies to target specific market
segments or accommodate new product introductions.
Limited Information and Customer Service. The availability and consistency of
onsite information and customer service that a store-based retailer can provide
is limited due to cost constraints and difficulties associated with hiring,
training and retaining knowledgeable sales and customer service personnel.
The PETsMART.com Solution
We are dedicated to being the authoritative source for a comprehensive
selection of pet products, expert information and a community that reflects pet
owners' love of their pets. We attract and retain consumers by delivering the
following:
Broad Product Selection. As an online retailer, we do not face the same
inventory or shelf space limitations which constrain most store-based retailers
and, thus, we are able to offer a broader selection of products. We provide
products for nearly every type of household pet, including dogs, cats, birds,
fish, reptiles and other small animals. The unique environment of the Internet
allows us to dynamically adjust our merchandising strategy and product mix to
respond quickly to changing customer demand and new product introductions. Our
relationship with PETsMART, Inc. gives us quick and easy access to an
assortment of over 20,000 SKUs from which to choose. In addition, we offer
items that are not included in the PETsMART, Inc. product selection. Our
strategy is to identify and select those products that we feel best address our
customers' pet care needs, with the goal of ensuring that they have a broad
selection across categories and price points without being faced with so many
choices that the purchase decision becomes needlessly confusing and complex.
Convenient Shopping Experience. Our Web site provides an easy and accessible
way to locate, browse and order pet products, combined with the convenience of
home delivery. Sophisticated search capabilities allow for a logical product
search which can be performed by category, pet type or product brand. To aid in
product selection, relevant information is automatically displayed for the user
that pertains to the product or category searched. In this manner, our Web site
allows consumers to shop more efficiently than they can in physical stores.
Additional features which enhance our customers' shopping experience include
the following:
. an automatic replenishment service through our "You Sit, We Fetch(TM)"
program, which allows customers to order and receive ongoing shipments
over scheduled periods;
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<PAGE>
. past order histories, which allow customers to quickly view and re-order
the products they have previously purchased;
. product comparisons, which allow consumers to compare side-by-side the
nutritional content and cost per serving of a variety of brands of pet
food; and
. a "pet food calculator," which assists pet owners in determining the
proper amount of food to feed their pets and provides analysis of the
nutritional content and cost per serving for many popular brands of pet
food.
Reliable and Authoritative Information. We believe we are the authoritative
online source for pet related information, answers and advice. Our Web site
provides detailed product and pet information, expert pet care advice,
informative editorials and professional resources to assist our customers in
making informed purchase and pet care decisions. We offer content on the most
popular types of pets including a library reference section, breed specific
guides and other general care and behavior information. We also provide an "Ask
the Vet" service, which enables users to ask and receive answers to their
specific questions from licensed veterinarians. Our content is produced in-
house and by expert third-party sources, including PETsMART, Inc. and Rodale
Press books and magazines, such as Pets: Part of the Family--A Total Care
Guide, Dogspeak and Doctor's Book of Home Remedies for Dogs and Cats.
Community. We encourage participation in our online pet community by
providing a variety of interactive online opportunities and local events. Our
chat rooms and message boards allow visitors to post questions and opinions
about pets and pet care and to share general pet news, stories and
announcements with other community members. We have weekly Vet Expert Chats to
help pet owners get advice on health, nutrition, behavior and obedience
training. Our bi-weekly online newsletter, PAWsPECTIVES(TM), provides timely
information, highlighting current articles, new products and upcoming events
available at our Web site. We actively sponsor grass-roots events, often in
conjunction with local community organizations, in order to bring new users to
our site and reinforce the PETsMART name. We also encourage community
participation through our affiliations with the following:
. AcmePet.com. In October 1999, we acquired AcmePet.com, a grass-roots
online community developed over the past five years by pet-enthusiasts.
According to Media Metrix, AcmePet.com is the largest and most active
online community of pet lovers and averaged over 250,000 unique visitors
in November and December 1999. AcmePet.com provides an important base of
customers which serve to further enhance the community aspects of our
site.
. Kodak. In August 1999, we entered into an alliance with Eastman Kodak
Corporation, to launch several features on our Web site using cutting
edge digital photographic technology. One of these features, the Pet
Family Quilt, allows pet lovers from around the world to post pet photos
and stories which can be explored and shared.
. PETsMART Charities. We work hand-in-hand with our affiliated charity
organization PETsMART Charities, to end the use of euthanasia as a means
of pet population control. PETsMART Charities' Luv-a-Pet adoption
program found homes for more than 190,000 pets in 1999.
Superior Customer Service. Informative, helpful and proactive customer
service is a priority for us. Our efforts are focused on driving customer
satisfaction by providing knowledgeable and experienced pre- and post-sales
support, timely purchase-related information and referrals to pet-related
services. The customer service staff is highly trained and available 24 hours a
day, seven days a week via both e-mail and toll-free telephone service. We
provide customers with online inventory status, which is updated every 15
minutes. Orders are confirmed by e-mail within minutes and order and shipping
history is retained for future reference as part of our "My PETsMART.com"
feature. Customers can view order-tracking information directly from our Web
site or contact our customer service department to obtain information regarding
order status or resolve product questions. We are also able to offer our
customers referrals to services such as veterinary care and grooming through
PETsMART, Inc.
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Strategic Alliance with PETsMART, Inc.
We have entered into a strategic alliance with PETsMART, Inc., the world's
largest pet product specialty retailer and have the exclusive, worldwide right
to use the PETsMART trademark royalty free for online retailing. Benefits of
this alliance include:
Superior Brand Recognition. Unlike many of our online competitors, we have an
established brand identity in the PETsMART name, which we believe is a strong
motivating factor in attracting customers to our site. We believe that our
known and trusted brand name eases the concerns of consumers who have yet to
embrace online shopping.
Broad Selection of Products and Services. PETsMART, Inc. provides us with a
wide assortment of over 20,000 SKUs from which to select our product offering.
In addition, we offer an assortment of PETsMART, Inc.'s proprietary brands,
including the Authority(R) brand which is among the top five premium pet food
brands. We also offer our customers referrals to PETsMART, Inc. stores for pet
grooming, training and veterinary services.
Established Distribution Infrastructure. We utilize PETsMART, Inc.'s catalog
fulfillment operation in Brockport, New York to distribute our products. Under
our agreement with PETsMART, Inc. we also have access to the distribution
network that supplies PETsMART, Inc.'s 490 pet superstores. We intend to
supplement the Brockport operation by utilizing PETsMART, Inc's existing and
future regional distribution centers, which will lower our shipping costs and
reduce delivery times. During 1999, we were able to fulfill customer orders
from existing inventory over 93% of the time on average. Product stockouts can
be filled quickly by transferring product from the PETsMART, Inc. distribution
network to the Brockport operation.
Lower Product Related Costs. The use of PETsMART, Inc. as our primary product
supplier reduces our product costs and related expenses by: (1) capitalizing on
the purchasing power of PETsMART, Inc. to reduce our product costs; (2)
operating with a limited direct investment in inventory, as PETsMART Inc.
purchases on our behalf nearly all of the products that are shipped to our
customers; and (3) selling PETsMART, Inc.'s exclusive proprietary branded
products, which have higher gross margins than do national brands.
Extensive Marketing Benefits. Our marketing objective is to differentiate
ourselves from other online competitors by highlighting our "click and mortar"
relationship with PETsMART, Inc. Our cross-marketing, co-promotion and customer
acquisition programs with PETsMART, Inc. provide us with millions of marketing
impressions per year through national television, print and circular campaigns.
We also use in-store events, signage and placement on bags and receipts to
promote awareness of our site as a shopping alternative for PETsMART, Inc.
customers. We believe these campaigns and initiatives have allowed us to
effectively lower our customer acquisition costs.
Experienced and Knowledgeable Customer Service. The use of PETsMART, Inc.'s
customer service center, including representatives dedicated to PETsMART.com,
allows us to offer consumers experienced and knowledgeable service, 24 hours a
day, seven days a week, without investing in real estate or incurring ongoing
management expenses.
Comprehensive Industry Knowledge. Our relationship with PETsMART, Inc.
provides us with access to the substantial pet product sales, marketing and
merchandising knowledge of PETsMART, Inc.'s management team. In addition,
several members of our management team have come from PETsMART, Inc.
Business Strategy
Our objective is to become the leading retailer of pet products and services.
To achieve this, we intend to attract a growing base of customers, provide them
a superior shopping experience and make PETsMART.com the definitive source for
all of their pet product needs. Key elements of our business strategy include:
Capitalize on Our Strong Brand Recognition. We believe the superior brand
recognition of the PETsMART name attracts customers to our Web site and
improves the return on our marketing investment. We
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<PAGE>
intend to capitalize on this advantage to further build loyalty through our
ongoing marketing efforts as well as significant online and offline marketing
programs conducted in conjunction with PETsMART, Inc. Existing PETsMART, Inc.
customers are natural targets for our marketing initiatives. Our strategy is to
position the PETsMART.com Web site as a convenient shopping alternative for
these existing PETsMART, Inc. customers, while reinforcing the notion that the
PETsMART name is the authority in pet products, services and care.
Leverage PETsMART, Inc.'s Purchasing Power and Distribution
Infrastructure. Our relationship with PETsMART, Inc. provides us with
purchasing and distribution advantages relative to other online pet product
retailers. We intend to continue using PETsMART, Inc. as our primary product
supplier, enabling us to capitalize on its purchasing power to procure pet
products at lower costs than we would be able to obtain on our own. We also
expect to reduce our distribution costs and improve our response time by
shipping products from destinations closer to the customer using PETsMART,
Inc.'s distribution network.
Expand Our Product and Service Offering. We intend to pursue opportunities to
expand the breadth and depth of products and services offered on our Web site
while maintaining a comprehensive selection of goods in a variety of price and
quality categories. Currently, we sell only a portion of PETsMART, Inc.'s
20,000 SKUs. Our objective is to selectively expand and refine our product
assortment, balancing the desire to offer the most complete line of products
with the risk of overwhelming the consumer with an assortment of comparable
products that do not have clear differences in features and benefits. We have
and may in the future pursue acquisitions of complementary business and product
lines to enhance our current offerings. As an example, we entered the apparel
market through our relationship with Big Dog and currently plan to target the
$8 billion equine market.
Enhance the User Experience. We are committed to making every aspect of
browsing and shopping on our Web site an easy and enjoyable experience.
Information and content will be further enhanced through in-house efforts and
additional strategic relationships. We will continue to improve the design,
layout and navigational ease of the site and ensure that its performance
metrics remain competitive. Planned additions include a personalization feature
for our customers, which will allow us to customize the Web site highlighting
the types of products they typically purchase. We think this will dramatically
enhance our users' experience and drive additional sales. We will also maintain
our focus on customer service to ensure current customers remain loyal ones.
Maintain the Largest and Most Active Online Pet Community. We believe that
maintaining and growing our community of pet owners will promote customer
loyalty and drive new purchases. In October 1999, we acquired AcmePet.com, the
leading online community of pet owners. We will continue to pursue
opportunities to add to our base of active community participants. We intend to
further serve this growing community by providing extensive additional pet-
related content, including topical articles, pet stories and interactive
activities.
Build Strategic Alliances and Expand Our Affiliate Network. Our strategic
alliances with key content and distribution companies, including Rodale Press,
America Online, Go.com and Big Dog, allow us to enhance our content, promote
our brand name and drive more traffic to our Web site. Our affiliate program,
launched in September 1999, has grown to over 14,000 participants and has
enabled us to earn revenues from sales made on linked sites. We intend to seek
additional opportunities to enhance our existing alliances as well as build new
content and distribution relationships.
Shopping at PETsMART.com
Shopping at PETsMART.com is meant to be easy, informative and enjoyable. Our
Web site is arranged in an easy-to-use format to facilitate product search,
discovery and selection. While shopping, customers can browse through featured
articles and interesting pet stories or join in a community discussion. Key
features include:
Browsing. Shoppers at our Web site see a home page that features six pet
departments: dogs, cats, birds, fish, reptiles and small animals. The Web site
also highlights various subject areas and special features. By
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clicking on the fixed menu banner, consumers move directly to the home page of
the desired pet type and can quickly view promotions and featured products.
Customers can also use a quick keyword search in order to locate a specific
product or article. All product lists allow selection based on brand or
descriptive attributes of the category, such as "Purina" for dog food, or
"durable" for pet toys. Once a product is chosen, pertinent information, such
as product descriptions, nutritional information, related articles and
editorials automatically appears next to the selected product.
Getting Answers. Our online format quickly allows us to provide relevant
product information and editorial content to assist our customers with their
purchasing decisions. We offer detailed information on all our products and
editorial content and relevant articles to answer customer questions. We also
offer an "Ask the Vet" service, which enables users to ask questions and
receive responses from licensed veterinarians. For more in-depth information,
our Pet Library contains free, full-length online books including: Pets: Part
of the Family--A Total Care Guide, The Doctor's Book of Home Remedies for Dogs
and Cats and Dogspeak. Our bi-weekly online newsletter, PAWsPECTIVES, also
provides timely and topical editorial content for our customers.
Selecting a Product and Checking Out. To purchase products, customers click
on the "Add to Cart" button which updates the virtual shopping cart without the
visitor leaving the page. The virtual shopping cart is always visible on the
screen and instantly updates and calculates the order while the customer shops.
For existing customers, we provide personalized shopping histories which enable
them to quickly view the products that they previously purchased and to
conveniently add any of these items to a cart for repurchase. To execute
orders, customers click on the "checkout" button where they verify order and
shipping information.
Paying. To pay for orders, a customer is required to use a credit card, which
is charged at the time of order shipment. Customers who prefer not to provide
their credit card information over the Internet have the option of placing
orders by telephone with our customer service center. Within minutes our system
automatically generates an e-mail response to notify the customer of order
receipt. Automatic order shipment confirmation is e-mailed when product is
shipped.
Getting Help. A customer can click on a "help" button and go to our online
customer service area from every page on our Web site. Our customer service
assists in searching for, ordering and returning our products, and provides
information on shipping charges and other policies. Customer service agents are
also available to answer questions via telephone or e-mail, and we encourage
customers to send us feedback and suggestions.
Continuity Program. We offer an automatic replenishment service through our
"You Sit, We Fetch(TM)" program which allows customers to order and receive
ongoing shipments over scheduled periods.
Marketing and Promotions
Our marketing objective is to differentiate ourselves from other online
competitors by highlighting our "click and mortar" relationship with PETsMART,
Inc. Our strategy is designed to attract customers most likely to shop online,
convert browsers to buyers, encourage repeat purchases, build enduring brand
loyalty, increase the size of average purchases and reinforce the bond between
pets and their owners. Our integrated marketing campaign includes:
Advertising and Promotions. In September 1999, we began a comprehensive
television, print and radio advertising campaign. Our advertising is designed
to increase our brand equity, create additional consumer awareness of the
PETsMART.com name and generate purchases of products sold through our Web site.
We use a mix of media, including network television, radio, outdoor
advertising, online banners, direct mail and e-mail campaigns and our online
newsletter, PAWsPECTIVES(TM). We also utilize a variety of online marketing
initiatives and actively promote selected products on our site through coupons
and special features to stimulate trial purchases and increase our average
order size.
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Co-Marketing Programs. Our alliance with PETsMART, Inc., enables us to
benefit from millions of marketing impressions per year. We receive placement
in PETsMART, Inc.'s national television and print advertisements, free standing
insert circulars and in-store displays and on a significant portion of its
shopping bags and receipts. Our goal is to convert additional offline buyers to
online buyers while further reinforcing the PETsMART name as the authority in
pet products. In addition, we engage in co-promotional activities with partners
such as Big Dog and Kodak. For example, Big Dog has agreed to promote
PETsMART.com in its 182 retail stores, through its catalog, direct mailings and
offline promotional efforts, and at its grass-roots events including parades,
dog walks and "Barks in the Park." Our involvement with our philanthropic
partner, PETsMART Charities, allows us to support worthwhile causes that help
reinforce the bond between pets and people.
Strategic Alliances. In addition to our relationship with PETsMART, Inc., we
have identified and entered into strategic alliances with a select group of
online companies that we believe will attract consumers likely to shop for pet
products online. In May 1999, we entered into a two year agreement with Go.com
to be the premier pet merchant in Go.com's pet area within the pets and family
channel. In June 1999, we entered into an agreement with America Online, which
grants us placements on America Online's proprietary network and two anchor
tenant positions on shop@aol. We also entered into strategic relationships with
the Women.com, LifeMinders and CoolSavings.
Affiliate Network. We have established an affiliate network consisting of
over 14,000 Web sites operated by third parties. Under these arrangements, Web
site operators can earn commissions and referral fees on sales and activity
derived from the linked site.
Merchandising
Our merchandising philosophy is to offer a comprehensive assortment of
products at prices typically lower than store based retailers for a variety of
pets, including dogs, cats, birds, fish, and other small animals. We currently
offer a combination of nationally known and proprietary private label branded
merchandise including pet foods, grooming supplies and other pet supplies.
Through our alliance with PETsMART, Inc., we are able to offer privately
branded products, which have substantially higher gross margins than many
national brands. Some of these privately branded products include:
. ""Authority(R)'' premium dog and cat food and treats,
. ""PETsMART Premier(R)" premium dog food,
. ""Exquisicat(R)'' cat litter,
. ""Dentley's(R)'' rawhide bones and chews,
. ""Top Paw(R)" dog supplies,
. ""Top Fin(R)" aquatic supplies, and
. ""Top Wing(R)" caged bird supplies.
The nature of our online store allows us the flexibility to frequently and
inexpensively adjust our merchandising strategy. We are continually adjusting
and refining our product assortment and the specific placement of products on
our site to offer our shoppers the products they demand in an easily accessible
format. We are able to feature or promote specific products within each
category without having to alter the physical layout of a store. We
strategically place impulse purchases to encourage consumers to purchase items
they might not normally consider. For example, during the fourth quarter of
1999, we were able to merchandise dog training toys in our Holiday Boutique's
"Great Gifts under $20" as well as in the permanent dog training department. In
both cases, we offered users alternative items and complementary product
suggestions, as well as related feature articles on training their pets. We
believe this flexibility allows us to better manage our product offering and
thereby increase our order size and aggregate margins.
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Distribution and Fulfillment
As our primary product supplier, PETsMART, Inc. purchases, receives and
carries inventory at our direction and on our behalf. This arrangement allows
us to procure products at reduced costs, due to the volume discounts available
to PETsMART, Inc., and lower the funds we need to commit to working capital. We
currently distribute product through PETsMART, Inc.'s direct-to-consumer
fulfillment operation in Brockport, New York. Orders from our Web site are
transmitted to PETsMART, Inc. over a secure virtual private network. PETsMART,
Inc. then processes our orders through a warehouse management system that
optimizes the pick, pack and ship process. Through the warehouse management
system, our Web site receives data on inventory receiving, shipping, quantities
and location, which enables us to provide current information to our customers
about the availability of the products on our Web site. In addition, we benefit
from PETsMART, Inc.'s relationship with United Parcel Service, Inc., which
allows us to leverage their volume discounts.
PETsMART, Inc. is in the process of expanding its distribution network which
will provide us with multiple points from which to ship product. We anticipate
this will give us additional flexibility and reduce our shipping time and cost.
As part of this expansion, PETsMART, Inc. may receive additional vendor
discounts due to the efficiencies gained by delivering products to a small
number of distribution centers as opposed to delivering products to its 490
stores. We also expect to benefit from these additional discounts.
Customer Service
We believe that a high level of customer service and support is critical to
retaining and expanding our customer base. The ability to accurately fulfill
orders, quickly ship products and efficiently handle customer inquiries is as
important to customer satisfaction as product selection and price. Our customer
service is primarily handled through PETsMART, Inc.'s catalog-based customer
service center, which includes 83 customer service representatives who are
dedicated to our operation. This operation, which is available 24 hours per
day, seven days a week, is highly responsive, answering 90% of phone calls
within 20 seconds and demonstrating an abandonment rate of less than 2% on
phone calls received.
Operations and Technology
In order to enhance the usability of our Web site, we have implemented a
broad array of scalable site management, search, customer interaction,
transaction-processing and fulfillment services and systems. These services and
systems use a combination of our own proprietary technologies and commercially
available, licensed technologies. We focus our internal development efforts on
creating and enhancing the specialized, proprietary software that is unique to
our business. We have software which:
. accepts and validates customer orders;
. organizes and places orders with suppliers;
. notifies and updates customers of order status;
. manages shipment of products to customers based on availability and
various ordering criteria; and
. manages community forums and the communication of pet and pet care
information.
Our systems are based on industry standard architectures and have been
designed to reduce downtime in the event of outages or catastrophic
occurrences. Our systems provide 24-hour-a-day, seven-day-a-week availability.
Our system hardware is hosted at third-party facilities in California and New
Jersey. These third-party facilities provide redundant communications lines and
emergency power backup. We have implemented load balancing systems and our own
redundant servers to provide for fault tolerance. We anticipate that we will
continue to devote significant resources to site and systems development in the
future as we add new features and functionality to our Web site.
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Competition
Our competitors can be divided into several groups: (a) online stores that
sell pet products; (b) superstore retailers of pet products; (c) specialty pet
stores; (d) mass market retailers; (e) supermarkets; (f) warehouse clubs; and
(g) mail order suppliers of pet products.
We believe that the primary factors on which we compete are:
. brand recognition;
. customer service;
. reliability and speed of order shipment;
. convenience.
. price;
. streamlined shopping experience;
. product selection;
. quality of Web site content;
. accessibility of Web site; and
. personalized service.
Government Regulation
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally or directly
applicable to electronic commerce. However, as Internet commerce continues to
increase, it is possible that a number of laws and regulations may be adopted
with respect to the Internet. These laws may relate to issues such as user
privacy, freedom of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights and information
security. Furthermore, the growth of electronic commerce may prompt public
desire for more stringent consumer protection laws. Several states have
proposed legislation to limit the uses of personal user information gathered
online or require online services to establish privacy policies. The Federal
Trade Commission also has initiated action against at least one online service
regarding the manner in which personal information is collected from users and
provided to third parties. We do not currently provide personal information
regarding our users to third parties. However, the adoption of such consumer
protection laws could create uncertainty in Web usage and reduce the demand for
our products and services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyright,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of such laws were adopted prior
to the advent of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address such issues could create uncertainty in the Internet market
place. Such uncertainty could reduce demand for our services or increase the
cost of doing business as a result of litigation costs or increased service
delivery costs.
In addition, because our services are available over the Internet in multiple
states and foreign countries, other jurisdictions may claim that we are
required to qualify to do business in each such state or foreign country. We
are qualified to do business only in California. Our failure to qualify in a
jurisdiction where we are required to do so could subject us to taxes and
penalties and could hamper our ability to enforce contracts in such
jurisdictions. The application of laws or regulations from jurisdictions whose
laws do not currently apply to our business could have a material adverse
effect on our business, results of operations and financial condition.
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Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a materially adverse effect on us.
Intellectual Property
We rely on various intellectual property laws and contractual restrictions to
protect our proprietary rights in products and services. These include
confidentiality and nondisclosure agreements with our employees, contractors,
suppliers and strategic partners. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use our intellectual property
without our authorization. In addition, we pursue the registration of our
trademarks and service marks in the U.S. and internationally. However,
effective intellectual property protection may not be available in every
country in which our services are made available online.
We have licensed various proprietary rights to third parties. We attempt to
ensure that these licensees maintain the quality of our brand. However, these
licensees may nevertheless take actions that materially adversely affect the
value of our proprietary rights or reputation. We also rely on technologies
that we license from third parties. These licenses may not continue to be
available to us on commercially reasonable terms in the future. As a result, we
may be required to obtain substitute technology of lower quality or at greater
cost, which could materially adversely affect our business, results of
operations and financial condition.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties. However, there can be no assurance that
third parties will not claim infringement by us with respect to our current or
future technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, with or without
merit, could be time-consuming, result in costly litigation, cause service
upgrade delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements might not be available on terms acceptable
to us or at all. As a result, any such claim of infringement against us could
have a material adverse effect upon our business, results of operations and
financial condition.
Employees
As of January 2, 2000, we had 72 employees. None of our employees is
represented by a labor union. We have not experienced any work stoppages and
consider our relations with our employees to be satisfactory.
Facilities
Our corporate offices are located in Pasadena, California, where we lease
approximately 13,600 square feet under two leases that expire in August 2002.
These leases are renewable, at our option, for periods through February 2010.
We also have a distribution facility in Anaheim, California, where we rent
approximately 10,000 square feet on a month to month basis.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth specific information regarding our executive
officers and directors, as of February 1, 2000:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- ----------
<C> <C> <S>
Thomas P. McGovern, Jr........... 37 Chief Executive Officer, President and
Director
Richard A. Horn.................. 52 Senior Vice President and General
Merchandise Manager
Michael D. Houlahan.............. 36 Senior Vice President of Business
Development and
Off-line Marketing
Daniel M. Kahn................... 47 Vice President of Merchandising
Eric D. Kidd..................... 28 Chief Technology Officer and Vice
President of Engineering
Gary R. Marcotte................. 47 Chief Financial Officer, Treasurer and
Secretary
Carina J. Schaldach-Walker....... 31 Senior Vice President of Site
Development and Operations
Mark J. Williams................. 42 Vice President of Online Marketing
Philip L. Francis(2)............. 53 Director
William Gross.................... 40 Director
Robert M. Kavner(2).............. 56 Director
Robert F. Moran.................. 49 Director
Yves Sisteron(2)................. 44 Director
Neil T. Watanabe................. 45 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Thomas P. McGovern, Jr. has served as our Chief Executive Officer, President
and a Director since inception. From February 1999 to the establishment of
PETsMART.com, Inc., he was President and Chief Executive Officer of our
predecessor, PetJungle.com (a.k.a. Pet.net and Interpet, Inc.). From February
1997 to February 1999, Mr. McGovern was employed by Warner Bros. as Senior Vice
President, International of Warner Bros. Retail Stores. From May 1994 to
February 1997, he was Vice President, International for Warner Bros. Worldwide
Retail. Mr. McGovern is a graduate of the University of Colorado and received
his M.B.A. from Harvard Business School.
Richard A. Horn has served as Senior Vice President and General Merchandise
Manager since May 1999. Prior to joining PETsMART.com, he was Vice President,
Merchandising at PETsMART, Inc. From 1992 until joining PETsMART, Inc. in 1994,
Mr. Horn was Chief Financial Officer of The Weisheimer Companies, which
operated the Petzazz chain of pet superstores which was acquired by PETsMART,
Inc. Before entering the pet product industry, Mr. Horn was a partner in
Coopers & Lybrand, an international accounting and consulting firm. Mr. Horn is
on the Board of Trustees of the Pet Industry Joint Advisory Committee (PIJAC)
where he is a member of the Finance and Membership Committees. Mr. Horn is a
graduate of Indiana University.
Michael D. Houlahan has served as Senior Vice President of Business
Development and Off-line Marketing since April 1999. From September 1986 to May
1990 and October 1992 to April 1999, Mr. Houlahan was employed by Bain &
Company, most recently as a Manager in their Technology Practice and Private
Equity Group. Mr. Houlahan received his B.A. from Yale University and his M.B.A
from Harvard Business School.
Daniel M. Kahn has served as our Vice President of Merchandising since June
1999. Prior to joining PETsMART.com, Mr. Kahn was Director of Corporate
Consumable Brands for PETsMART, Inc. From March 1986 to February 1999, Mr. Kahn
was employed by Alliant Foodservice, where he served as Director of Category
Management and Director of Marketing & Procurement. Mr. Kahn received his B.S.
degree from the University of Illinois and his M.B.A. from DePaul University.
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Eric D. Kidd has served as Chief Technology Officer and Vice President of
Engineering since October 1999. From July 1996 through September 1999, Mr. Kidd
was employed by AltaVista in several roles including, the most recent, Director
of Corporate Technology Development. From March 1992 through June 1996, Mr.
Kidd was an employee of NASA's Jet Propulsion Laboratory where he served as a
Member of Technical Staff. Mr. Kidd holds a B.S. degree from California State
Polytechnic University and a M.S. degree from University of Southern
California, both in computer science.
Gary R. Marcotte has served as our Chief Financial Officer, Treasurer and
Secretary since January 24, 2000. Prior to joining PETsMART.com, Mr. Marcotte
was employed by The Walt Disney Company as Vice President and Chief Financial
Officer of Disney's Regional Entertainment division. From 1989 to 1996, Mr.
Marcotte held various senior corporate finance positions at Disney, including
Vice President of International Accounting and Finance, Assistant Treasurer and
Assistant Controller. Mr. Marcotte received his B.A. in Economics and Physics
from Gustavus Adolphus College and his M.B.A. from the University of Wisconsin.
Carina J. Schaldach-Walker co-founded Interpet, Inc. and its Web site
Pet.net, PETsMART.com's predecessor, and has served as our Senior Vice-
President of Site Development and Operations. Prior to co-founding Interpet,
Inc., from July 1998 to January 1999, Ms. Schaldach-Walker was Director of
Marketing for Consumer's Network. From June 1993 to October 1996, Ms.
Schaldach-Walker was employed as Director of New Ventures for the Recycler
Classifieds. Ms. Schaldach-Walker received her B.A. from Duke University and
her M.B.A. from Harvard Business School.
Mark J. Williams has served as our Vice President of Online Marketing since
May 1999. Prior to joining PETsMART.com, Mr. Williams was Director of Catalog
Circulation & Database Marketing for PETsMARTDirect. From March 1990 until
joining PETsMARTDirect, Mr. Williams was Group Manager of Database Marketing
for Sara Lee Direct. Mr. Williams received his B.A. from University of Missouri
and his M.B.A. from Rockhurst College.
Philip L. Francis has served as a Director since May 12, 1999. Mr. Francis
has served as a director of PETsMART, Inc. since 1989, President and Chief
Executive Officer of PETsMART, Inc. since March 1998 and Chairman since October
1999. Mr. Francis also serves as a director of PETsMART Charities. Prior to
joining PETsMART, Inc., in January 1993, Mr. Francis was President and Chief
Executive Officer of Shaw's Supermarkets, Inc., a subsidiary of J. Sainsbury
plc, a supermarket operator. Mr. Francis received his B.S. in Agriculture from
the University of Illinois and his M.B.A. from Indiana University.
William Gross has served as a Director since inception. Mr. Gross co-founded
Interpet, Inc. and its Web site Pet.net, PETsMART.com's predecessor. Since
March 1996, Mr. Gross has served as Chairman of the Board, Chief Executive
Officer and President of idealab!. He has also served as a Managing Director of
idealab! Capital Management I, LLC since March 1998. From June 1991 to January
1997, he served as Chairman of Knowledge Adventure, Inc. Mr. Gross also serves
on the boards of directors of Ticketmaster Online-CitySearch, Inc. (formerly
CitySearch, Inc.) and GoTo.com, Inc. He also serves on the board of directors
of several private companies. Mr. Gross received his B.S. in Mechanical
Engineering from California Institute of Technology.
Robert M. Kavner has served as a Director since inception. Mr. Kavner has
been a senior officer of idealab! since 1996 and currently serves as Vice
Chairman and a Director. Mr. Kavner also currently serves on the boards of
directors of Fleet Financial Group, EarthLink Networks, Ticketmaster Online-
City Search, Inc., GoTo.com and Jupiter Communications. From 1996 to 1998, Mr.
Kavner was President and Chief Executive Officer of On Command Corporation.
From 1994 to 1996, Mr. Kavner was employed by Creative Artist Agency in a
business development capacity. From 1984 to 1994, he held several senior level
positions at AT&T, including Chief Executive Officer of the Multimedia Products
and Services Group, President of the Data Systems Division and Chairman of the
Unix Systems Laboratory. Mr. Kavner is a graduate from Adelphi University.
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Robert F. Moran has served as Director since November 11, 1999. Mr. Moran
joined PETsMART, Inc. in July 1999, as the President, North American Stores.
Mr. Moran joined PETsMART, Inc. from Toys R Us, Ltd., Canada, where he was
President since August 1998. Prior to joining Toys R Us, he was with Sears,
Roebuck and Company for 20 years in a variety of financial and merchandising
positions, including President and Chief Executive Officer of Sears de Mexico.
Mr. Moran received his B.S. in accounting from Villanova University.
Yves Sisteron has been our Chairman of the Board and a Director since
inception. Mr. Sisteron has been a Managing Partner of Global Retail Partners,
L.P., an investment fund, since January 1996 and a Managing Director, U.S.
Investments at Carrefour S.A. since 1993. Mr. Sisteron has a J.D. and an LL.M.
from the Lyon Law School and an L.L.M. in Comparative Law from New York
University. Mr. Sisteron serves as a director of Interworld Corporation, Zany
Brainy, Inc. and several private companies.
Neil T. Watanabe has served as a Director since May 12, 1999. Since March
1998, Mr. Watanabe has served as Executive Vice President and Chief Financial
Officer of PETsMART, Inc. Mr. Watanabe, a certified public accountant, was
Senior Vice President and Chief Financial Officer of MacFrugal's Bargain Close-
Out, a discount retailer, from 1996 to January 1998. From 1995 to 1996, he was
Vice President Finance/Controller and Corporate Administration for Kay-Bee
Toys. Mr. Watanabe is a graduate of the University of California at Los
Angeles.
Board of Directors and Committees
Our Board of Directors currently consists of seven members and is divided
into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. These provisions, together with the provisions of our restated
certificate of incorporation, allow the Board of Directors to fill vacancies
of, or increase the size of, the Board of Directors, and may deter a
stockholder from removing incumbent directors and filling such vacancies with
its own nominees in order to gain control of the Board.
Our Board of Directors has resolved that and will serve as Class I
Directors whose terms expire at the 2001 annual meeting of stockholders.
and will serve as Class II Directors whose terms expire at the 2002 annual
meeting of stockholders. , and will serve as Class III Directors
whose terms expire at the 2003 annual meeting of stockholders.
Our executive officers serve at the discretion of the Board of Directors.
There are no family relationships among any of our directors or executive
officers.
Our Board of Directors currently has two committees, the principal functions
of which are described below. In May 1999, our Board of Directors established
the Compensation Committee and the Audit Committee.
Our Compensation Committee has authority to, among other things, renew and
approve salary arrangements, including annual incentive awards and loans for
our directors, officers and other employees; adopt and amend employment
agreements for our officers and other employees; and administer our option and
other incentive plans. Members of our Compensation Committee currently include
Mr. Francis, Mr. Sisteron and Mr. Kavner.
Our Audit Committee, among other things, recommends the firm to be appointed
as independent accountants to audit our financial statements, discusses the
scope and results of the audit with the independent accountants, reviews with
management and the accountants our interim and year-end operating results,
considers the adequacy of our internal accounting controls and audit procedures
and reviews non-audit services to be performed by the independent accountants.
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Director Compensation
Our directors do not currently receive any cash compensation from us for
their service as members of the Board of Directors, although they are
reimbursed for travel and lodging expenses in connection with attendance at
Board and committee meetings. Following this offering, we intend to implement a
Director Option Plan whereby directors who are not officers or employees of the
Company or any of its affiliates will receive upon their initial appointment
options to purchase 25,000 shares of common stock and on the date of each
annual meeting of stockholders, an additional option to purchase 12,500 shares
of common stock as compensation for their service as directors.
Prior to this offering, non-employee directors received no annual
compensation for their services but were entitled to stock options under the
1999 Stock Option Plan and to reimbursement for reasonable expenses incurred to
attend director and committee meetings. In May 1999, in connection with their
services as directors, PETsMART.com granted Messrs. Watanabe and Francis
options to purchase 29,773 and 76,700 shares of Common Stock, respectively.
Such shares were granted at $.20 per share and vest 20% on May 12, 1999, 20% on
the first anniversary of the date of grant and 1/36th monthly thereafter. In
December 1999, in connection with their services as directors, PETsMART.com
granted Messrs. Francis, Watanabe, and Moran options to purchase 125,000,
80,000 and 80,000 shares of Common Stock, respectively. Such shares were
granted at $.75 per share and vest 20% on September 28, 1999, 20% on the first
anniversary of the date of grant, and 1/36th monthly thereafter.
Compensation Committee Interlocks and Insider Participation
Messrs. Francis, Sisteron and Kavner each served on our Compensation
Committee during fiscal year 1999. Prior to May 1999, the full Board of
Directors performed the functions delegated to our Compensation Committee.
43
<PAGE>
Executive Compensation
The following table sets forth, in summary form, compensation information for
(a) our chief executive officer, (b) two other executive officers who were the
most highly compensated executive officers for the year ended January 2, 2000,
and (c) one additional executive officer who joined our company after the end
of fiscal year 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
-------------------------------------------- --------------------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying All Other
Position Year Salary($) Bonus($) Compensation($) Award(s) ($) Options (#) Compensation
- -------------------------- ---- --------- -------- --------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas P. McGovern, Jr. .. 1999 $77,000 -- -- $-- (1) 250,000 --
Chief Executive Officer
Richard A. Horn........... 1999 $47,500 -- -- -- 138,500 --
Senior Vice President and
General
Merchandise Manager
Eric D. Kidd.............. 1999 $34,470 $15,000(2) -- -- 300,000 --
Chief Technology Officer
and Vice President of
Engineering
Gary R. Marcotte.......... 1999 --(3) -- -- -- --(4) --
Chief Financial Officer
</TABLE>
- --------
(1) Mr. McGovern, a founder of the Company, was granted 1,043,111 shares of
restricted stock. The deemed fair value of such shares at the end of fiscal
year 1999 was $ . One third of the shares vested on May 12, 1999 and
1/36th of the remaining shares vest monthly thereafter.
(2) Mr. Kidd received a signing bonus in 1999.
(3) Mr. Marcotte became Chief Financial Officer, Treasurer and Secretary on
January 24, 2000. On an annual basis, Mr. Marcotte's salary in fiscal year
2000 is $160,000.
(4) In January 2000, Mr. Marcotte was granted 330,000 shares of restricted
stock with a purchase price of $.75 per share. The shares vest 1/5th on
January 24, 2000, 1/5th on January 24, 2001 and 1/60th on the last day of
each calendar month beginning on or after January 24, 2001.
44
<PAGE>
Option Grants in Last Fiscal Year
The following table shows all options granted in the fiscal year ended
January 2, 2000, to the executive officers named in the Summary Compensation
Table in the "Executive Compensation" section above.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Potential Realizable Value
Number of at Assumed Annual Rates of
Securities % of Total Stock Price Appreciation
Underlying Options Exercise for Option Term(6)
Options Granted Price Expiration ---------------------------
Name Granted (#)(1) in 1999(2) ($/Share) Date 5% ($) 10% ($)
---- -------------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. McGovern, Jr.
(3).................... 250,000 10.4% $.75 11/12/09 $ 117,918 $ 298,827
Richard A. Horn (4)..... 138,500 5.8 .20 5/12/09 17,420 44,147
Eric D. Kidd (5)........ 300,000 12.5 .75 9/28/09 141,501 358,592
Gary R. Marcotte........ -- -- -- -- -- --
</TABLE>
- --------
(1) These options were granted under the 1999 Stock Plan at deemed fair market
value and consist of a combination of non-qualified and incentive stock
options.
(2) No stock appreciation rights were granted during the year ended January 2,
2000.
(3) The option is immediately exercisable and vests 20% on May 12, 2000, 20% on
November 12, 2000 and 1/36th of the remaining shares, each month
thereafter. We have a right to repurchase any unvested shares in the event
Mr. McGovern terminates employment. The option provides that in the event
the optionee suffers an involuntary termination of employment within six
months following a change in control, 50% of the unvested portion of the
option shares will vest in full.
(4) The option is immediately exercisable and vests 20% on November 12, 1999,
20% on May 12, 2000 and 1/36th of the remaining shares, each month
thereafter. We have a right to repurchase any unvested shares in the event
Mr. Horn terminates employment. The option provides that in the event the
optionee suffers an involuntary termination of employment within six months
following a change in control, 50% of the unvested portion of the option
shares will vest in full.
(5) The option is immediately exercisable and vests 20% on October 4, 1999, 20%
on October 4, 2000 and 1/36th of the remaining shares, each month
thereafter. We have a right to repurchase any unvested shares in the event
Mr. Kidd terminates employment. The option provides that in the event the
optionee suffers an involuntary termination of employment within six months
following a change in control, 100% of the unvested portion of the option
shares will vest in full.
(6) The potential realizable value is calculated assuming the exercise price on
the date of grant appreciates at the indicated rate for the entire term of
the option and the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price. All options listed have
a term of 10 years. Stock price appreciation of 5% and 10% is assumed
pursuant to the rules mandated by the Securities and Exchange Commission
and do not represent our estimate or projection of our future common stock
prices. Unless the market price of the common stock appreciates over the
option term, no value will be realized from the option grants made to the
named executive officers.
45
<PAGE>
Fiscal Year-End Option Values
The following table shows summary information concerning the shares of common
stock represented by outstanding stock options held by our Chief Executive
Officer and our named executive officers as of January 2, 2000.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at the-Money Options at
January 2, 2000(1) January 2, 2000(1)(2)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. McGovern,
Jr. ................... -- -- 250,000 -- $1,937,500 --
Richard A. Horn......... -- -- 138,500 -- 1,080,300 --
Eric D. Kidd............ 300,000 $ -- -- -- --
Gary R. Marcotte(3)..... -- -- -- -- -- --
</TABLE>
- --------
(1) No options were exercised by our Chief Executive Officer or our other most
highly compensated executive officers as of the completion of the fiscal
year ended January 2, 2000.
(2) The value of unexercised in-the-money options is calculated by multiplying
the number of securities underlying such options by the difference between
the estimated fair market value of our common stock on January 2, 2000 and
the option exercise price.
(3) Mr. Marcotte became Chief Financial Officer, Treasurer and Secretary on
January 24, 2000.
1999 Stock Option Plan
The 1999 Stock Plan was adopted in May 1999 and is administered by the
Compensation Committee. The plan provides for the grant of incentive stock
options, intended to qualify as such under Section 422 of the Internal Revenue
Code, nonqualified stock options and stock purchase rights to our employees,
directors and consultants; provided that incentive stock options may only be
granted to our employees. Recipients of awards under the 1999 Stock Plan must
enter into an agreement evidencing the terms and conditions of such award.
The number of shares of Common Stock reserved for issuance under the 1999
Stock Option Plan is that number of shares equal to 20% of the number of shares
of stock outstanding at any time, provided that in no event will the number of
shares available for issuance under the plan exceed 11,000,000 shares of stock.
shares will be eligible under this plan immediately following the
completion of the offering.
The purchase price for shares issued to an optionee upon exercise of an
option is the price determined by the administrator at the time of grant,
however, in the case of an incentive stock option the price will not be less
than the fair market value per share on the date of grant and in the case of a
nonstatutory stock option will generally be no less than 85% of the fair market
value on the date of grant. Options may be granted with a per share exercise
price other than that required by the 1999 Stock Plan pursuant to a merger or
other corporate transaction.
The administrator will determine the terms of exercisability of a stock
option. However, options granted to employees who are not officers or directors
will become exercisable at a rate of no less than 20% per year over five years
from the date the options are granted. No stock option is exercisable more than
ten years after the date such stock option is granted.
The administrator may at any time offer to buy out for a payment in cash or
shares an option previously granted, based on such terms as the administrator
will establish to the optionee at the time such offer is made.
The administrator may offer stock purchase rights to an employee, director or
consultant of PETsMART.com and such offer will be accepted by execution of a
restricted stock purchase agreement. The restricted stock purchase agreement
shall grant us a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's service with us for any reason. The
purchase price for shares
46
<PAGE>
repurchased by us will be the original price paid by the purchaser. The
repurchase option will lapse at a rate determined by the administrator, but
with respect to employees other than directors and officers the option will
lapse at a rate of no less than 20% per year over five years from the date of
purchase.
In the event that we merge with or into another corporation or the sale of
substantially all of our assets, each outstanding option and stock purchase
right will be assumed or an equivalent option or right substituted by the
successor corporation. In the event the successor corporation refuses to assume
or substitute the option or stock purchase right, the optionee will fully vest
in and have the right to exercise the option or stock purchase right as to all
of the shares subject to the option or stock purchase right, including shares
as to which it would not otherwise be vested or exercisable.
The 1999 Stock Plan will continue in effect for ten years, unless earlier
terminated by the Board of Directors.
2000 Director Stock Option Plan
The Board of Directors adopted our 2000 Director Stock Option Plan in
February 2000 and our stockholders approved it in February 2000. We have
reserved a total of 300,000 shares of common stock for issuance under the plan,
and unless terminated earlier, the plan will continue in effect for ten years.
As of the date hereof, no options to purchase shares of common stock have been
issued under the 2000 Director Stock Plan. The 2000 Director Stock Plan is
designed to work automatically without administration; however, to the extent
administration is necessary, it will be performed by the Compensation
Committee.
The 2000 Director Stock Plan provides that each person who becomes a
nonemployee director will be granted a nonstatutory stock option to purchase
25,000 shares of common stock on the date on which the optionee first becomes a
nonemployee director. A nonemployee director is any person employed by the
Company, a subsidiary or affiliate of the Company. In addition, on the date of
each annual meeting of stockholders, each nonemployee director will
automatically be granted an additional option to purchase 12,500 shares of
common stock, if on such date, he or she has served on our Board of Directors
for at least six months. All options granted under the 2000 Director Stock Plan
will have an exercise price equal to 100% of the fair market value of the
common stock as of the date of grant and will be vested and exercisable in full
immediately upon grant. Options granted under the 2000 Director Stock Plan are
nontransferable.
A nonemployee director who ceases to serve as a director has 90 days after
the date he or she ceases to be a director to exercise options granted under
the 2000 Director Stock Plan. To the extent that he or she does not exercise an
option within such 90 day period, the option will terminate. Options granted
under the plan have a term of ten years.
In the event we are acquired by another company, we expect that awards
outstanding under the 2000 Director Stock Plan will be assumed or equivalent
awards substituted by our acquiror. If an acquiror did not agree to assume or
substitute awards, all outstanding awards under the plan would terminate to the
extent not previously exercised upon consummation of the acquisition. The Board
of Directors may amend or terminate the 2000 Director Stock Plan at any time as
long as such action does not adversely affect any outstanding option and
stockholder approval for any amendments is obtained, to the extent required by
applicable law.
2000 Employee Stock Purchase Plan
In February 2000, the Board of Directors adopted and our stockholders
approved our 2000 Employee Stock Purchase Plan (the "Purchase Plan"), which
allows eligible employees to purchase our common stock at a discount from fair
market value. A total of 1,000,000 shares of common stock has been reserved for
issuance under the Purchase Plan. In addition, the Purchase Plan provides for
annual increases in the number of shares available for issuance under the
Purchase Plan on each of the first five anniversaries of the effective date of
the Purchase Plan equal to the lesser of (i) 500,000 shares, (ii) 3% of the
outstanding shares of common stock on such date or (iii) a lesser amount
determined by the Board of Directors.
47
<PAGE>
The Purchase Plan will be administered by our board of directors, or a
specifically designated Committee of the board of directors (this board or
Committee is sometimes referred to as the "plan administrator"). The plan
administrator may interpret the Purchase Plan and, subject to its provisions,
may prescribe, amend and rescind rules and make all other determinations
necessary or desirable for the administration of the Purchase Plan.
The Purchase Plan contains offering periods that commence on the first
trading day on or after May 15 and November 15 of each year and end on the last
trading day prior to the commencement of the next offering period; provided,
however, that the first offering period under the Purchase Plan will commence
upon the completion of the Offering and end on the trading on or before the May
14 and November 14 immediately thereafter.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, an employee may not be granted the right
to purchase stock under the Purchase Plan if the employee (i) immediately after
the grant would own stock possessing 5% or more of the total combined voting
power or value of all classes of our capital stock, or (ii) holds rights to
purchase stock under any of our employee stock purchase plans that together
accrue at a rate which exceeds $25,000 worth of stock for each calendar year.
The Purchase Plan permits each employee to purchase common stock through
payroll deductions of up to 15% of the employee's "compensation." Compensation
is defined as the employee's base salary, exclusive of any bonus, fee, overtime
pay, severance pay, expenses or other special emolument or any credit or
benefit under any of our employee plans. The maximum number of shares an
employee may purchase during a single offering period is 2,500 shares.
Amounts deducted and accumulated by the employee are used to purchase shares
of common stock at the end of each offering period. The price of the common
stock offered under the Purchase Plan is an amount equal to 85% of the lower of
the fair market value of the common stock at the beginning or at the end of
each offering period. Employees may end their participation in the Purchase
Plan at any time during an offering period, in which event, any amounts
withheld through payroll deductions and not otherwise used to purchase shares
will be returned to them. Participation ends automatically upon termination of
employment with us.
Rights granted under the Purchase Plan are not transferable by an employee
other than by will or the laws of descent and distribution. The Purchase Plan
provides that, in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend or other change in corporate structure
affecting the number of issued shares of our common stock, the plan
administrator will conclusively determine the appropriate equitable
adjustments. The Purchase Plan will terminate in 2010. Our board of directors
has the authority to amend or terminate the Purchase Plan, except that no
amendment or termination may adversely affect any outstanding rights under the
Purchase Plan.
Employment Agreements
On May 12, 1999, we entered into an employment agreement with Mr. McGovern
whereby Mr. McGovern will serve as our President and Chief Executive Officer.
Mr. McGovern's employment is "at-will" and may be terminated at any time with
or without cause or notice by either party. Pursuant to the agreement, Mr.
McGovern is paid a base salary of $88,000. The agreement provides that Mr.
McGovern will be entitled to a discretionary annual bonus at the discretion of
the Board of Directors.
Pursuant to his agreement, Mr. McGovern, a founder of the Company, has the
right to purchase a total of 1,043,111 shares of common stock at an exercise
price of $.20 per share, which vest as to one third of the shares on the date
of grant and as to 1/36th of the remaining shares monthly thereafter, so that
the shares are fully vested three years from the date of grant. The vesting is
subject to Mr. McGovern's continued employment. If Mr. McGovern is terminated
involuntarily (as defined in the agreement) at any time within six months after
a change of control, then 50% of his unvested shares will become immediately
vested and exercisable. In addition, pursuant to his agreement, Mr. McGovern
has the right to purchase 48,000 shares of Series C preferred stock at a
purchase price of $1.67 per share.
48
<PAGE>
If Mr. McGovern's employment is terminated other than voluntarily or for
cause (as defined in the agreement) then he will be entitled to receive a lump-
sum severance payment equal to three (3) months salary and up to fifty percent
of the shares granted to Mr. McGovern under his employment agreement will
accelerate and become fully vested.
On January 24, 2000, we entered into an employment agreement with Gary R.
Marcotte, whereby Mr. Marcotte will serve as our Chief Financial Officer. Mr.
Marcotte's employment is "at-will" and may be terminated at any time with or
without cause by either party. Pursuant to the agreement, Mr. Marcotte is paid
a base salary of $160,000 and, in the discretion of the board of directors,
will be entitled to an annual bonus.
Pursuant to his agreement, Mr. Marcotte has the right to purchase a total of
330,000 shares of common stock at a price of $.75 per share. So long as Mr.
Marcotte is employed, the shares will vest (a) 1/5th on January 24, 2000, (b)
1/5th on January 24, 2001 and (c) 1/60th of the shares on the last day of each
calendar month beginning on or after January 24, 2001, so that the Shares are
fully vested on or about January 24, 2004. In addition, one half of any
unvested shares will accelerate and become immediately vested if within six
months after a change of control, Mr. Marcotte (a) is terminated without cause,
(b) suffers a material diminution in compensation or duties or (c) is relocated
by the company, without Executive's written consent, to a location more than 50
miles from the Company's Pasadena office. If Mr. Marcotte is terminated without
cause on or prior to July 24, 2000, then 3/48th of the unvested shares will
accelerate and become immediately vested on the date of such termination. If
Mr. Marcotte's employment is terminated without cause (a) following July 24,
2000 and (b) prior to the twelve month anniversary of January 24, 2000, then
6/48th of the unvested shares will accelerate and become immediately vested on
the date of such termination. If Mr. Marcotte is terminated without cause on or
after January 24, 2001 then that number of shares equal to lesser of (a) the
number of then unvested shares and (b) the product of (i) 1/60th of the shares
and (ii) the number of full months Mr. Marcotte was employed by the Company
will accelerate and become immediately vested on the date of such termination.
Upon termination of employment for any reason, we may repurchase any unvested
shares owned by Mr. Marcotte at the original price per share.
On October 4, 1999 and May 12, 1999, we entered into offer letters with Eric
D. Kidd and Richard A. Horn, respectively. Pursuant to the agreements, Mr. Kidd
serves as Chief Technology Officer and Vice President of Engineering and Mr.
Horn serves as Senior Vice President and General Merchandise Manager. The
agreements entitle Messrs. Kidd and Horn to annual salaries of $140,000 and
$190,000, respectively, and a discretionary bonus to be determined by our board
of directors. Pursuant to their agreements, Messrs. Kidd and Horn are at-will
employees and their employment may be terminated at any time by either party to
the agreement.
Under his employment agreement, Mr. Kidd received $15,000 as a signing bonus
on October 30, 1999. Mr. Kidd was also granted an option to purchase 300,000
shares of common stock. The option is immediately exercisable and vests 20% on
October 4, 1999, 20% on October 4, 2000 and 1/36th of the remaining shares
monthly thereafter. In addition, in the event Mr. Kidd suffers an involuntary
termination, fifty percent of the unvested portion of the option shares shall
vest in full and if Mr. Kidd is terminated without cause within six months
following a change in control or suffers a material diminution in duties, one
hundred percent of the unvested portion of the option shares will vest in full.
Mr. Horn was granted an option to purchase 138,500 shares of common stock
which is immediately exercisable and vests 20% on November 12, 1999, 20% on May
12, 2000 and 1/36th of the remaining shares monthly thereafter. In addition, in
the event Mr. Horn suffers an involuntary termination within six months
following a change in control, fifty percent of the unvested portion of the
option shares shall vest in full. In the event Mr. Horn ceases to be employed
by us (unless he voluntarily terminates employment or is terminated for cause),
after the three month anniversary but prior to November 12, 1999, 20% of the
option shares will vest in full.
We have the option to repurchase any unvested shares subject to Messrs. Kidd
and Horn's option upon termination of employment at the original exercise price
of the option.
49
<PAGE>
Limitation of Liability and Indemnification Matters
Our restated certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our restated certificate of incorporation and restated by-laws provide that
we shall indemnify our directors and executive officers and may indemnify our
other officers and employees and other agents to the fullest extent permitted
by law. We believe that indemnification under our restated by-laws cover at
least negligence and gross negligence on the part of indemnified parties. Our
restated by-laws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the restated by-laws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our restated
certificate of incorporation and restated by-laws. These agreements, among
other things, provide for indemnification of our directors and executive
officers for expenses specified in the agreements, including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding arising out of such person's services as a director or
executive officer of PETsMART.com, any subsidiary of PETsMART.com or any other
entity to which the person provides services at our request. We believe that
these provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership
of our common stock (following automatic conversion of all preferred stock) as
of February 1, 2000 and as adjusted to reflect the sale of the common stock
offered hereby under this prospectus, by:
. each stockholder known by us to own beneficially more than 5% of the
common stock,
. each of our directors and executive officers, and
. all of our directors and executive officers as a group.
We determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission, which generally require inclusion of shares
over which a person has voting or investment power. Share ownership in each
case includes shares issuable upon exercise of outstanding options and warrants
that are exercisable within 60 days of February 1, 2000 as described in the
footnotes below. The following calculations of the percentages of outstanding
shares are based on shares of our common stock outstanding as of
and immediately following the completion of the offering. The
shares that we expect to be outstanding immediately following the completion of
the offering assumes no exercise of the underwriters' over-allotment option.
Except as otherwise noted, the address of each person listed in the table is
c/o PETsMART.com, Inc., 35 Hugus Alley, Suite 210, Pasadena, California 91103.
<TABLE>
<CAPTION>
Percent
Beneficially
Owned
-----------------
Beneficial Shares Beneficially Before After
Owner Owned Offering Offering
- ---------- ------------------- -------- --------
<S> <C> <C> <C>
5%
Stockholders
- -------------
PETsMART, Inc.(1)........................ 48% %
idealab! Holdings, L.L.C.(2)............. 22% %
Entities affiliated with Global Retail
Partners, L.P.(3)....................... 9% %
Entities affiliated with idealab! Capital
Management, I, LLC(4)................... 4% %
<CAPTION>
Directors and
Officers
- -------------
<S> <C> <C> <C>
Thomas P. McGovern, Jr.(5)............... 4% %
Richard A. Horn(6)....................... * *
Michael D. Houlahan(7)................... * *
Eric D. Kidd(8).......................... * *
Gary R. Marcotte(9)...................... * *
Carina J. Schaldach-Walker(10)........... 2% %
Philip L. Francis(11).................... 48% %
William Gross(12)........................ 27% %
Robert M. Kavner(13)..................... 27% %
Robert F. Moran(14)...................... 48% %
Yves Sisteron(15)........................ 9% %
Neil T. Watanabe(16)..................... 48% %
All executive officers and directors as a
group (12 persons)...................... 92% %
</TABLE>
- --------
*Less than 1% of the outstanding shares of common stock.
(1) Includes (a) shares of common stock and (b) shares of
common stock issuable upon exercise of warrants that are exercisable
within 60 days of February 1, 2000. The address for PETsMART, Inc. is
19601 North 27 Ave., Phoenix, AZ 85027.
(2) Includes (a) shares of common stock and (b) shares of
common stock issuable upon exercise of warrants that are exercisable
within 60 days of February 1, 2000. The address for idealab! Holdings,
L.L.C. is 130 West Union Street, Pasadena, CA 91103.
(3) Includes (a) held by Global Retail Partners Funding, Inc., (b)
shares held by Global Retail Partners, L.P., (c) shares
held by GRP Partners, LP, (d) shares held by GRPA,
51
<PAGE>
L.P., (e) shares held by DLJ Diversified Partners, L.P.,
shares held by DLJ Diversified Partners--A, L.P. and shares held by
DLJ ESC II, L.P. The address for these entities is 2121 Avenue of the
Stars, 30th Floor, Los Angeles, CA 90067.
(4) Includes (a) shares held by idealab! Capital Partners I-A, L.P.
and (b) shares held by idealab! Capital Partners I-B, L.P.
idealab! Capital Management I, LLC is the general partner of idealab!
Capital Partners I-A, L.P. and idealab! Capital Partners I-B, L.P., [and
exercises voting and investment power over the shares held by these
entities.] The address for these entities is 130 West Union Street,
Pasadena, CA 91103.
(5) Includes (a) shares of common stock, (b) shares of
restricted stock, of which are no longer subject to forfeiture
within 60 days of February 1, 2000 and (c) employee options that
are exercisable (but not vested) within 60 days of February 1, 2000.
(6) Includes (a) shares of common stock and (b) employee options
that are exercisable within 60 days of February 1, 2000.
(7) Includes (a) shares of common stock and (b) 300,000 employee options
that are exercisable within 60 days of February 1, 2000, of which
are currently vested.
(8) Includes employee options that are exercisable within 60 days of
February 1, 2000, of which are currently vested.
(9) Includes shares of common stock, of which are no longer
subject to forfeiture.
(10) Includes (a) shares of common stock, (b) shares of
restricted stock, of which are no longer subject to forfeiture and
(c) employee options that are exercisable (but not vested) within 60
days of February 1, 2000.
(11) Includes (a) shares of common stock held by PETsMART, Inc. (see
footnote 1) and (b) options that are exercisable within 60 days of
February 1, 2000. Mr. Francis is the Chief Executive Officer and President
of PETsMART, Inc. Mr. Francis disclaims beneficial ownership of those
shares.
(12) Includes (a) shares held by idealab! Holdings, L.L.C., (see
footnote 2) (b) shares held by idealab! Capital Partners I-A, L.P.
(see footnote 4) and (c) shares held by idealab! Capital Partners
I-B, L.P. (see footnote 4). Mr. Gross is the Chairman of the Board, Chief
Executive Officer and President of idealab! and a Managing Director of
idealab! Capital Management I, L.L.C. Mr. Gross disclaims beneficial
ownership of the shares held by idealab! Holdings, L.L.C., idealab!
Capital Partners I-A, L.P. and idealab! Capital Partners I-B, L.P.
(13) Includes (a) shares of common stock, (b) shares held by
idealab! Holdings, L.L.C., (c) shares held by idealab! Capital
Partners I-A, L.P. and (d) shares held by idealab! Capital
Partners I-B, L.P. Mr. Kavner is Vice Chairman of idealab!. Mr. Kavner
disclaims beneficial ownership of the shares held by idealab! Holdings,
L.L.C., idealab! Capital Partners I-A, L.P., and idealab! Capital Partners
I-B, L.P.
(14) Includes (a) shares of common stock held by PETsMART, Inc. (see
footnote 1) and (b) options that are exercisable within 60 days of
February 1, 2000. Mr. Moran is the President of North American stores of
PETsMART, Inc. Mr. Moran disclaims beneficial ownership of shares owned by
PETsMART, Inc.
(15) Includes (a) shares held by Global Retail Partners Funding, Inc.,
(b) shares held by Global Retail Partners, L.P., (c)
shares held by GRP Partners, LP, (d) shares by GRP A, L.P., (e)
shares held by DLJ Diversified Partners, L.P., (f) shares
held by DLJ Diversified Partners-A, L.P. and (g) shares held by
DLJ ESC II, L.P. Mr. Sisteron disclaims beneficial ownership of shares
owned by Global Retail Partners, L.P. and its affiliates.
(16) Includes (a) shares of common stock held by PETsMART, Inc. (see
footnote 1) and (b) options that are exercisable within 60 days of
February 1, 2000. Mr. Watanabe is the Chief Financial Officer of PETsMART,
Inc. Mr. Watanabe disclaims beneficial ownership of shares owned by
PETsMART, Inc.
52
<PAGE>
RELATED PARTY TRANSACTIONS
The following table summarizes the shares of common stock and preferred stock
acquired by our directors, officers and 5% stockholders and persons and
entities associated with them prior to the date of this prospectus. The shares
of common stock were sold at varying amounts per share, the shares of Series A
preferred stock, Series B preferred stock and Series C preferred stock were
sold at $1.67 per share, and the shares of Series D preferred stock were sold
at $4.67 per share. See "Principal Stockholders."
<TABLE>
<CAPTION>
Common Series A Series B Series C Series D
Stock Preferred Preferred Preferred Preferred
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
5% Stockholders
- ---------------
PETsMART, Inc............ -- (1) 3,000,000 5,287,135
Entities affiliated with
Global Retail Partners,
L.P..................... 1,200,000 2,599,752
idealab! Holdings,
L.L.C................... 350,974 1,968,000 840,260
Entities Affiliated with
idealab! Capital
Management I, LLC....... 450,000 1,283,753
Directors and Officers
- ----------------------
Thomas P. McGovern, Jr... 1,375,342(2) 30,000 48,000 6,356
Richard A. Horn.......... 15,000
Michael D. Houlahan...... 300,000(3) 12,000 12,000 4,242
Robert M. Kavner......... 38,400
Eric D. Kidd............. 300,000
Gary R. Marcotte......... 330,000
Carina J. Schaldach-
Walker.................. 427,270(4) 28,800
</TABLE>
- --------
(1) During February 2000, we sold 1,361,027 shares of common stock to PETsMART,
Inc. for $.36 a share. We expect that PETsMART, Inc. will place such shares
into a trust for the benefit of approximately 1,500 PETsMART, Inc. store
managers and other of its key employees. We have agreed to issue PETsMART,
Inc. an additional 80,711 shares of common stock immediately following the
closing of this offering in satisfaction of obligations under an agreement
relating to the R.C. Steele and Pedigree catalog businesses.
(2) Includes (a) 1,043,111 shares of restricted stock issued by PETsMART.com,
(b) 82,231 shares received pursuant to the merger of PetJungle.com, Inc.
into us, and (c) 250,000 shares received upon exercise of an employee
option.
(3) Includes 300,000 shares received upon exercise of an employee option.
(4) Includes (a) 387,283 shares of restricted stock issued by PETsMART.com and
(b) 39,987 shares received pursuant to the merger of PetJungle.com, Inc.
into us.
On May 12, 1999, we issued:
. to PETsMART, Inc. a warrant to purchase up to 300,000 shares of Series A
preferred stock at a purchase price per share equal to $16.67;
. to idealab! Holdings, L.L.C. a warrant to purchase up to 339,278 shares
of Series C preferred stock at a purchase price per share equal to
$13.07; and
. to Rodale Press, Inc. a warrant to purchase up to 43,227 shares of
Series C preferred stock at a purchase price per share equal to $13.07
and a warrant to purchase up to 23,163 shares of Series C preferred
stock at a purchase price per share equal to $1.67.
All of these warrants were exercised on February 3, 2000.
53
<PAGE>
Indebtedness of Officers, Directors and Stockholders
The following directors and officers are indebted to us with respect to
loans, the proceeds of which were used, together with cash, to purchase shares
of our common stock:
<TABLE>
<CAPTION>
Original
Principal
Officer Amount Origination Date
- ------- --------- -----------------
<S> <C> <C>
Michael D. Houlahan................................. $ 26,267 January 4, 2000
Michael D. Houlahan................................. 125,831 January 10, 2000
Eric D. Kidd........................................ 224,699 December 23, 1999
Gary R. Marcotte.................................... 247,169 January 27, 2000
Thomas P. McGovern, Jr.............................. 50,000 April 1, 1999
Thomas P. McGovern, Jr.............................. 207,579 May 12, 1999
Thomas P. McGovern, Jr.............................. 187,249 January 18, 2000
Carina J. Schaldach-Walker.......................... 30,000 April 1, 1999
Carina J. Schaldach-Walker.......................... 77,069 May 12, 1999
Carina J. Schaldach-Walker.......................... 52,429 January 19, 2000
</TABLE>
These loans bear interest at a rate of 7.0% per annum, compounded
semiannually and payable upon maturity. The loans mature upon the earlier of
. the five year anniversary of the origination date or
. (a) 30 days after termination of such employee's employment with us for
cause or (b) six months after the termination of such employee's
employment for us without cause (except for Mr. McGovern's and Ms.
Schaldach-Walker's loans originating on April 1, 1999, which mature on
April 1, 2004).
Investors Rights Agreement
In connection with our sale of preferred stock and certain warrants, we
entered into an investor rights agreements with the holders of our preferred
stock and idealab! Holdings, L.L.C., PETsMART, Inc. and Rodale Press, Inc., as
holders of certain warrants to purchase our stock. Subject to limitations
specified in the agreement, these registration rights include the following:
. The holders of the registrable securities may require, on two occasions,
subject to limitations, beginning six months after the effective date of
this prospectus, that we use our best efforts to register the
registrable securities for public resale if the proposed aggregate
selling price is at least $5,000,000.
. If we register any of the registrable securities, all holders of the
registrable securities are entitled to include their shares of stock in
such registration.
. The holders of the registrable securities may require us, no more than
once in any twelve month period, to register all or a portion of the
registrable securities on Form S-3 when use of such form becomes
available to us if the proposed aggregate selling price is at least
$500,000.
. If we propose to register any of our equity securities under the
Securities Act, subject to certain exceptions, the holders of the
registrable securities may require us to include all or a portion of
their registrable securities in such registration. However, the managing
underwriter, if any, of any such offering by us may limit the number of
registrable securities to be included in the registration.
We will bear all registration expenses other than underwriting discounts and
commissions. All registration rights terminate four years following the date of
this prospectus, or, with respect to each holder of registrable securities, at
such time as the holder is entitled to sell all of its shares in any three
month period under Rule 144 of the Securities Act. The holders of these
registration rights have agreed not to exercise their registration rights for a
period of 180 days after the date of this prospectus, except with the prior
written consent of Salomon Smith Barney Inc.
54
<PAGE>
Strategic Agreements with PETsMART, Inc.
Trademark License Agreement. Under the terms of a Trademark License Agreement
dated May 12, 1999, PETsMART, Inc. granted us an exclusive, royalty-free,
worldwide, perpetual license to use the marks "PETsMART" and "R.C. STEELE" in
typed and stylized forms as service marks and on packaging shipment labels, and
the name PETsMART.com as a corporate name and domain name for the purpose of
operating an online pet product retail business under the URL petsmart.com.
Under the terms of the agreement, we have the non-exclusive right to use these
marks in online and offline promotional advertising of our online business
activities. This agreement may be terminated if, (1) certain "retail mass
merchandisers or specialty pet supply retailers" acquire or beneficially owns
15% or more of our common stock equivalents or total voting power, (2) we fail
to use the licensed mark PETsMART as our dominant URL for a period of 30 days,
(3) we dissolve, become bankrupt or experience certain other corporate events
or (4) either party breaches certain other obligations. The term "retail mass
merchandisers or specialty pet supply retailers" means (a) a land-based retail
mass merchandiser or land-based or on-line specialty pet supply retailer, or
(b) an online retail mass merchandiser that owns a controlling interest in or
has a material marketing, fulfillment, financial or similar strategic
relationship with an entity referred to in clause (a).
Marketing Agreement. We have entered into a Marketing Agreement with
PETsMART, Inc., effective as of December 31, 1999. Under this agreement, we
will collaborate with PETsMART, Inc. to co-market our products and information,
including co-branded advertising, cross-marketing of the physical and online
stores, in-store promotions, affinity programs and mailing lists. We may
participate in PETsMART, Inc.'s vendor supported co-op advertising in exchange
for a fee based on net sales. Under this arrangement, we will receive a credit
to purchase merchandise from the co-op participants. In addition, we may
conduct cross-promotional mailings to the other party's customers.
Under this agreement, PETsMART, Inc. may not market, advertise or sell
companion-animal-related products online, subject to certain exceptions. We may
not own or operate any catalogs or physical stores that sell companion-animal-
related products or resell in any catalogs or stores operated by third parties.
We have the exclusive right to sell PETsMART, Inc.'s proprietary branded
products online and we can not carry the brand names or purchase products from
certain competitors of PETsMART, Inc. In addition, so long as PETsMART, Inc.
makes 90% of the products carried on its stores and catalogs available to us
for sale on our site, we must use commercially reasonable efforts to ensure
that those products constitute the majority of our SKU's.
The initial term of this agreement is five years and will automatically
continue for two successive one-year terms unless either party provides notice
of termination.
Merchandising, Procurement, Distribution, and Fulfillment Agreement. We are
party to a Merchandising, Procurement, Distribution, and Fulfillment Agreement
with PETsMART, Inc., effective as of December 31, 1999. Under this agreement,
we will procure products carried in the PETsMART, Inc. stores, and its
catalogs, through PETsMART, Inc. and utilize its catalog fulfillment and other
distribution facilities to assemble orders and ship merchandise to consumers.
We may choose for PETsMART, Inc. to stock certain other products for us at its
catalog fulfillment distribution center. Under the terms of the agreement, we
will provide PETsMART, Inc. with sales forecasts for purposes of its
procurement planning. In the event that our forecast is deficient, we may not
have sufficient quantities of product on hand to satisfy customer orders, or in
certain cases if customer orders are below plan, we may be liable for the costs
associated with liquidating excess inventory. PETsMART, Inc. also provides us
customer care services including telephone and e-mail support. Reimbursement
for the cost of product sold and for PETsMART, Inc.'s support services is
calculated under an activity based costing method.
PETsMART, Inc. may provide procurement, distribution and fulfillment,
customer support, third-party Web site administration and other services to
third parties selling companion-animal-related products online other than in
certain circumstances and to certain of our competitors. The initial term of
this agreement is five years and will automatically continue for two successive
one-year terms unless either party provides notice of termination.
55
<PAGE>
Web and Content Hosting Agreement. We are party to a Web and Content Hosting
Agreement with PETsMART, Inc., effective as of December 31, 1999. Under this
agreement, we will provide certain hosting services for corporate, e-commerce
and other content of PETsMART, Inc. The agreement provides PETsMART, Inc. with
certain approval rights over the presentation of its content.
Under the agreement, we will bear the cost associated with the hosting of
corporate and certain other content relating to information about PETsMART,
Inc. For hosting of the PETsMART, Inc. e-commerce Web site, however, PETsMART,
Inc. will pay us a hosting and connectivity fee. The term of this agreement
with respect to our hosting of e-commerce businesses is five years, and the
term with respect to the non-e-commerce information is co-extensive with our
trademark agreement with PETsMART, Inc.
Standstill Agreement. We are party to a Standstill Agreement, dated February
, 2000, with PETsMART, Inc. Under the terms of this agreement, PETsMART, Inc.
and its affiliates are generally prohibited, for a period of 30 months from:
. acquiring our stock or any securities exchangeable for or convertible
into our stock if the effect would be to increase the stock owned by
PETsMART, Inc. and its affiliates to more than 49.9% of our then
outstanding common stock;
. engaging in a proxy consent with respect to our securities; and
. seeking to control or influence our management, Board of Directors or
policies.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and various provisions of our
restated certificate of incorporation and our restated by-laws is a summary.
Statements contained in this prospectus are not necessarily complete, and
reference is made to the restated certificate of incorporation and the restated
by-laws that will become effective upon the completion of this offering, copies
of which have been filed with the Securities and Exchange Commission as
exhibits to our registration statement of which this prospectus constitutes a
part.
Upon completion of this offering, our authorized capital stock will consist
of shares of common stock, par value $.001 per share, and
shares of undesignated preferred stock, par value $.001 per share.
Common Stock
As of , 2000 there were shares of common stock outstanding,
held of record by approximately stockholders. In addition, as of
, 2000, there were shares of common stock subject to outstanding
options and shares of common stock subject to outstanding warrants.
Upon completion of this offering, there will be shares of common stock
outstanding assuming no exercise of the underwriters' overallotment option or
additional exercise of outstanding options under our stock option plans and
warrants.
The holders of common stock are entitled to one vote per share on all matters
to be voted upon by stockholders. Our restated certificate of incorporation
does not provide for cumulative voting, which means that the holders of a
majority of the shares voted can elect all of the directors then standing for
election. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available for that purpose. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in the distribution of all assets available for
distribution after payment of liabilities and the liquidation preference of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights, other subscription rights, or redemption or sinking fund provisions.
Each outstanding share of common stock is, and all the shares of common stock
outstanding upon completion of this offering will be, fully paid and non-
assessable.
Preferred Stock
Upon the closing of the offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to
shares of preferred stock. The board of directors will also have the authority
to designate the rights, preferences, privileges and restrictions of each
series of preferred stock, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change of control of PETsMART.com without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
some circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
offering, no shares of preferred stock will be outstanding and we currently
have no plans to issue any shares of preferred stock.
Options
As of , 1999, (1) options to purchase a total of shares of
common stock were outstanding and (2) up to shares of common stock may
be subject to options granted in the future under the 1999 Stock Plan.
57
<PAGE>
Warrants and Related Agreements
PETsMART, Inc. holds a warrant to purchase Series A preferred stock. Certain
affiliates of idealab! Holdings, L.L.C. and Rodale Press, Inc. hold outstanding
warrants to purchase Series C preferred stock. The terms of these warrants are
described in greater detail under "Related Party Transactions."
Big Dog USA, Inc. and certain related parties hold warrants to purchase
840,000 shares of our common stock, exercisable on or before the earlier of
three years from the date of this offering or October 19, 2004. The exercise
price of the warrants is: (i) 210,000 shares at $8.88 per share, (ii) 210,000
shares at $17.75 per share, (iii) 210,000 shares at $26.63 per share and (iv)
210,000 shares at $35.50. The right to exercise these warrants may be reduced
if Big Dog USA, Inc. does not satisfy certain performance requirements,
described in the warrant issued to Big Dog USA, Inc. See "Warrant No. 4 issued
to Big Dog USA, Inc.--Exhibits and Financial Statement Schedules."
Delaware Anti-Takeover Law and Our Restated Certificate of Incorporation and
Restated By-law Provisions
Provisions of Delaware law and our restated certificate of incorporation and
restated by-laws could make more difficult our acquisition by a third party and
the removal of our incumbent officers and directors. These provisions,
summarized below, are expected to discourage coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
PETsMART.com to first negotiate with us. We believe that the benefits of
increased protection of our ability to negotiate with the proponent of an
unfriendly or unsolicited acquisition proposal outweigh the disadvantages of
discouraging such proposals because, among other things, negotiation could
result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law, which
regulates corporate acquisitions. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date the
person became an interested stockholder, unless:
. the Board of Directors approved the transaction in which such
stockholder became an interested stockholder prior to the date the
interested stockholder attained such status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
. on or subsequent to such date the business combination is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders.
A "business combination" generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Our restated certificate of incorporation and restated by-laws do not provide
for the right of stockholders to act by written consent without a meeting or
for cumulative voting in the election of directors. In addition, our restated
certificate of incorporation permits the Board of Directors to issue preferred
stock with voting or other rights without any stockholder action. The
authorization of undesignated preferred stock makes it possible for the Board
of Directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
PETsMART.com. Our restated certificate of incorporation also provides for the
Board of Directors to be divided into three classes, with staggered three-year
terms. As a result, only one class of directors will be elected at each annual
meeting of stockholders. Each of the two other classes of directors will
continue to serve for the remainder of its respective three-year term. Our
restated
58
<PAGE>
by-laws provide that stockholders seeking to bring business before an annual
meeting of stockholders, or to nominate candidates for election as directors at
an annual meeting of stockholders, must provide timely notice thereof in
writing. Our restated by-laws also specify certain requirements as to the form
and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
These and other provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of PETsMART.com.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is . The
transfer agent's address and telephone number is
and .
Listing
We intend to apply for listing for quotation on the Nasdaq National Market
under the trading symbol "PSCM."
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock and we
can not guarantee that a significant public market for the common stock will
develop or continue after this offering. Future sales of substantial amounts of
common stock in the public market could adversely affect prevailing market
prices. Sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and impair our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding shares of
common stock. Of these shares, the shares sold in the offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act. In general, affiliates include officers, directors and 10% stockholders.
The remaining shares outstanding are "restricted securities" within the
meaning of Rule 144. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.
Lock-Up Agreement
Our directors, officers and holders of at least 1% of our common stock have
agreed to enter into lock-up agreements in connection with this offering
generally providing that, without the consent of Salomon Smith Barney Inc.,
they will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our common stock or any securities exercisable for or
convertible into our common stock owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of Salomon Smith
Barney Inc. In addition, PETsMART, Inc. has agreed to have these restrictions
extend with respect to shares of common stock owned on the date of this
prospectus for a total period of five years, except that PETsMART, Inc. may
sell shares without restriction after the first 180 days following the date
of this prospectus and may sell an additional shares per month for each
full month following the one year anniversary of this prospectus. Taking into
account the lock-up agreements, without giving any effect to any potential
waiver thereunder, the following shares will be eligible for sale in the public
market at the following times:
. Beginning on the effective date of this prospectus, shares will be
immediately available for sale in the public market.
. Beginning days after the effective date, approximately shares
will be eligible for sale pursuant to Rule 701, approximately
additional shares will be eligible for sale pursuant to Rule 144(k), and
approximately additional shares will be eligible for sale pursuant
to Rule 144. All but of such shares are held by affiliates.
Rules 144, 144(k) and 701
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding
which will equal approximately shares immediately after the
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice, and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have
60
<PAGE>
been our affiliate at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares pursuant to a written compensatory plan or
contract, to resell such shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell such shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date to register shares to be
issued pursuant to our employee benefit plans. As a result, any options or
rights exercised under the 1999 Stock Plan or any other benefit plan after the
effectiveness of the registration statements will also be freely tradable in
the public market. However, such shares held by affiliates will still be
subject to the volume limitation, manner of sale, notice and public information
requirements of Rule 144 unless otherwise resalable under Rule 701. As of
, 2000 there were outstanding options for the purchase of shares
of common stock, of which options to purchase shares were exercisable. See
"Risk Factors--Substantial Sales of Our Common Stock Could Cause Our Stock
Price to Fall," "Management--Stock Plans" and "Description of Capital Stock--
Registration Rights."
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement to
be dated the date of this prospectus, each underwriter named below has
severally agreed to purchase, and PETsMART.com has agreed to sell to such
underwriter, the number of shares set forth opposite the underwriter's name.
<TABLE>
<CAPTION>
Number
of
Name shares
---- ------
<S> <C>
Salomon Smith Barney Inc............................................
Chase Securities Inc................................................
J.P. Morgan Securities Inc..........................................
----
Total.............................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Chase Securities Inc.
and J.P. Morgan Securities Inc. are acting as representatives, propose to offer
some of the shares directly to the public at the public offering price set
forth on the cover page of this prospectus and some of the shares to dealers at
the public offering price less a concession not in excess of $ per share. The
underwriters may allow, and those dealers may reallow, a concession not in
excess of $ per share on sales to certain other dealers. If all of the shares
are not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised PETsMART.com that the underwriters do not intend to confirm any sales
to any accounts over which they exercise discretionary authority.
PETsMART.com has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to additional shares
of common stock at the public offering price less the underwriting discount.
The underwriters may exercise the option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent the
option is exercised, each underwriter will be obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to the underwriter's initial purchase commitment.
PETsMART.com and its officers, directors and holders of at least 1% of our
common stock have agreed that, for a period of 180 days from the date of this
prospectus, they will not, without the prior written consent of Salomon Smith
Barney Inc., dispose of or hedge any shares of common stock of PETsMART.com or
any securities convertible into or exchangeable for common stock. Salomon Smith
Barney Inc. in its sole discretion may release any of the securities subject to
these lock-up agreements at any time without notice. In addition, PETsMART,
Inc. has agreed to additional restrictions described under the caption "Shares
Eligible For Future Sale."
Prior to this offering, there has been no public market for the common stock.
Consequently, the initial public offering price for the shares was determined
by negotiations among PETsMART.com and the representatives. Among the factors
considered in determining the initial public offering price were PETsMART.com's
record of operations, its current financial condition, its future prospects,
its markets, the economic conditions in and future prospectus for the industry
in which PETsMART.com competes, its management, and currently prevailing
general conditions in the equity securities markets, including current market
valuations of publicly traded companies considered comparable to PETsMART.com.
We cannot assure you, however, that the prices at which the shares will sell in
the public market after this offering will not be lower than the price at which
they are sold by the underwriters or that an active trading market in the
common stock will develop and continue after this offering.
62
<PAGE>
PETsMART.com has applied to have the common stock included for quotation on
the Nasdaq National Market under the symbol "PSCM".
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by PETsMART.com in connection with this offering.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
Paid by PETsMART.com
----------------------
No
Exercise Full Exercise
-------- -------------
<S> <C> <C>
Per share............................................. $ $
Total................................................. $ $
</TABLE>
In connection with the offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may purchase and sell shares of common stock in the open market.
These transactions may include over-allotment, syndicate covering transactions
and stabilizing transactions. Over-allotment involves syndicate sales of common
stock in excess of the number of shares to be purchased by the underwriters in
the offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of common stock
made for the purpose of preventing or retarding a decline in the market price
of the common stock while the offering is in progress.
At our request, the underwriters have reserved up to 5% of the shares of
common stock (the "Directed Shares") for sale at the initial public offering
price to persons who are directors, officers or employees of the Company, or
who are otherwise associated with the Company and its affiliates, and who have
advised the Company of their desire to purchase such shares. The number of
shares of common stock available for sale to the general public will be reduced
to the extent of sales of Directed Shares to any of the persons for whom they
have been reserved. Any shares not so purchased will be offered by the
underwriters on the same basis as all other shares offered in the prospectus.
The Company has agreed to indemnify those certain underwriters against certain
liabilities and expenses, including liabilities under the Securities Act, in
connection with the sale of Directed Shares.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be higher
than the price that otherwise would exist in the open market in the absence of
such transactions. The underwriters may conduct these transactions on the
Nasdaq National Market or in the over-the-counter market, or otherwise. If they
commence these activities, the underwriters may discontinue them at any time.
PETsMART.com estimates that their respective portions of the total expenses
of this offering will be $ and $ .
PETsMART.com has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the underwriters may be required to make in respect of
any of those liabilities.
63
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
PETsMART.com by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, Los
Angeles, California. As of the date of this prospectus, attorneys of Skadden,
Arps, Slate, Meagher & Flom LLP beneficially own an aggregate of shares of
our common stock.
EXPERTS
The audited financial statements of PETsMART.com, Inc. as of January 2, 2000
and for the period from inception (February 25, 1999) to January 2, 2000 and
the audited financial statements of Digital Communities, Inc. as of December
31, 1998 and October 6, 1999 and for the year ended December 31, 1998 and the
period from January 1, 1999 to October 6, 1999 included in this prospectus have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The audited financial statements of K&K Hansen, Inc. as of December 31, 1997
and 1998 and March 31, 1999 and for the each of the two years in the period
ended December 31, 1998 and for the period from January 1, 1999 to March 31,
1999 included in this prospectus have been so included in reliance on the
report of Lesley, Thomas, Schwarz & Postma, Inc., A Professional Accountancy
Corporation, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedule thereto. For further information with respect to PETsMART.com and the
common stock offered in this offering, we refer you to the registration
statement and to the attached exhibits and schedules. Statements made in this
prospectus concerning the contents of any document referred to in this
prospectus are not necessarily complete. With respect to each such document
filed as an exhibit to the registration statement, we refer you to the exhibit
for a more complete description of the matter involved.
You may inspect our registration statement and the attached exhibits and
schedules without charge at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may
obtain copies of all or any part of our registration statement from the
Securities and Exchange Commission upon payment of prescribed fees. You may
also inspect reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission without charge at a Web site maintained by the Securities and
Exchange Commission at http://www.sec.gov.
64
<PAGE>
PETsMART.com, Inc.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
PETsMART.com, Inc. Financial Statements
Report of Independent Accountants........................................ F-2
Balance Sheet............................................................ F-3
Statement of Operations.................................................. F-4
Statement of Stockholders' Equity........................................ F-5
Statement of Cash Flows.................................................. F-6
Notes to Financial Statements............................................ F-7
Unaudited Pro Forma Consolidated Financial Data
Overview................................................................. F-22
Unaudited Pro Forma Consolidated Statements of Operations and Footnotes.. F-23
K&K Hansen, Inc. (dba Mason Distributing Company)
Independent Auditors' Report............................................. F-24
Balance Sheets........................................................... F-25
Statements of Operations and Accumulated Deficit......................... F-26
Statements of Cash Flows................................................. F-27
Notes to Financial Statements............................................ F-28
Digital Communities, Inc. (dba AcmePet.com)
Report of Independent Accountants........................................ F-32
Consolidated Balance Sheet............................................... F-33
Consolidated Statement of Operations..................................... F-34
Consolidated Statement of Stockholders' Equity........................... F-35
Consolidated Statement of Cash Flows..................................... F-36
Notes to Consolidated Financial Statements............................... F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
PETsMART.com, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of PETsMART.com, Inc. at January 2,
2000, and the results of its operations and its cash flows for the period from
inception (February 25, 1999) to January 2, 2000, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
February 1, 2000
F-2
<PAGE>
PETsMART.com, Inc.
BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity
January 2, January 2,
2000 2000
---------- -------------
(unaudited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents........................... $ 26,350
Accounts receivable, net of allowance for doubtful
accounts of $29.................................... 124
Inventories, net.................................... 359
Prepaid expenses and other current assets........... 1,341
--------
Total current assets.............................. 28,174
Property and equipment, net........................... 1,399
Intangible assets, net................................ 8,696
--------
Total assets...................................... $ 38,269
========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable.................................... $ 10,427
Accrued liabilities................................. 5,000
Due to related party................................ 3,908
Notes payable, current portion...................... 104
--------
Total current liabilities......................... 19,439
Notes payable, net of current portion................. 156
--------
Total liabilities................................. 19,595
--------
Commitments and contingencies (Note 9)
Stockholders' equity
Convertible preferred stock, $.001 par value; 19,770
shares authorized; 19,064 shares issued and
outstanding, actual; no pro forma.................. 19 --
Common stock, $.001 par value; 70,000 shares
authorized; 2,313 shares issued and outstanding,
actual; 43,786 shares pro forma.................... 2 43
Additional paid-in capital.......................... 81,905 106,474
Deferred equity-based charges....................... (8,656) (22,095)
Stockholders' notes receivable...................... (2,553) (2,553)
Accumulated deficit................................. (52,043) (52,043)
-------- --------
Total stockholders' equity........................ 18,674 $ 29,826
-------- ========
Total liabilities and stockholders' equity........ $ 38,269
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PETsMART.com, Inc.
STATEMENT OF OPERATIONS
(in thousands, except per share amount)
<TABLE>
<CAPTION>
From Inception
(February 25, 1999) to
January 2, 2000
----------------------
<S> <C>
Net revenues........................................... $ 10,446
Costs of net revenues.................................. 16,739
--------
Gross margin......................................... (6,293)
--------
Operating expenses:
Sales and marketing (exclusive of equity-based
charges of $443).................................... 33,476
Product development (exclusive of equity-based
charges of $530).................................... 2,359
General and administrative (exclusive of equity-based
charges of $1,569).................................. 3,351
Equity-based charges................................. 2,542
--------
Total operating expenses........................... 41,728
--------
Loss from operations................................... (48,021)
Other income, net of $14 interest expense.............. 526
--------
Net loss........................................... (47,495)
Deduction for beneficial conversion feature............ (4,548)
--------
Net loss attributable to common stockholders........... $(52,043)
========
Basic and diluted net loss per common share............ $ (65.38)
========
Shares used to calculate basic and diluted net loss per
common share.......................................... 796
========
Unaudited pro forma net loss per common share.......... $ (2.34)
========
Unaudited pro forma shares used to calculate pro forma
net loss per common share............................. 22,213
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PETsMART.com, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Deferred
Stock Common Stock Additional Equity- Stockholders' Total
--------------- --------------- Paid-In Based Notes Accumulated Stockholders'
Shares Amount Shares Amount Capital Charges Receivable Deficit Equity
------- ------ ------- ------ ---------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Interpet,
Inc. common stock..... 17,240 $ 17 $ 1,191 $ (80) $ 1,128
Issuance of Interpet,
Inc. restricted common
stock................. 3,867 4 35 39
Reorganization:
Retirement of
Interpet, Inc. common
stock and restricted
common stock......... (21,107) (21) (1,226) 80 (1,167)
Issuance of
PETsMART.com, Inc.
common stock to
former stockholders
of Interpet, Inc..... 576 1 1,246 (80) 1,167
Issuance of
PETsMART.com, Inc.
convertible preferred
stock................. 19,064 $ 19 64,401 (1,962) 62,458
Issuance of
PETsMART.com, Inc.
restricted common
stock................. 1,430 1 285 (286) --
Exercise of common
stock options......... 307 -- 227 (225) 2
Deferred equity-based
charges............... 11,198 $ (8,656) 2,542
Deduction for
beneficial conversion
feature............... 4,548 $ (4,548) --
Net loss............... (47,495) (47,495)
------- ---- ------- ---- -------- -------- ------- -------- --------
Balance at January 2,
2000.................. 19,064 19 2,313 2 81,905 (8,656) (2,553) (52,043) 18,674
Pro Forma (unaudited):
Assumed conversion of
convertible preferred
stock................ (19,064) (19) 35,857 36 (17) --
Assumed conversion of
preferred stock
warrants............. 2,810 3 10,035 10,038
Assumed issuance of
common stock......... 1,442 1 11,535 (11,046) 490
Assumed issuance of
restricted common
stock................ 330 -- 2,640 (2,393) 247
Assumed exercise of
common stock
options.............. 1,034 1 376 377
------- ---- ------- ---- -------- -------- ------- -------- --------
Balance at January 2,
2000 pro forma
(unaudited)........... -- $ -- 43,786 $ 43 $106,474 $(22,095) $(2,553) $(52,043) $ 29,826
======= ==== ======= ==== ======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PETsMART.com, Inc.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
From
Inception
(February 25,
1999) to
January 2,
2000
-------------
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $(47,495)
Adjustments to reconcile loss to net cash used in operating
activities:
Depreciation and amortization................................. 978
Equity-based charges.......................................... 2,542
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable......................................... 6
Inventory................................................... 114
Prepaid expenses and other current assets................... (1,341)
Accounts payable and accrued liabilities.................... 15,119
Due to related party........................................ 3,908
--------
Net cash used in operating activities..................... (26,169)
--------
Cash flows from investing activities:
Purchases of property and equipment............................. (1,318)
Purchase of domain names........................................ (67)
Acquisition of AcmePet.com...................................... (4,000)
Acquisition of Mason Distributing Company....................... (291)
--------
Net cash used in investing activities..................... (5,676)
--------
Cash flows from financing activities:
Repayment of note payable....................................... (32)
Proceeds from issuance of convertible preferred stock........... 57,060
Proceeds from issuance of common stock.......................... 1,167
--------
Net cash provided by financing activities................. 58,195
--------
Net increase in cash and cash equivalents....................... 26,350
--------
Cash and cash equivalents, beginning of period.................. --
--------
Cash and cash equivalents, end of period........................ $ 26,350
========
Supplemental disclosures of cash flow information:
Cash received for interest...................................... $ 540
Cash paid for interest.......................................... $ 14
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The Company is an online pet product retailer focused on providing pet
supplies and services to consumers with pet-related content and community. The
Company operates several Web sites including PETsMART.com, R.C.Steele.com and
AcmePet.com.
The Company was incorporated in the State of Delaware in February 1999, under
the name of Interpet, Inc. In March 1999, the Company acquired substantially
all of the assets of K&K Hansen, Inc. (dba Mason Distributing Company), a
company engaged in the wholesale and distribution of pet-related products. In
April 1999, the Company launched an online pet community web-site called
Pet.net.
PETsMART.com, Inc. was incorporated in the State of Delaware in May 1999
effectively reorganizing Interpet, Inc. through an equity offering. In
accordance with the terms of the equity offering, Interpet, Inc. ceased
operations and all rights, title and interest in the shares of Interpet, Inc.
were transferred to the newly incorporated PETsMART.com, Inc. in consideration
for common stock of PETsMART.com, Inc. Simultaneously PETsMART.com, Inc.
entered into an agreement with PETsMART, Inc. under which PETsMART, Inc. would
provide product sourcing and fulfillment services for online sales made by
PETsMART.com, Inc. The transaction has been recorded in the accompanying
financial statements as a retirement of the previously outstanding common stock
and an issuance of new common stock.
In June 1999, the Company closed the Pet.net Web site and launched the Web
sites PETsMART.com and R.C.Steele.com.
In October 1999, the Company acquired substantially all of the assets of
Digital Communities, Inc. (dba AcmePet.com), a company that operated a pet
community Web site.
Basis of Presentation
The Company's financial statements reflect the financial position, results of
operations and cash flows of the Company and its acquisition of AcmePet.com for
the period from October 7, 1999, the date of the Company's acquisition, to
January 2, 2000 and the acquisition of Mason Distributing Company for the
period from March 31, 1999, the date of the Company's acquisition, to January
2, 2000. The Company's fiscal year ends on the Sunday nearest to December 31.
Revenue Recognition
The Company's revenue is derived from retail and wholesale transactions of
pet products. Revenue is recognized upon shipment of products to the end
customer. Outbound shipping charges are included in net sales when the products
are shipped. The Company records an allowance for estimated returns in the
period of sale.
Cost of Net Revenues
The Company's cost of net revenues consist primarily of the costs of products
sold to customers and costs of outbound and inbound shipping.
Sales and Marketing
Sales and marketing expenses consist primarily of advertising and promotional
expenditures, payroll, fulfillment costs and customer service activities.
F-7
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and notes payable are carried at
historical cost. At January 2, 2000, the fair values of these instruments
approximated their financial statement carrying amounts because of the short-
term maturity of these instruments and the relatively stable interest rate
environment.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents. Any such investments are carried
at cost plus accrued interest, which approximates fair value. The Company
deposits cash and cash equivalents with high credit-quality institutions.
Inventories
Inventories, all of which are finished goods, are stated at the lower of cost
or market. Cost is determined using the average cost method.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computer equipment and software.................................... 3 years
Furniture and equipment............................................ 5 years
Leasehold improvements............................................. 5 years
</TABLE>
Leasehold improvements are amortized over their estimated useful lives, or
the term of the lease, whichever is shorter.
Intangible Assets
The Company reviews its long-lived and intangible assets for impairment
whenever events or changes in circumstances indicate the carrying amount of
such assets may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted cash flows attributable to
such assets to their carrying value. If the carrying value of the assets
exceeds the forecasted undiscounted cash flows, then the assets are written
down to their fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.
F-8
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
Intangible assets are being amortized on a straight-line basis over the
estimated periods of benefit:
<TABLE>
<S> <C>
Web site domain names............................................. 10 years
Customer relationships/trademarks................................. 3 years
Technology/Web site............................................... 3 years
Covenant not to compete........................................... 3 years
Goodwill.......................................................... 3 years
</TABLE>
Internal Use Software Development Costs
The Company has adopted the provisions of Statement of Position ("SoP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SoP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specified costs and amortization of such costs.
Product Development
With the exception of costs accounted for under the provision of SoP 98-1,
product development expenses are expensed as incurred in the period from
inception to January 2, 2000.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws. A
valuation allowance is provided for the amount of deferred tax assets that,
based on available evidence, are not expected to be realized.
Stock-Based Compensation
The Company accounts for its employee stock option plan in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations. Accordingly, compensation expense related to employee stock
options is recorded over the stock option vesting period, if the fair value of
the underlying Common Stock exceeds the exercise price on the date of grant,
and is amortized and expensed in accordance with Financial Accounting Standards
Board Interpretation No. 28, using the multiple option approach. The Company
adopted the disclosure-only requirements of SFAS No. 123, "Accounting of Stock-
Based Compensation," which allows entities to continue to apply the provisions
of APB 25 for transactions with employees and provide pro forma net income and
pro forma earnings per share disclosures as if the fair-value based method of
accounting had been applied. The Company accounts for equity instruments issued
to non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force ("EITF") consensus 96-18.
Advertising Costs
The Company recognizes advertising expenses in accordance with SoP 93-7
"Reporting on Advertising Costs." As such, the Company expenses the cost of
communicating advertising in the period in which the advertising space or
airtime is used. Internet advertising expenses are recognized based on the
terms of the individual agreements, but generally over the greater of the ratio
of the number of impressions received over the total number of contracted
impressions, or on a straight-line basis over the term of the contract.
Advertising costs included in sales and marketing expenses totaled
approximately $29,259,000 for the period from inception to January 2, 2000.
F-9
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
Start-up Activities
The Company has adopted the provisions of SoP 98-5, "Reporting Costs of
Start-up Activities." SoP 98-5 requires that the costs of start-up activities,
including organization costs, be expensed as incurred. The adoption of SoP 98-5
did not have a material impact to the Company's financial position, results of
operations, or cash flows.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
Credit risk related to cash and cash equivalents is managed by the Company by
only maintaining accounts with high credit-quality financial institutions.
Credit is extended to customers based on an evaluation of their financial
condition. The Company's accounts receivable are derived from revenue earned
from customers located in the United States. The Company maintains allowances
for doubtful accounts based on the collectibility of accounts receivable.
During the period from inception to January 2, 2000, no customer accounted for
more than 10% of net revenues or net accounts receivable.
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS
128 and SAB 98, basic net loss per share is computed by dividing the net loss
available to common stockholders for the period by the weighted average number
of shares of Common Stock outstanding during the period. The calculation of
diluted net loss per share gives effect to common stock equivalents, however,
potential common shares are excluded if their effect is antidilutive. Potential
common shares are composed of Common Stock subject to repurchase rights and
incremental shares of Common Stock issuable upon the exercise of stock options
and warrants and upon conversion of Series A, B, C and D Convertible Preferred
Stock.
Unaudited Pro Forma Net Loss Per Share
Unaudited pro forma net loss per share is computed by dividing net loss by
the sum of the average number of shares of common stock outstanding, plus the
shares resulting from the automatic conversion of the convertible preferred
stock as though such conversion occurred at the date of original issuance.
Unaudited Pro Forma Stockholders' Equity
Pro forma stockholders' equity is computed including (1) the assumed exercise
and conversion of all outstanding warrants to purchase 300,000 shares of Series
A Convertible Preferred Stock, warrants to purchase approximately 406,000
shares of Series C Convertible Preferred Stock into approximately 2,810,000
shares of Common Stock, (2) the assumed issuance of approximately 1,442,000
shares of Common Stock to PETsMART, Inc., (3) the assumed issuance of 330,000
shares of restricted common stock to an officer of the Company (4) the assumed
issuance of 1,034,000 shares of Common Stock under the 1999 Stock Plan at a
weighted average exercise price of $0.46, and (5) the automatic conversion of
the pro forma outstanding shares of Series A, Series B, Series C and Series D
Convertible Preferred Stock into approximately 13,637,000, 1,800,000,
8,556,000, and 11,864,000, shares, respectively, of Common Stock. For purposes
of calculating amounts of deferred equity-based charges, the values used are
based upon the actual issuance dates of stock described in (2) and (3) above.
F-10
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
Comprehensive Income
The Company has adopted the provision of SFAS No. 130 "Reporting
Comprehensive Income" which establishes standards for reporting comprehensive
income and its components in financial statements. Comprehensive income, as
defined, includes all changes in equity (net assets) during a period from non-
owner sources. To date the Company has not had any transactions that are
required to be reported as comprehensive income.
Segments
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about its products, services, geographic areas and major customers.
The Company operates in a single business segment providing online services in
the United States.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" that was amended by SFAS 137 in June 1999 to delay the
effective date of adoption to fiscal years beginning after June 15, 2000. SFAS
133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains and losses be reported either in the statement of
operations or as a component of comprehensive income, depending on the type of
hedging relationship that exists. Management believes the adoption of this
statement will not have a significant impact on the Company's financial
position, results of operations or cash flows, as the Company has not yet
invested in any derivative instruments.
NOTE 2--ACQUISITION
Digital Communities, Inc. (dba AcmePet.com)
In October 1999, the Company acquired certain assets and liabilities of
Digital Communities, Inc. (dba AcmePet.com) in exchange for approximately
$4,000,000 in cash and approximately 1,156,000 shares of Series D Convertible
Preferred Stock with a value of approximately $5,400,000 based on the fair
value of the consideration received and was accounted for as a purchase. The
fair value of purchase consideration has been allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based on their
relative fair values. The excess of fair value of purchase consideration over
tangible and identifiable intangible assets acquired and liabilities assumed
has been allocated to goodwill and is being amortized on a straight-line basis
over three years. Identifiable intangible assets are being amortized on a
straight line basis over three years.
F-11
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
The following is an allocation of purchase price to tangible and identifiable
intangible assets acquired and liabilities assumed (in thousands):
<TABLE>
<S> <C>
Cash payment......................................................... $4,000
Preferred stock issued............................................... 5,400
------
Total purchase price........................................... $9,400
======
Allocation of purchase price:
Tangible assets.................................................... $ 30
Liabilities assumed................................................ (4)
Intangible assets:
Customer relationships/trademarks................................ 6,000
Technology/Web site.............................................. 380
Covenant not to compete.......................................... 1,000
Goodwill......................................................... 1,994
------
$9,400
======
</TABLE>
K&K Hansen, Inc. (dba Mason Distributing Company)
In March 1999, the Company acquired substantially all the assets and certain
of the liabilities of Mason Distributing Company in consideration for cash and
a note payable totaling approximately $391,000. The transaction has been
accounted for as a purchase of assets and the purchase price has been allocated
to the identifiable assets based on their fair value.
The following unaudited pro forma summary information presents the
consolidated results of operations as if the acquisitions had been completed at
the beginning of the period presented and are not necessarily indicative of the
results of operations of the consolidated Company that may have occurred had
the acquisitions been completed at the beginning of the period specified, nor
are they necessarily indicative of future operating results. The pro forma
amounts give effect to certain adjustments, including the amortization of
intangibles and goodwill and issuance of the preferred stock in conjunction
with the acquisition of AcmePet.com and the assumed conversion of such shares.
<TABLE>
<CAPTION>
From
Inception
(February 25,
1999) to
January 2,
2000
-------------
(in
thousands)
<S> <C>
Net revenues................................................. $ 11,266
========
Net loss attributable to common stockholders................. $(54,590)
========
Basic and diluted loss per share............................. $ (1.49)
========
</TABLE>
F-12
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
NOTE 3--COMPONENTS OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
January 2,
2000
--------------
(in thousands)
<S> <C>
Property and equipment:
Computer equipment.......................................... $ 818
Computer software........................................... 619
Furniture and office equipment.............................. 18
Leasehold improvements...................................... 177
------
Total..................................................... 1,632
Accumulated depreciation and amortization................. (233)
------
$1,399
======
Intangible assets:
Customer relationships/trademarks........................... $6,000
Technology/Web site......................................... 380
Covenant not to compete..................................... 1,000
Goodwill.................................................... 1,994
Cost of acquiring Web site domain names..................... 67
------
Total..................................................... 9,441
Accumulated amortization.................................. (745)
------
$8,696
======
Accrued liabilities:
Advertising................................................. $4,835
Other....................................................... 165
------
$5,000
======
</TABLE>
NOTE 4--INCOME TAXES
As a result of net operating losses, the Company has not recorded a provision
for income taxes. Significant components of the Company's deferred tax balances
at January 2, 2000 are as follows:
<TABLE>
<CAPTION>
January 2,
2000
--------------
(in thousands)
<S> <C>
Deferred tax assets:
Net operating losses carryforwards........................ $ 17,756
Other..................................................... 11
--------
Gross deferred tax assets............................... 17,767
Valuation allowance......................................... (14,800)
--------
Net deferred tax asset.................................... $ 2,967
========
Deferred tax liabilities:
Amortization of intangible assets......................... $ 2,967
========
</TABLE>
F-13
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
Due to uncertainties surrounding the timing and realization of the benefits
from the Company's tax attributes in future tax returns, the Company has placed
a valuation allowance against its otherwise recognizable deferred tax assets.
For the period from inception to January 2, 2000, the Company had net
operating losses for federal and state income tax purposes of approximately
$44,170,000. The net operating losses have 20 year and 8 year carryforward
periods for federal and state income tax purposes, respectively. Utilization of
the above carryforwards may be subject to utilization limitations, which may
inhibit the Company's ability to use carryforwards in the future.
NOTE 5--STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Convertible Preferred Stock at January 2, 2000 consists of the following (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Shares
---------------------- Liquidation
Par Value Authorized Outstanding Preference
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Series A convertible.......... $.001 3,300 3,000 $ 8,010
Series B convertible.......... $.001 1,800 1,800 3,006
Series C convertible.......... $.001 2,806 2,400 4,944
Series D convertible.......... $.001 11,864 11,864 55,405
------ ------ -------
19,770 19,064 $71,365
====== ====== =======
</TABLE>
Each holder of Convertible Preferred Stock is entitled to the number of votes
on an as-converted basis. The holders of the Series A, B, C and D Convertible
Preferred Stock are entitled to receive non-cumulative dividends when, as and
if declared by the Company's board of directors at a rate of 8% of the
respective issuance price per share per annum. No dividends were declared or
paid in the period from inception to January 2, 2000.
In the event of any liquidation, dissolution or winding up of the Company the
holders of Series A, B, C and D Convertible Preferred Stock are entitled to
receive, in preference to holders of Common Stock, for each outstanding share
an amount equal to $2.67, $1.67, $2.06 and $4.67, respectively, plus declared
but unpaid dividends on each share, as adjusted. Liquidation is also deemed to
include the Company's sale of all or substantially all its assets or the
acquisition of this corporation by another entity by means of merger or
consolidation resulting from the transfer of 50% or more of the Company's
voting power.
Each share of the Series A, B, C and D Convertible Preferred Stock is
convertible, at the option of the holder, at any time into such number of
shares of Common Stock as is determined by dividing the applicable original
issue price of such shares of Convertible Preferred Stock by the Conversion
Price. The original issue price per share of Series A, B and C Convertible
Preferred Stock is $1.67. The original issue price per share of Series D
Convertible Preferred Stock is $4.67. The Conversion Price per share of Series
A, B, C and D Convertible Preferred Stock is $0.367, $1.67, $0.468 and $4.67
respectively. Each share of Convertible Preferred Stock will automatically be
converted into shares of Common Stock at the then effective Conversion Price
upon the earlier of (i) the closing of an initial public offering of gross
proceeds to the Company of not less than $15,000,000 or (ii) the consent of
holders of not less than 50% of the then outstanding shares of each series of
Convertible Preferred Stock.
F-14
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
The Company recorded a deduction for the beneficial conversion feature
associated with the Series C Convertible Preferred Stock, based on the deemed
fair value at issuance. The deduction was made as the stock is immediately
convertible.
In connection with the Company's reorganization, the Company issued Series A
Convertible Preferred Stock and warrants described below to PETsMART, Inc. in
exchange for cash and the contribution of certain assets.
Preferred Stock Warrants
On May 12, 1999, the Company issued warrants to PETsMART, Inc. to purchase
300,000 shares of Series A Convertible Preferred Stock in connection with the
Series A financing. The exercise price of these warrants is $16.67 per share.
These warrants may be exercised at any time after May 12, 1999 and expire on
the sooner of an initial public offering by the Company, a change in control or
November 12, 2000.
On May 12, 1999, in consideration for the provision of Web site content
services the Company issued two sets of warrants to Rodale Press, Inc. to
purchase Series C Convertible Preferred Stock. The first set of warrants is for
23,163 shares at an exercise price of $1.67 per share and are exercisable at
any time after May 12, 1999, and expire on the sooner of an initial public
offering by the Company, a change in control or May 12, 2004. The second set of
warrants is for 43,227 shares at an exercise price of $13.07 and are
exercisable at any time after May 12, 1999, and expire on the sooner of an
initial public offering by the Company, a change in control or November 12,
2000. These warrants were fully vested at the grant date. In connection with
both blocks of warrants issued, the Company recognized equity-based charges in
the period from inception to January 2, 2000 of approximately $12,000. This
expense is based on the value of the warrant at the grant date calculated using
the Black-Scholes pricing model.
On May 12, 1999, the Company issued warrants to idealab! Holdings, L.L.C. to
purchase 339,278 shares of Series C Convertible Preferred Stock in connection
with the Series C financing. The exercise price of these warrants is $13.07 per
share. These warrants may be exercised at any time after May 12, 1999 and
expire on the sooner of an initial public offering by the Company, a change in
control or November 12, 2000.
Common Stock
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 70,000,000 shares of $0.001 par value Common Stock.
Founder Stock Agreements
Certain restricted Common Stock was issued to founders of the Company and is
subject to repurchase in the event of voluntary termination or involuntary
termination with cause. On May 12, 1999, 425,000 shares vested immediately with
the remaining 1,005,000 shares vesting generally over 3 to 4 years. In the
event of termination without cause and a substantial sale of the Company's
assets, or a merger, up to 50% of the unvested shares would immediately vest.
As of January 2, 2000, approximately 870,000 shares of outstanding common stock
were subject to repurchase by the Company at $0.20, the original issue price.
In connection with this issuance of common stock, the Company recorded stock-
based charges in the period from inception to January 2, 2000 of approximately
$687,000.
Notes receivable from stockholders
As described in Note 10, at January 2, 2000, the Company carries notes
receivable from stockholders of approximately $2,553,000.
F-15
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
Common Stock Warrants
On August 30, 1999, the Company issued warrants to Big Dogs USA, Inc. ("Big
Dogs") to purchase up to a maximum of 840,000 shares of Common Stock, in
connection with a two-year marketing agreement. The warrants are exercisable
after August 30, 1999 and at four different exercise prices of $8.88, $17.75,
$26.63 and $35.50; each price applies to a block of 210,000 shares. The
warrants expire upon the sooner of 3 years following the dates of an initial
public offering by the Company, or August 30, 2004. Half of each block, or
420,000 shares, were fully vested, exercisable and nonforfeitable upon issuance
and the remaining warrants up to 420,000 will vest upon Big Dog's performance
under the marketing agreement. The Company recorded deferred equity-based
charges of approximately $472,000 associated with the vested shares using the
Black-Scholes pricing model and recognized approximately $78,000 of equity-
based charges in the period ended January 2, 2000. The unvested shares are
subject to variable plan accounting, with fair value measurements upon meeting
the performance criteria. At January 2, 2000, Big Dogs has not met such
criteria.
NOTE 6--EMPLOYEE BENEFIT PLANS
Stock Option Plan
On June 14, 1999, the Company's Board of Directors adopted and the
stockholders approved, the 1999 Stock Plan (the "1999 Stock Plan"). A total of
approximately 5,466,000 shares of Common Stock have been reserved for issuance
under the 1999 Stock Plan, as amended. The 1999 Stock Plan provides for the
granting of non-statutory and incentive stock options to employees, officers,
directors and consultants of the Company. Stock purchase rights may also be
granted under the 1999 Stock Plan. Options granted generally vest over a 4-year
period, with 20% of the shares vesting either immediately upon grant or after
the first 6 months following the grant date. The remaining shares vest in 20%
increments during or at the end of each year following the grant date. The
options generally expire 10 years from the date of grant.
The following table summarizes activity under the Stock Option Plan for the
period from inception through January 2, 2000:
<TABLE>
<CAPTION>
Shares of Weighted
Common Stock Average
Under Exercise
Options Price
------------ --------
(in
thousands)
<S> <C> <C>
February 25, 1999 (inception)........................ -- $ --
Granted............................................ 3,040 0.52
Exercised.......................................... (307) 0.74
Canceled........................................... (41) 0.45
----- -----
January 2, 2000...................................... 2,692 $0.49
===== =====
Options exercisable.................................. 1,099
=====
Options available for future grant................... 2,733
=====
</TABLE>
F-16
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
Additional information with respect to the outstanding options as of January
2, 2000 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------------------ ------------------
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Exercise Prices of Shares (in years) Price of Shares Price
--------------- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.20.................. 1,258 9.37 $0.20 603 $0.20
0.75.................. 1,434 9.83 0.75 496 0.75
----- -----
2,692 1,099
===== =====
</TABLE>
Options granted during the period from inception to January 2, 2000 resulted
in a total compensation of approximately $9,486,000 under APB 25 that was
recorded as deferred equity-based charges. Deferred equity-based charges is
recognized as equity-based charges over the related vesting period of the
options. All options were granted at an exercise price which was less than the
deemed fair value of common stock.
The Company calculated the minimum fair value of each option grant on the
date of grant using the minimum value option pricing model as prescribed by
SFAS 123 using the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rates........................................... 5.46%
Expected lives..................................................... 4 years
Dividend yield..................................................... $0
Expected volatility................................................ 0%
</TABLE>
For the purposes of pro forma disclosures, the estimated fair value of
options is amortized to expense over the options' vesting period. The resultant
pro forma information follows:
<TABLE>
<CAPTION>
From
Inception
(February 25,
1999) to
January 2,
2000
-------------
<S> <C>
Net loss attributable to common stockholders (in
thousands):
As reported............................................. $(52,043)
Pro forma............................................... $(52,113)
Basic and diluted loss per share:
As reported............................................. $ (65.38)
Pro forma............................................... $ (65.47)
</TABLE>
Because the determination of fair value of all options granted after such
time as the Company becomes a public entity will include an expected volatility
factor in addition to the factors described above, the pro forma results above
may not be representative of future periods. In addition, the pro forma effects
may not be representative of future amounts since the estimated fair value of
stock options on the date of grant is amortized to expense over the vesting
period using the multiple option approach as additional options may be granted
in future periods.
F- 17
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
NOTE 7--NET LOSS PER SHARE
The following table sets forth the computation of basic, diluted and pro
forma net loss per share for the period from inception to January 2, 2000:
<TABLE>
<CAPTION>
From Inception
(February 25,
1999) to
January 2,
2000
--------------
(in thousands,
except
per share
amounts)
<S> <C>
Historical Presentation
Numerator:
Net loss................................................ $(47,495)
Deduction for beneficial conversion feature............. (4,548)
--------
Net loss attributable to common stockholders.......... $(52,043)
========
Denominator:
Weighted average common shares.......................... 1,718
Weighted average unvested common shares subject to
repurchase............................................. (922)
--------
Denominator for basic and diluted calculation......... 796
--------
Basic and diluted net loss per share applicable to common
stockholders............................................. $ (65.38)
========
Pro Forma Presentation
Numerator:
Net loss................................................ $(47,495)
Deduction for beneficial conversion feature............. (4,548)
--------
Net loss attributable to common stockholders.......... $(52,043)
========
Denominator:
Shares used above....................................... 796
--------
Weighted average effect of convertible securities:
Series A Convertible Preferred Stock.................... 10,271
Series B Convertible Preferred Stock.................... 1,356
Series C Convertible Preferred Stock.................... 6,444
Series D Convertible Preferred Stock.................... 3,346
--------
Denominator for pro forma calculation................. 22,213
========
Unaudited pro forma net loss per share applicable to
common stockholders.................................. $ (2.34)
========
</TABLE>
The diluted per share computations exclude common stock subject to
repurchase, convertible preferred stock and common stock options and warrants
for convertible preferred stock as such instruments were antidilutive. The
number of potential common shares excluded from the diluted net loss per share
computation was approximately 1,843,000.
F-18
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
NOTE 8--NOTE PAYABLE
On August 1, 1999, the Company issued a note payable of approximately
$339,000 to a vendor in consideration for a computer software license. The note
is to be repaid in equal monthly amounts beginning August 1, 1999. The note
expires April 1, 2002 and bears interest at a rate of 12.4% per annum.
NOTE 9--COMMITMENTS AND CONTINGENCIES
Operating leases
Future minimum lease payments under non-cancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Years
Ending
January 2,
----------
<S> <C>
2001................................................................ $254
2002................................................................ 159
2003................................................................ 90
----
$503
====
</TABLE>
Total rent expense under operating leases, for the period from inception to
January 2, 2000 was $69.
Other Commitments
The Company has future advertising purchase commitments of approximately
$7,893,000 that expire in less than one year from January 2, 2000 and
approximately $900,000 that expire during the year ended January 2, 2001.
Contingencies
Under the terms of the Company's product sourcing and fulfillment agreement
with PETsMART, Inc., the Company is liable for inventory obsolescence losses
related to inventory acquired by PETsMART, Inc. based on binding sales
forecasts provided by the Company.
From time to time, the Company has been party to various litigation and
administrative proceedings relating to claims arising from its operations in
the normal course of business. Based on the information presently available,
including discussion with legal counsel, management believes that resolution of
these matters will not have a material adverse effect on the Company's
business, results of operations, financial condition, or cash flows.
NOTE 10--RELATED PARTY TRANSACTIONS
The Company has agreements with PETsMART, Inc. which provide for the use of
the PETsMART name, joint marketing activities, web and content hosting, and
merchandise procurement and distribution support. Substantially all of the
Company's sales were fulfilled under this arrangement. Reimbursement for the
cost of product sold and for PETsMART, Inc.'s support services is calculated
under an activity-based costing method. The total cost of these in the period
from inception to January 2, 2000 was approximately $20,200,000. At January 2,
2000 the Company owes PETsMART, Inc. an amount of approximately $3,908,000
related to the provision of these services.
At January 2, 2000 the Company carries notes receivable from employees
totaling approximately $225,000 related to the exercise of stock options. The
notes bear interest at 7% and are due on or before December 23, 2004. The
notes, which are classified as a component of stockholders' equity, are full
recourse and collateralized by shares of common stock owned by the employees.
F-19
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
At January 2, 2000 the Company carries two notes receivable from employees
with a value of approximately $80,000 and approximately $286,000 related to the
purchase of Common Stock. The notes bear interest at 7% and are due on or
before April 1, 2004 and May 12, 2000 respectively. The notes, which are
classified as a component of stockholders' equity, are full recourse and
collateralized by shares of common stock owned by the employees.
At January 2, 2000 the Company carries notes receivable from a stockholder
totaling approximately $1,962,000 related to the purchase of Series D
Convertible Preferred Stock that were repaid in January, 2000. The notes bear
interest at 7%, are classified as a component of stockholders' equity, were
full recourse and were collateralized by shares of common stock owned by the
stockholder.
NOTE 11--SUBSEQUENT EVENTS (UNAUDITED)
Registration Statement
On February 3, 2000 the Company's Board of Directors authorized the filing of
a registration statement with the Securities and Exchange Commission ("SEC")
that would permit the Company to sell shares of the Company's Common Stock in
connection with a proposed initial public offering ("IPO"). If the IPO is
consummated under the terms presently anticipated, upon the closing of the
proposed IPO, all of the then outstanding shares of the Company's Convertible
Preferred Stock will automatically convert into shares of Common Stock in the
manner described in Note 5.
1999 Stock Plan
On February 3, 2000, the Board of Directors amended the 1999 Stock Plan to
reserve that number of shares of Common Stock equal to 20% of the number of
shares of Common Stock outstanding at any time, provided that such reserved
shares do not exceed a limit of approximately 11,000,000 shares of Common
Stock.
Common Stock Issuance
On February 3, 2000, the Company agreed to sell approximately 1,361,000
shares of Common Stock to PETsMART, Inc. Upon consummation of an IPO the
Company will issue approximately an additional 81,000 shares of Common Stock to
PETsMART, Inc. In connection with these stock issuances, the Company expects to
record deferred equity-based charges of approximately $11,000,000.
Equipment Lease Line
In January 2000, we entered into an equipment lease line to provide up to
$4,000,000 for the acquisition of computer equipment. The credit facility
expires in February 2003.
Employee Stock Purchase Plan
On February 3, 2000, the Board of Directors and stockholders adopted the
Employee Stock Purchase Plan (the "ESPP"), which will become effective
immediately prior to the effective date of the initial public offering. The
ESPP reserves 1,000,000 shares of common stock for issuance thereunder. The
aggregate number of shares reserved for issuance under the ESPP will be
increased automatically to the lesser of 500,000 or 3% of the total number of
common shares outstanding. Employees generally will be eligible to participate
in the ESPP if they are customarily employed by the Company for more than
20 hours per week and more than five months in a calendar year and are not (and
would not become as a result of being granted an option under the ESPP) 5%
F-20
<PAGE>
PETsMART.com, Inc.
Notes to Financial Statements--(Continued)
stockholders of the Company. Under the ESPP, eligible employees may select a
rate of payroll deduction up to 15% of their W-2 cash compensation subject to
certain maximum purchase limitations. The first offering period is expected to
begin on the first business day on which price quotations for the Company's
common stock are available on The Nasdaq National Market. Offering periods
thereafter will begin on May 15 and November 15. Purchases will occur on May 14
and November 14, or the last day of trading prior to these dates. The price at
which the Common Stock is purchased under the ESPP is 85% of the lesser of the
fair market value of the Company's Common Stock on the date before the first
day of the applicable offering period or on the last day of that purchase
period.
2000 Directors Stock Option Plan
On February 3, 2000, the Board of Directors adopted and stockholders approved
the 2000 Directors' Stock Option Plan ("Director Plan") which will become
effective immediately prior to the effective date of the initial public
offering. The Director Plan reserves a total of 300,000 shares of the Company's
Common Stock for issuance thereunder. Nonemployee directors are eligible to
participate in the Director Plan. A nonemployee director is any person employed
by the Company, a subsidiary or affiliate of the Company. The option grants
under the Director Plan are automatic and nondiscretionary, and the exercise
price of the options must be 100% of the fair market value of the common stock
on the date of grant. Each eligible director who first becomes a member of the
board will initially be granted an option to purchase 25,000 shares on the date
such director first becomes a director. Immediately following each annual
meeting of the Company, beginning in 2000, each eligible director will
automatically be granted an additional option to purchase 12,500 shares if such
director has served continuously as a member of the board for at least the
preceding six months. The term of such options is ten years, provided that they
will terminate following the date the director ceases to be a director or a
consultant of the Company. Options will vest immediately, in full.
F-21
<PAGE>
PETsMART.com, Inc.
Unaudited Pro Forma Consolidated Financial Data
Overview
In March 1999, the Company acquired substantially all the assets and certain
liabilities of Mason Distributing Company, Inc. in consideration for cash of
approximately $291,000 and a note payable of $100,000. The transaction has been
accounted for as a purchase of assets.
In October 1999, the Company acquired substantially all the assets and
certain liabilities of AcmePet.com in exchange for approximately $4,000,000 in
cash and approximately 1,156,000 of Series D Convertible Preferred Stock with a
value of $5,400,000 based on the terms and preferences of the shares offered in
the transaction relative to the value received by the Company in its most
recent financing prior to the acquisition. The acquisition has been accounted
for as a purchase. The fair value of purchase consideration has been allocated
to tangible and identifiable intangible assets acquired and liabilities assumed
based on their relative fair values. The excess of the fair value of purchase
consideration over tangible and identifiable intangible assets acquired and
liabilities assumed has been allocated to goodwill and is being amortized on a
straight-line basis over three years. Identifiable intangible assets are being
amortized on a straight-line basis over three years.
The following unaudited pro forma consolidated statements of operations gives
effect to these acquisitions as if they had occurred on January 1, 1999 by
combining the results of operations of Mason Distributing Company and
AcmePet.com with the results of operations of the Company for the period of
January 1, 1999 to January 2, 2000. The unaudited pro forma consolidated
statements of operations are not necessarily indicative of the operating
results that would have occurred as if these acquisitions had occurred as of
the beginning of the periods presented and should not be construed as being
representative of future operating results.
The historical financial statements of the Company, Mason Distributing
Company and AcmePet.com included elsewhere in this prospectus, and the
unaudited consolidated pro forma financial information presented herein should
be read in conjunction with those financial statements and related notes.
F-22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND FOOTNOTES
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
K&K Digital
Hansen, Communities,
PETsMART.com, Inc. Inc. Inc.
------------------ --------- ------------
Jan. 1, Jan. 1, 1999
Feb. 25, 1999 1999 to to Pro Forma
(Inception) March 31, October 7, ---------------------
to January 2, 2000 1999 1999 Adjustments Combined
------------------ --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 10,446 $610 $ 210 $ -- $ 11,266
Costs of net revenues... 16,739 475 -- -- 17,214
-------- ---- ----- ------- --------
Gross (loss) margin... (6,293) 135 210 -- (5,948)
-------- ---- ----- ------- --------
Operating expenses:
Sales and marketing
(exclusive of equity-
based charges of
$443)................ 33,476 25 3 -- 33,504
Product development
(exclusive of equity-
based charges of
$530)................ 2,359 -- -- -- 2,359
General and
administrative
(exclusive of equity-
based charges of
$1,569).............. 3,351 106 339 2,384(A) 6,180
Equity-based charges.. 2,542 -- -- -- 2,542
-------- ---- ----- ------- --------
Total operating
expenses........... 41,728 131 342 2,384 44,585
-------- ---- ----- ------- --------
Income (loss) from
operations............. (48,021) 4 (132) (2,384) (50,533)
Other income (expense),
net: 526 (29) (6) -- 491
-------- ---- ----- ------- --------
Net loss............ (47,495) (25) (138) (2,384) (50,042)
Deduction for beneficial
conversion feature..... (4,548) -- -- -- (4,548)
-------- ---- ----- ------- --------
Net loss attributable to
common stockholders.... $(52,043) $(25) $(138) $(2,384) $(54,590)
======== ==== ===== ======= ========
Net loss per common
share(B)............... $ (1.49)
========
Shares used to calculate
net loss per common
share.................. 36,652
========
</TABLE>
- ----------------------------------------------
The following adjustments were applied to the Company's historical financial
statements and those of Mason Distribution Company and AcmePet.com to arrive at
the pro forma consolidated financial information.
(A) To record amortization of identifiable intangible assets and acquired
goodwill over the estimated period of benefit of 3 years.
(B) Pro forma net loss per share for the period from inception to January 2,
2000 is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of the
Company's Series A, B, C and D Convertible Preferred Stock into shares of the
Company's Common Stock effective upon the closing of this offering as if such
conversion occurred on January 1, 1999. The shares issued for AcmePet.com have
been included as if the issuance of shares occurred on January 1.
F-23
<PAGE>
January 31, 2000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of K& K Hansen, Inc. dba Mason Distributing Company
We have audited the accompanying balance sheets of K & K Hansen, Inc. (dba
Mason Distributing Company) as of December 31, 1997 and 1998 and March 31,
1999, and the related statements of operations and accumulated deficit, and
cash flows for the years ended December 31, 1997 and 1998 and the three months
ended March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of K & K Hansen, Inc. (dba Mason
Distributing Company) at December 31, 1997 and 1998 and March 31, 1999, and the
results of its operations and its cash flows for the periods then ended in
conformity with generally accepted accounting principles.
Lesley, Thomas, Schwarz & Postma, Inc.
A Professional Accountancy Corporation Newport Beach, California
F-24
<PAGE>
K&K Hansen, Inc. dba
Mason Distributing Company
BALANCE SHEETS
(In thousands)
Assets
<TABLE>
<CAPTION>
December 31, March 31,
-------------- ---------
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents (Note 1)................. $ -- $ -- $ --
Accounts receivable, less allowance for doubtful
accounts of $27, $45, and $30 in 1997, 1998 and
March 31, 1999, respectively (Note 1)............. 201 134 171
Related party receivable (Note 5).................. 7 30 --
Inventories (Notes 1 and 2)........................ 438 373 402
Prepaid expenses and other current assets.......... 5 4 4
------ ------ -----
Total current assets............................. 651 541 577
Property and equipment, net (Notes 1, 3 and 8)....... 96 65 57
Other assets......................................... 4 3 5
------ ------ -----
Total assets..................................... $ 751 $ 609 $ 639
====== ====== =====
Liabilities and Stockholders' Deficit
Current Liabilities
Bank overdraft..................................... $ 17 $ 43 $ 47
Accounts payable and accrued liabilities........... 215 190 255
Accrued interest................................... 44 15 22
Bank line of credit (Note 4)....................... 46 47 48
Current portion of capital lease obligations (Note
8)................................................ 21 23 23
Notes payable to related parties (Notes 4 and 5)... 826 745 729
------ ------ -----
Total current liabilities........................ 1,169 1,063 1,124
Capital lease obligations, net of current portion
(Note 8)............................................ 37 14 8
------ ------ -----
Total liabilities................................ 1,206 1,077 1,132
------ ------ -----
Commitments and contingencies (Notes 5 and 8)
Stockholders' deficit
Common stock, $1 par value, 1,000 shares
authorized, 2 shares issued and outstanding....... 2 2 2
Additional paid-in capital......................... 60 60 60
Accumulated deficit................................ (517) (530) (555)
------ ------ -----
Total stockholders' deficit...................... (455) (468) (493)
------ ------ -----
Total liabilities and stockholders' deficit...... $ 751 $ 609 $ 639
====== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements
F-25
<PAGE>
K&K Hansen, Inc. dba
Mason Distributing Company
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Three
Months Ended
Years Ended December 31, March 31,
-------------------------- ------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues......................... $ 2,707 $ 2,467 $ 610
Costs of net revenues................ 2,080 1,919 475
------------ ------------ -----
Gross margin....................... 627 548 135
------------ ------------ -----
Operating expenses:
Sales and marketing................ 130 107 25
General and administrative
expenses.......................... 543 406 106
------------ ------------ -----
Total operating expenses......... 673 513 131
------------ ------------ -----
Income (loss) from operations........ (46) 35 4
------------ ------------ -----
Other income (expense):
Interest income...................... 7 5 --
Interest expense..................... (67) (52) (28)
------------ ------------ -----
Total other income (expense)....... (60) (47) (28)
------------ ------------ -----
Loss before income taxes............. (106) (12) (24)
Provision for income taxes (note 7).. (1) (1) (1)
------------ ------------ -----
Net loss........................... (107) (13) (25)
Accumulated deficit, beginning of
period.............................. (410) (517) (530)
------------ ------------ -----
Accumulated deficit, end of period... $ (517) $ (530) $(555)
============ ============ =====
</TABLE>
The accompanying notes are an integral part of these financial statements
F-26
<PAGE>
K&K Hansen, Inc. dba
Mason Distributing Company
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three
Years Ended Months Ended
December 31, March 31,
-------------- ------------
1997 1998 1999
------ ------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (107) $ (13) $ (25)
------ ------ -----
Adjustments to reconcile loss to net cash
provided by (used in) operating activities:
Depreciation ................................... 29 33 7
Changes in operating assets and liabilities:
Accounts receivable............................ 35 67 (37)
Inventories.................................... 29 65 (29)
Related party receivable....................... 15 (23) 30
Prepaid expenses and other current assets...... 1 1 (2)
Accounts payable and bank overdraft............ (153) 1 69
Accrued liabilities............................ 41 (29) 7
------ ------ -----
Total adjustments............................. (3) 115 45
------ ------ -----
Net cash provided by (used in) operating
activities................................... (110) 102 20
------ ------ -----
Cash flows from investing activities
Purchases of property and equipment............... -- (2) --
------ ------ -----
Net cash used in investing activities......... -- (2) --
------ ------ -----
Cash flows from financing activities
Borrowings on line of credit (net)................ 12 1 2
Repayment of capital lease obligations............ (19) (21) (5)
Proceeds from (repayments of) notes payable to
related parties.................................. 117 (80) (17)
------ ------ -----
Net cash provided by (used in) financing
activities................................... 110 (100) (20)
------ ------ -----
Net increase in cash and cash equivalents......... -- -- --
Cash and cash equivalents, beginning of period.... -- -- --
------ ------ -----
Cash and cash equivalents, end of period.......... $ -- $ -- $ --
====== ====== =====
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................ $ 25 $ 47 $ 8
====== ====== =====
Income taxes.................................... $ 1 $ 1 $ 1
====== ====== =====
</TABLE>
Non-cash transactions
During 1997, the Company had non-cash financing activities for the lease of
capitalized vehicles in the amount of $103.
The accompanying notes are an integral part of these financial statements
F-27
<PAGE>
K & K Hansen, Inc. dba
Mason Distributing Company
Notes to Financial Statements
December 31, 1997 and 1998 and March 31, 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
K & K Hansen, Inc. dba Mason Distributing Company (the "Company") is a
wholesale distributor of pet supplies primarily within the Southern California
area. The Company operates in the state of California and is organized as an S
corporation.
Recognition of Net Revenues and Cost of Net Revenues
Revenues on product sales, net of discounts, coupons and allowances, are
recognized upon shipment of the related goods. Outbound shipping charges are
included in net sales upon shipment.
Cash and Cash Equivalents
The Company considers all highly liquid, short-term investments purchased
with a maturity of three (3) months or less to be cash equivalents.
Accounts Receivable
The Company records its estimate for doubtful accounts under the allowance
method as required by generally accepted accounting principles.
Inventories
Inventories are stated utilizing the average cost method.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is provided for under the straight-line method over the estimated
useful lives of the assets which range from five (5) to seven (7) years.
Maintenance and repairs in the ordinary course of operations are expensed as
incurred. Major improvements which increase the estimated useful lives of
assets are capitalized. When items of property and equipment are sold or
retired, the related costs and accumulated depreciation are removed from the
accounts and any gain or loss on disposal is recognized accordingly.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect that reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Credit Risk
The Company does not require collateral for its trade receivables, but does
inquire into each customer's credit worthiness.
F-28
<PAGE>
K & K Hansen, Inc. dba
Mason Distributing Company
Notes to Financial Statements--(Continued)
December 31, 1997 and 1998 and March 31, 1999
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $36,000,
$18,000 and $2,000 for the years ended December 31, 1997 and 1998 and the three
months ended March 31, 1999, respectively.
NOTE 2 - INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended
------------- March 31,
1997 1998 1999
------ ------ ------------
<S> <C> <C> <C>
Finished goods.................................... $ 438 $ 373 $402
====== ====== ====
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year
Ended
December Three Months
Useful 31, Ended
Life ---------- March 31,
(Years) 1997 1998 1999
------- ---- ---- ------------
<S> <C> <C> <C> <C>
Machinery and equipment..................... 5 $ 46 $ 46 $ 46
Furniture and fixtures...................... 5 - 7 33 36 36
Automobiles................................. 5 124 124 124
---- ---- ----
203 206 206
Less accumulated depreciation............... (107) (141) (149)
---- ---- ----
$ 96 $ 65 $ 57
==== ==== ====
</TABLE>
NOTE 4 - NOTES PAYABLE TO RELATED PARTIES AND LINE OF CREDIT
At December 31, 1997 and 1998 and at March 31, 1999, the Company held
unsecured notes payable from the Company's stockholders and other related
parties totaling $826,000, $745,000 and $729,000, respectively. The notes
payable are due on demand and bear interest varying from 4.48% to 5.54% per
annum.
Additionally, the Company had a line of credit agreement with a bank,
providing for borrowings up to $50,000 and expiring annually on December 31st.
The line of credit agreement is unsecured other than being personally
guaranteed by the principal stockholders. Borrowings under the line of credit
agreement bear interest at varying rates of 15%, 14.5% and 14.25% for the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1999,
respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company distributes and sells products manufactured by the KyJen Company,
Inc., ("KyJen"), an affiliated entity that has similar stockholders and
officers of the Company. The transactions are consummated under typical "arms
length" arrangements as with the Company's other suppliers. Sales of KyJen's
products
F-29
<PAGE>
K & K Hansen, Inc. dba
Mason Distributing Company
Notes to Financial Statements--(Continued)
December 31, 1997 and 1998 and March 31, 1999
amounted to approximately $195,000, $219,000 and $56,000 for the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999,
respectively. The sales represented approximately 7.2%, 8.9% and 9.2%,
respectively, of total net sales for the Company for the same periods
presented.
Amounts receivable from KyJen were $7,000, $30,000 and $0 at December 31,
1997 and 1998 and at March 31, 1999, respectively.
The Company leases its office and warehouse facilities from the Robert and
Lynne Hansen Family Trust, whose trustees are family members of the principal
stockholders, under a noncancelable lease that is renewable annually. Rents
paid to the Trust were $30,000, $24,000 and $6,000 for the years ended December
31, 1997 and 1998 and for the three months ended March 31, 1999, respectively.
As previously described in Note 4, the Company held notes payable to various
related parties at December 31, 1997 and 1998 and at March 31, 1999. The notes
payable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended
------------- March 31,
1997 1998 1999
------ ------ ------------
<S> <C> <C> <C>
Note payable to KyJen plus interest at 5.6%..... $ 80 $ -- $--
Note payable to Robert and Lynne Hansen Family
Trust plus interest at 4.48%................... 718 718 718
Note payable to shareholder plus interest at
5.54%.......................................... 15 -- --
Note payable to shareholder plus interest at
5.54%.......................................... 13 27 11
------ ------ ----
$ 826 $ 745 $729
====== ====== ====
</TABLE>
NOTE 6 - SIGNIFICANT SUPPLIERS
The Company had two (2) suppliers that accounted for approximately 68%, 65%
and 57% of total purchases for the years and periods ended December 31, 1997
and 1998 and March 31, 1999, respectively. Amounts payable to these suppliers
totalled approximately $85,000, $45,000 and $60,000 at December 31, 1997 and
1998 and March 31, 1999.
NOTE 7 - INCOME TAXES
The Company has elected to be taxed as an S corporation under the provisions
of the federal and state tax codes. Under federal laws, taxes based on income
of S corporations are payable by the individual stockholders of the Company.
Accordingly, no provision for federal income taxes has been provided in the
accompanying financial statements for the years ended December 31, 1997 and
1998 and the three months ended March 31, 1999. The Company is liable for
California franchise taxes at a statutory rate of 1.5%, with a minimum
franchise tax of $800.
F-30
<PAGE>
K & K Hansen, Inc. dba
Mason Distributing Company
Notes to Financial Statements--(Continued)
December 31, 1997 and 1998 and March 31, 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Lease
The Company facilities are leased from the Robert and Lynne Hansen Family
Trust (the "Trust") whose trustees are family members of the principal
stockholders under a noncancelable operating lease. Under the terms of the
agreement, rents are to be paid in the amount of $2,000 per month. The lease
contains an option to extend for an additional one (1) year provided written
notice is received via U.S. Certified Mail, return receipt requested, ninety
(90) days prior to expiration. If the option is exercised, rents are to be paid
at the current fair market rent amount to be determined by an independent,
qualified appraiser. Rent expense was $30,000, $24,000 and $6,000,
respectively, for the years ended December 31, 1997 and 1998 and the three
months ended March 31, 1999.
Capital Leases
The Company is obligated under capital leases for two (2) delivery vehicles.
The present value of the leases are as follows:
<TABLE>
<CAPTION>
December 31,
-------------- March 31,
1997 1998 1999
------ ------ ---------
(in thousands)
<S> <C> <C> <C>
Leases payable to a leasing company, payable in
monthly installments of $2 (including interest
at 7.7% per annum and sales tax), secured by
related vehicles................................ $ 58 $ 37 $ 31
Less: current portion............................ (21) (23) (23)
------ ------ ----
Long-term portion of capital lease obligations... $ 37 $ 14 $ 8
====== ====== ====
</TABLE>
The minimum future lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
Period Ending December 31, Amount
-------------------------- --------------
(in thousands)
<S> <C>
1999.......................................................... $19
2000.......................................................... 14
Less amount representing interest............................. (2)
---
$31
===
</TABLE>
The assets are depreciated over their estimated useful lives on a straight-
line basis. Depreciation of the assets acquired by the obligations under
capital leases is included in depreciation expense for the years ended December
31, 1997, 1998 and the three months ended March 31, 1999.
NOTE 9--SUBSEQUENT EVENT--SALE OF BUSINESS ASSETS
On April 1, 1999, the Company sold substantially all of its assets (tangible
and intangible) and certain liabilities to PETsMART.com, Inc., formerly
Interpet, Inc. ("PETsMART.com") for $391,000 in cash, subject to adjustment
based on a post closing gross profit amount to be determined on March 31, 2000.
Per the terms of the agreement, PETsMART.com also obtained a perfected security
interest in the Company's inventory valued at the lower of cost or fair market
at December 31, 1998.
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Digital Communities, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Digital Communities, Inc. and its subsidiary at December 31, 1998 and October
6, 1999, and the results of their operations and their cash flows for the year
ended December 31, 1998 and the period from January 1, 1999 to October 6, 1999,
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
February 1, 2000
F-32
<PAGE>
Digital Communities, Inc.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, October 6,
1998 1999
------------ -----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents........................... $ 5 $ 102
Accounts receivable................................. 38 31
----- -----
Total current assets.............................. 43 133
Property and equipment, net........................... 5 4
Intangible assets, net................................ 137 117
----- -----
Total assets...................................... $ 185 $ 254
===== =====
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable.................................... $ 24 $ 83
Accrued liabilities................................. 8 1
Other current liability............................. -- 100
----- -----
Total current liabilities......................... 32 184
Notes payable to stockholders....................... 128 --
----- -----
Total liabilities................................. 160 184
----- -----
Stockholders' equity
Common stock, $0.01 per value; 1,000 shares
authorized; 703 shares issued and outstanding...... 67 70
Additional paid-in capital.......................... 100 280
Accumulated deficit................................. (142) (280)
----- -----
Total stockholders' equity........................ 25 70
----- -----
Total liabilities and stockholders' equity........ $ 185 $ 254
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
Digital Communities, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, October 6,
1998 1999
------------ -----------
<S> <C> <C>
Net revenues........................................... $115 $ 210
Operating expenses:
Sales and marketing.................................. 2 3
General and administrative........................... 183 339
---- -----
Total operating expenses............................. 185 342
---- -----
Loss from operations................................... (70) (132)
Interest expense....................................... (11) (6)
---- -----
Net loss............................................. $(81) $(138)
==== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
Digital Communities, Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock
(1,000 shares authorized)
--------------------------------
Additional
Par Paid-In Accumulated
Shares Value Capital Deficit Total
-------- -------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1,
1998.................... 673 $67 $ 45 $ (61) $ 51
-------- -------- --------- ----- -----
Contributed capital.... -- -- 55 -- 55
Net loss............... -- -- -- (81) (81)
-------- -------- --------- ----- -----
Balance at December 31,
1998.................... 673 67 100 (142) 25
-------- -------- --------- ----- -----
Issuance of common
stock................. 30 3 175 -- 178
Contributed capital.... -- -- 5 -- 5
Net loss............... -- -- -- (138) (138)
-------- -------- --------- ----- -----
Balance at October 6,
1999.................... 703 $70 $ 280 $(280) $ 70
======== ======== ========= ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
Digital Communities, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, October 6,
1998 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(81) $(138)
Adjustments to reconcile loss to net cash used in
operating activities:
Depreciation and amortization...................... 35 36
Changes in operating assets and liabilities:
Accounts receivable............................... (21) 7
Accounts payable and accrued liabilities.......... 23 52
---- -----
Net cash used in operating activities............ (44) (43)
---- -----
Cash flows from investing activities:
Acquisition of intangible assets..................... (16) (15)
Deposit from PETsMART.com............................ -- 100
---- -----
Net cash (used in) provided by operating
activities...................................... (16) 85
---- -----
Cash flows from financing activities:
Issuance of common stock............................. 55 50
Contributed capital.................................. -- 5
---- -----
Net cash provided by financing activities............ 55 55
---- -----
Net increase (decrease) in cash and cash
equivalents......................................... (5) 97
Cash and cash equivalents, beginning of period....... 10 5
---- -----
Cash and cash equivalents, end of period............. $ 5 $ 102
==== =====
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 11 $ 6
Non-cash transaction:
The Company issued stock for the relief of notes
payable in the amount of $128 in the nine months
ended October 6, 1999.
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-36
<PAGE>
Digital Communities, Inc.
Notes to Consolidated Financial Statements
(in thousands)
NOTE 1--THE COMPANY AND NATURE OF BUSINESS
Digital Communities, Inc. (dba AcmePet.com) (the "Company") is the largest
community for pets on the Internet. The Company's Web site, www.acmepet.com,
offers comprehensive information and links to shopping and services for pets to
millions of pet lovers daily. The site features message boards, chat rooms and
pet health Q&A, as well as free e-mail. The Company was incorporated in
Delaware on March 29, 1996 and commenced operations on that date. The Company
conducts its business within one industry segment.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Digital Communities, Inc. and its wholly owned subsidiary, Digital Communities,
LLC. All significant intercompany accounts and transactions have been
eliminated.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure on
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could vary from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid, short-term investments purchased
with a maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additions and
major improvements are capitalized, whereas the cost of maintenance and repairs
are charged to expense. Depreciation is computed on the straight-line method
over the estimated useful lives of assets of five years.
Intangible Assets and Organization Costs
Intangible assets are comprised primarily of goodwill related to an
acquisition in 1997. Amortization is computed using the straight-line method
over the estimated useful lives of five years.
Revenue Recognition
The Company's revenues are derived principally from the sale of banner and
sponsorship advertisements. To date, the duration of the Company's banner
advertising commitments has ranged from one week to two years. The duration of
sponsorship advertising contracts range from three months to two years and also
involve more integration with the Company's services, such as the placement of
buttons that provide users with direct links to the advertiser's web site.
Advertising revenues on both banner and sponsorship contracts are recognized
ratably over the period in which the advertisement is displayed and are billed
monthly in arrears, provided that no significant Company obligations remain at
the end of a period and collection on the resulting receivable is probable.
Company obligations typically include guarantees of minimum number of
F-37
<PAGE>
Digital Communities, Inc.
Notes to Consolidated Financial Statements--(Continued)
"impressions," or number of times that an advertisement appears in pages viewed
by users of the Company's online properties. To the extent minimum guaranteed
impressions are not met, the Company defers recognition of the corresponding
revenues until the remaining guaranteed impression levels are achieved.
Advertising Costs
Advertising costs are expensed as incurred. During the year ended December
31, 1998 and the nine months ended October 9, 1999, advertising costs totaled
$2,000 and $1,900, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentration of risk consist primarily of cash, cash equivalents, short- and
long-term investments, and accounts receivable. Substantially all of the
Company's cash and cash equivalents are managed by two financial institutions.
Accounts receivable are typically unsecured and are derived from revenues
earned from customers primarily located in the United States. The Company
performs ongoing credit evaluations of its customers and maintains reserves for
potential credit losses; historically, such losses have been within
management's expectations.
Compensated Absences
The Company does not accrue for compensated absences. Management estimates
that such an accrual would not have a material effect on the financial
statements.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and the deposit from PETsMART.com, Inc.
approximate fair value because of the short maturity of these instruments.
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consisted solely of computer equipment with an
original cost basis of approximately $9,000 as of December 31, 1998 and October
9, 1999, respectively. Accumulated depreciation for the same periods was
approximately $4,000 and approximately $5,000 respectively.
NOTE 4--INTANGIBLE ASSETS
Intangible assets consist primarily of the purchased technology associated
with the acquisition of the worldwide Web site, AcmePet.com, in 1997.
Accumulated amortization as of December 31, 1998 and October 9, 1999 was
approximately $50,000 and approximately $85,000 respectively. In conjunction
with the acquisition, the Company is required to pay additional consideration
which totaled approximately $16,000 for the year ended December 31, 1998 and
approximately $15,000 for the nine months ended October 6, 1999.
NOTE 5--INCOME TAXES
The Company has elected to be treated as an S-Corporation and, as a result,
is not subject to federal and state income taxation. Therefore, no provision
for income taxes has been provided in these consolidated financial statements.
F-38
<PAGE>
Digital Communities, Inc.
Notes to Consolidated Financial Statements--(Continued)
NOTE 6--SUBSEQUENT EVENT
On October 6, 1999, PETsMART.com, Inc. acquired all of the assets and certain
liabilities of the Company for a purchase price of approximately $9,400,000,
including approximately $4,000,000 cash and approximately $5,400,000 of
PETsMART.com, Inc.'s Series D Convertible Preferred Stock. In August 1999, the
Company received a $100,000 deposit from PETsMART.com, Inc.
NOTE 7--STOCKHOLDERS' EQUITY
During 1998, the Company's Board of Directors approved a 1,000-to-1 split of
its common stock. All share numbers in these consolidated financial statements
and notes thereto for all periods presented have been adjusted to reflect the
1,000-to-1 common stock split.
F-39
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
PETsMART.com, Inc.
Common Stock
[PETsMART.com, Inc.'s Logo]
--------
P R O S P E C T U S
, 2000
--------
Salomon Smith Barney
Chase H&Q
J.P. Morgan & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by PETsMART.com in connection
with the sale of common stock being registered. All amounts are estimates,
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $30,360
NASD filing fee................................................... 12,000
Nasdaq National Market listing fee................................ *
Printing and engraving costs...................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses........................................ *
Transfer Agent and Registrar fees................................. *
Miscellaneous expenses............................................ *
-------
Total............................................................. $ *
</TABLE>
- --------
*to be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article VII of PETsMART.com's restated certificate of incorporation provides
for the indemnification of directors to the fullest extent permitted under
Delaware law.
Article VIII of PETsMART.com's restated by-laws provides for the
indemnification of officers, directors, employees and agents of PETsMART.com to
the fullest extent permitted by Delaware law.
PETsMART.com has entered into indemnification agreements with its directors
and certain officers, in addition to indemnification provided for in its
restated by-laws, and intends to enter into indemnification agreements with any
new directors and certain new officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the underwriters of PETsMART.com and its executive officers and directors,
and by PETsMART.com of the underwriters for certain liabilities, including
liabilities arising under the Securities Act of 1933, in connection with
matters specifically provided in writing by the underwriters for inclusion in
the Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 12, 1999, the date of PETsMART.com's incorporation, PETsMART.com
has issued and sold unregistered securities in the amounts, at the times, and
for the aggregate amounts of consideration listed as follows:
1.On May 12, 1999, we issued:
. 575,328 shares of common stock to 30 accredited investors pursuant
to the merger of PetJungle, Inc. with and into PETsMART.com in which
shareholders of PetJungle, Inc. surrendered 21,106,610 shares of
PetJungle, Inc. common stock in exchange for 575,328 shares of
common stock of PETsMART.com;
. 561 shares of common stock to one accredited investor for aggregate
cash consideration of $112.20;
II-1
<PAGE>
. 1,430,394 shares of common stock to two accredited investors for a
purchase price of $.20 per share for aggregate consideration of
$284,648.41 paid with full recourse promissory notes and $1,430.39
cash;
. 3,000,000 shares of Series A preferred stock to one accredited
investor for aggregate cash consideration of $2,000,000 and costs
associating with creating our web site;
. 1,800,000 shares of Series B preferred stock to sixteen accredited
investors for aggregate cash consideration of $3,006,000;
. 2,400,000 shares of Series C preferred stock to ten accredited
investors for aggregate cash consideration of $4,008,000;
. a warrant to purchase up to 300,000 shares of Series A preferred
stock at a purchase price of $16.667 to one accredited investor;
. warrants to purchase up to 382,505 shares of Series C preferred
stock at a purchase price of $13.07 per share to two accredited
investors; and
. a warrant to purchase up to 23,163 shares of Series C preferred
stock at a purchase price of $1.67 per share; to one accredited
investor.
2. On August 31, 1999, we issued to one accredited investor a warrant to
purchase 840,000 shares of common stock at an exercise price equal to
$8.88 for 210,000 shares, $17.75 for 210,000 shares, $26.63 for 210,000
shares and $35.50 for 210,0000 shares.
3. On October 6, 1999, we issued:
. 10,707,561 shares of Series D preferred stock to twenty-eight
accredited investors for aggregate cash consideration at the time of
closing of $24,074,924.00, $1,962,007.10 of which was paid with a 90
day promissory note and $23,967,379.00 of which was paid in cash
after the closing 13, 1999; and
. 1,156,314 shares of Series D preferred stock to 14 accredited
investors pursuant to the merger of Digital Communities, Inc. (dba
AcmePet.com) with and into PETsMART.com.
4. On February 3, 2000, we entered into a contract pursuant to which we
agreed to sell to one accredited investor 1,361,027 shares of common
stock for cash consideration of $489,969.72.
5. As of February , 2000, an aggregate of approximately 2,568,894 shares
of common stock had been issued upon exercise of options or pursuant to
restricted stock purchase agreements and an aggregate of approximately
shares of common stock were issuable upon exercise of outstanding
options under the registrant's stock plans.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales of common stock and preferred stock were made in
reliance upon the exemptions from registration set forth in Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D promulgated thereunder for
transactions not involving a public offering. Issuances of options and shares
upon exercise of options to PETsMART.com's employees and consultants were made
pursuant to Rule 701 promulgated under the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Asset Purchase Agreement between Interpet, Inc., and K&K Hansen, Inc.,
dated March 31, 1999.
2.2 Agreement and Plan of Reorganization between PETsMART.com, Digital
Communities, LLC, Bruce Kirschenbaum, Sam Zappas and Mary Chadsey dated
August 11, 1999.
2.3 Agreement and Plan of Reorganization between PETsMART.com, PetJungle, Inc.
and certain stockholders dated May 12, 1999.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of PETsMART.com.
3.2 Form of Amended and Restated Certificate of Incorporation of
PETsMART.com, to be filed and effective upon completion of this
offering.
3.3 Bylaws of PETsMART.com.
3.4 Form of Amended and Restated Bylaws of PETsMART.com, to be effective
upon completion of this offering.
4.1* Form of PETsMART.com common stock certificate.
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom, L.L.P. as to the
validity of the Common Stock being registered.
10.1 Common Stock Purchase Agreement with between PETsMART.com and idealab!
Holdings LLC, dated May 12, 1999.
10.2 Subscription Agreement.
10.3 Restricted Stock Purchase Agreement with Thomas P. McGovern, dated May
12, 1999.
10.4 Amendment to Restricted Stock Purchase Agreement with Thomas P.
McGovern effective as of May 12, 1999.
10.5 Secured Promissory Note between Thomas P. McGovern, Jr. and
PETsMART.com, dated January 18, 2000.
10.6 Security Agreement between Thomas P. McGovern, Jr. and PETsMART.com,
effective as of May 12, 1999.
10.7 Security Agreement between InterPet, Inc. and Thomas P. McGovern,
dated April 1, 1999.
10.8 Restricted Stock Purchase Agreement with Carina J. Schaldach dated May
12, 1999.
10.9 Amendment to Restricted Stock Purchase Agreement with Carina J.
Schaldach effective as of May 12, 1999.
10.10 Secured Promissory Note between Carina J. Schaldach and PETsMART.com,
dated January 19, 2000.
10.11 Security Agreement between Carina J. Schaldach and PETsMART.com,
effective as of May 12, 1999.
10.12 Security Agreement between InterPet, Inc. and Carina J. Schaldach,
dated April 1, 1999.
10.13 Secured Promissory Note between Michael D. Houlahan and PETsMART.com,
dated January 4, 2000.
10.14 Secured Promissory Note between Michael D. Houlahan and PETsMART.com,
dated January 10, 2000.
10.15 Restricted Stock Purchase Agreement with Gary R. Marcotte, dated
January 24, 2000.
10.16 Secured Promissory Note between Gary R. Marcotte and PETsMART.com,
dated January 27, 2000.
10.17 Secured Promissory Note between Eric D. Kidd and PETsMART.com dated
December 23, 1999.
10.18 Preferred Stock Purchase Agreement, dated May 12, 1999.
10.19 Series D Preferred Stock Purchase Agreement, dated October 6, 1999.
10.20 Amended and Restated Investor Rights Agreement, dated October 6, 1999.
10.21 Warrant No. 4 issued to Big Dog USA, Inc., dated October 19, 1999.
10.22 Series A Preferred Stock Purchase Warrant issued to PETsMART, Inc.,
dated May 12, 1999.
10.23 Series C Preferred Stock Purchase Warrant No. WC-1, issued to idealab!
Holdings, L.L.C., dated May 12, 1999.
10.24 Series C Preferred Stock Purchase Warrant No. WC-2, issued to Rodale
Press, dated May 12, 1999.
10.25 Series C Preferred Stock Purchase Warrant No. WC-3, issued to Rodale
Press dated May 12, 1999.
10.26** Marketing Agreement with PETsMART, Inc.
10.27** PETsMART.com Joint Marketing Plan Year 2000 Plans.
10.28** PETsMART, Inc. Joint Marketing Plan Year 2000 Plans.
10.29** Web and Content Hosting Agreement with PETsMART, Inc.
10.30** Merchandising, Procurement, Distribution and Fulfillment Agreement
with PETsMART, Inc.
10.31 Form of Standstill Agreement with PETsMART, Inc.
10.32** Trademark License Agreement between PETsMART, Inc. and PETsMART.com,
dated May 12, 1999.
10.33 Letter Agreement amending Trademark License Agreement between
PETsMART, Inc. and PETsMART.com.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.34 1999 Stock Option Plan, as amended.
10.35 Form of Amendment to 1999 Stock Option Plan.
10.36 Form of 2000 Director Stock Option Plan.
10.37 Form of 2000 Employee Stock Purchase Plan.
10.38 Form of Incentive Stock Option Agreement.
10.39 Form of Non Qualified Stock Option Agreement.
10.40 Employment Agreement with Thomas P. McGovern, dated May 12, 1999.
10.41 Employment Agreement with Carina J. Schaldach, dated May 12, 1999.
10.42 Employment Agreement with Gary R. Marcotte, dated January 24, 2000.
10.43 Form of Indemnification Agreement between PETsMART.com and each of its
officers and directors.
10.44 Form of Executive Confidentiality and Nondisclosure Agreement.
10.45 Form of Employee Confidentiality and Nondisclosure Agreement.
10.46 Series C Preferred Stock Purchase Warrant No. WC-4, issued to idealab!
Capital Partners I-A, L.P., dated February 3, 2000.
10.47 Series C Preferred Stock Purchase Warrant No. WC-5, issued to idealab!
Capital Partners I-B, L.P., dated February 3, 2000.
10.48* Lock-up Agreement with PETsMART, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Lesley, Thomas, Schwarz & Postma.
23.3* Consent of Counsel (included in Exhibit 5.1 ).
24.1 Power of attorney (see page II-5).
27.1 Financial data schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Material has been omitted pursuant to a request for confidential treatment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the
representatives of the underwriters at the closing specified in the
underwriting agreement certificates for common stock in such denominations and
registered in such names as required by the representatives of the underwriters
to permit prompt delivery to each purchaser of common stock.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497
(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Pasadena, state of
California, on February 3, 2000.
PETsMART.COM, INC.
/s/ Tom McGovern
By:__________________________________
Name: Thomas P. McGovern, Jr.
Title: Chief Executive Officer,
President and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Thomas P.
McGovern, Jr. and Gary R. Marcotte as his attorney-in-fact, with full power of
substitution, for him in any and all capacities, to sign any and all amendments
to this Registration Statement (including post-effective amendments), and any
and all Registration Statements filed pursuant to Rule 462 under the Securities
Act of 1933, as amended, in connection with or related to the offering
contemplated by this Registration Statement and its amendments, if any, and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any and
all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Tom McGovern Chief Executive Officer, President February 3, 2000
_______________________ and Director
Thomas P. McGovern, Jr.
/s/ Gary Marcotte Chief Financial Officer, Treasurer February 3, 2000
_______________________ and Secretary
Gary R. Marcotte
/s/ Philip L. Francis Director February 3, 2000
_______________________
Philip L. Francis
/s/ Bill Gross Director February 3, 2000
_______________________
William Gross
/s/ Robert Kavner Director February 3, 2000
_______________________
Robert M. Kavner
/s/ Robert F. Moran Director February 3, 2000
_______________________
Robert F. Moran
/s/ Yves Sisteron Director February 3, 2000
_______________________
Yves Sisteron
/s/ Neil T. Watanabe Director February 3, 2000
_______________________
Neil T. Watanabe
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Asset Purchase Agreement between Interpet, Inc., and K&K Hansen,
Inc., dated March 31, 1999.
2.2 Agreement and Plan of Reorganization between PETsMART.com, Digital
Communities, LLC, Bruce Kirschenbaum, Sam Zappas and Mary Chadsey
dated August 11, 1999.
2.3 Agreement and Plan of Reorganization between PETsMART.com,
PetJungle, Inc. and certain stockholders dated May 12, 1999.
3.1 Amended and Restated Certificate of Incorporation of PETsMART.com.
3.2 Form of Amended and Restated Certificate of Incorporation of
PETsMART.com, to be filed and effective upon completion of this
offering.
3.3 Bylaws of PETsMART.com.
3.4 Form of Amended and Restated Bylaws of PETsMART.com, to be
effective upon completion of this offering.
4.1* Form of PETsMART.com common stock certificate.
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom, L.L.P. as to the
validity of the Common Stock being registered.
10.1 Common Stock Purchase Agreement with between PETsMART.com and
idealab! Holdings LLC, dated May 12, 1999.
10.2 Subscription Agreement.
10.3 Restricted Stock Purchase Agreement with Thomas P. McGovern, dated
May 12, 1999.
10.4 Amendment to Restricted Stock Purchase Agreement with Thomas P.
McGovern effective as of May 12, 1999.
10.5 Secured Promissory Note between Thomas P. McGovern, Jr. and
PETsMART.com, dated January 18, 2000.
10.6 Security Agreement between Thomas P. McGovern, Jr. and
PETsMART.com, effective as of May 12, 1999.
10.7 Security Agreement between InterPet, Inc. and Thomas P. McGovern,
dated April 1, 1999.
10.8 Restricted Stock Purchase Agreement with Carina J. Schaldach dated
May 12, 1999.
10.9 Amendment to Restricted Stock Purchase Agreement with Carina J.
Schaldach effective as of May 12, 1999.
10.10 Secured Promissory Note between Carina J. Schaldach and
PETsMART.com, dated January 19, 2000.
10.11 Security Agreement between Carina J. Schaldach and PETsMART.com,
effective as of May 12, 1999.
10.12 Security Agreement between InterPet, Inc. and Carina J. Schaldach,
dated April 1, 1999.
10.13 Secured Promissory Note between Michael D. Houlahan and
PETsMART.com, dated January 4, 2000.
10.14 Secured Promissory Note between Michael D. Houlahan and
PETsMART.com, dated January 10, 2000.
10.15 Restricted Stock Purchase Agreement with Gary R. Marcotte, dated
January 24, 2000.
10.16 Secured Promissory Note between Gary R. Marcotte and PETsMART.com,
dated January 27, 2000.
10.17 Secured Promissory Note between Eric D. Kidd and PETsMART.com
dated December 23, 1999.
10.18 Preferred Stock Purchase Agreement, dated May 12, 1999.
10.19 Series D Preferred Stock Purchase Agreement, dated October 6,
1999.
10.20 Amended and Restated Investor Rights Agreement, dated October 6,
1999.
10.21 Warrant No. 4 issued to Big Dog USA, Inc., dated October 19, 1999.
10.22 Series A Preferred Stock Purchase Warrant issued to PETsMART,
Inc., dated May 12, 1999.
10.23 Series C Preferred Stock Purchase Warrant No. WC-1, issued to
idealab! Holdings, L.L.C., dated May 12, 1999.
10.24 Series C Preferred Stock Purchase Warrant No. WC-2, issued to
Rodale Press, dated May 12, 1999.
10.25 Series C Preferred Stock Purchase Warrant No. WC-3, issued to
Rodale Press dated May 12, 1999.
10.26** Marketing Agreement with PETsMART, Inc.
10.27** PETsMART.com Joint Marketing Plan Year 2000 Plans.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.28** PETsMART, Inc. Joint Marketing Plan Year 2000 Plans.
10.29** Web and Content Hosting Agreement with PETsMART, Inc.
10.30** Merchandising, Procurement, Distribution and Fulfillment Agreement
with PETsMART, Inc.
10.31 Form of Standstill Agreement with PETsMART, Inc.
10.32** Trademark License Agreement between PETsMART, Inc. and PETsMART.com,
dated May 12, 1999.
10.33 Letter Agreement amending Trademark License Agreement between
PETsMART, Inc. and PETsMART.com.
10.34 1999 Stock Option Plan, as amended.
10.35 Form of Amendment to 1999 Stock Option Plan.
10.36 Form of 2000 Director Stock Option Plan.
10.37 Form of 2000 Employee Stock Purchase Plan.
10.38 Form of Incentive Stock Option Agreement.
10.39 Form of Non Qualified Stock Option Agreement.
10.40 Employment Agreement with Thomas P. McGovern, dated May 12, 1999.
10.41 Employment Agreement with Carina J. Schaldach, dated May 12, 1999.
10.42 Employment Agreement with Gary R. Marcotte, dated January 24, 2000.
10.43 Form of Indemnification Agreement between PETsMART.com and each of
its officers and directors.
10.44 Form of Executive Confidentiality and Nondisclosure Agreement.
10.45 Form of Employee Confidentiality and Nondisclosure Agreement.
10.46 Series C Preferred Stock Purchase Warrant No. WC-4, issued to
idealab! Capital Partners I-A, L.P., dated February 3, 2000.
10.47 Series C Preferred Stock Purchase Warrant No. WC-5, issued to
idealab! Capital Partners I-B, L.P., dated February 3, 2000.
10.48* Lock-up Agreement with PETsMART, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Lesley, Thomas, Schwarz & Postma.
23.3* Consent of Counsel (included in Exhibit 5.1 ).
24.1 Power of attorney (see page II-5).
27.1 Financial data schedule.
</TABLE>
- --------
* To be supplied by amendment.
** Material has been omitted pursuant to a request for confidential treatment.
<PAGE>
EXHIBIT 1.1
[FORM OF UNDERWRITING AGREEMENT]
PETsMART.com, Inc.
Shares a/
-
Common Stock
($ par value)
Underwriting Agreement
New York, New York
, 2000
Salomon Smith Barney Inc.
Chase, Hambrecht & Quist
JP Morgan & Co. Incorporated
As Representatives of the several Underwriters,
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
PETsMART.com, Inc., a corporation organized under the laws of Delaware (the
"Company"), proposes to sell to the several underwriters named in Schedule I
hereto (the "Underwriters"), for whom you (the "Representatives") are acting as
representatives, ______ shares of Common Stock, $0.001 par value ("Common
Stock") of the Company (said shares to be issued and sold by the Company being
hereinafter called the "Underwritten Securities"). The Company also proposes to
grant to the Underwriters an option to purchase up to _____ additional shares of
Common Stock to cover over-allotments (the "Option Securities"; the Option
Securities, together with the Underwritten Securities, being hereinafter called
the "Securities"). To the extent there are no additional Underwriters listed on
Schedule I other than you, the term Representatives as used herein shall mean
you, as Underwriters, and the terms Representatives and Underwriters shall mean
either the singular or plural as the context requires. Certain terms used herein
are defined in Section 17 hereof.
As part of the offering contemplated by this Agreement, Salomon Smith
Barney Inc. has agreed to reserve out of the Securities set forth opposite its
name on the Schedule II to this Agreement, up to _______ shares, for sale to the
Company's employees, officers, and directors [and other parties associated with
the Company] (collectively, "Participants"), as set forth in the Prospectus
under the heading "Underwriting" (the "Directed Share Program"). The Securities
to be sold by Salomon Smith Barney Inc. pursuant to the Directed Share Program
(the "Directed Shares") will be sold by Salomon Smith Barney Inc. pursuant to
this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the
- ----------------------
a/Plus an option to purchase from the Company, up to additional
Securities to cover over-allotments.
<PAGE>
2
end of the business day on which this Agreement is executed will be offered to
the public by Salomon Smith Barney Inc. as set forth in the Prospectus.
1. Representations and Warranties. The Company represents and warrants to,
------------------------------
and agrees with, each Underwriter as set forth below in this Section 1.
(a) The Company has prepared and filed with the Commission a
registration statement (file number 333- ) on Form S-1, including a related
preliminary prospectus, for registration under the Act of the offering and sale
of the Securities. The Company may have filed one or more amendments thereto,
including a related preliminary prospectus, each of which has previously been
furnished to you. The Company will next file with the Commission either (1)
prior to the Effective Date of such registration statement, a further amendment
to such registration statement (including the form of final prospectus) or (2)
after the Effective Date of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b). In the case of clause (2), the Company
has included in such registration statement, as amended at the Effective Date,
all information (other than Rule 430A Information) required by the Act and the
rules thereunder to be included in such registration statement and the
Prospectus. As filed, such amendment and form of final prospectus, or such final
prospectus, shall contain all Rule 430A Information, together with all other
such required information, and, except to the extent the Representatives shall
agree in writing to a modification, shall be in all substantive respects in the
form furnished to you prior to the Execution Time or, to the extent not
completed at the Execution Time, shall contain only such specific additional
information and other changes (beyond that contained in the latest Preliminary
Prospectus) as the Company has advised you, prior to the Execution Time, will be
included or made therein.
(b) On the Effective Date, the Registration Statement did or will, and
when the Prospectus is first filed (if required) in accordance with Rule 424(b)
and on the Closing Date (as defined herein) and on any date on which Option
Securities are purchased, if such date is not the Closing Date (a "settlement
date"), the Prospectus (and any supplements thereto) will, comply in all
material respects with the applicable requirements of the Act and the rules
thereunder; on the Effective Date and at the Execution Time, the Registration
Statement did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and, on the Effective Date,
the Prospectus, if not filed pursuant to Rule 424(b), will not, and on the date
of any filing pursuant to Rule 424(b) and on the Closing Date and any settlement
date, the Prospectus (together with any supplement thereto) will not, include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
-------- -------
that the Company makes no representations or
<PAGE>
3
warranties as to the information contained in or omitted from the Registration
Statement, or the Prospectus (or any supplement thereto) in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of any Underwriter through the Representatives specifically for inclusion in the
Registration Statement or the Prospectus (or any supplement thereto).
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction in which it is
chartered or organized with full corporate power and authority to own or lease,
as the case may be, and to operate its properties and conduct its business as
described in the Prospectus, and is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction which
requires such qualification.
(d) The Company's authorized equity capitalization is as set forth in
the Prospectus; the capital stock of the Company conforms in all material
respects to the description thereof contained in the Prospectus; the outstanding
shares of Common Stock have been duly and validly authorized and issued and are
fully paid and nonassessable; the Securities have been duly and validly
authorized, and, when issued and delivered to and paid for by the Underwriters
pursuant to this Agreement, will be fully paid and nonassessable; the Securities
are duly listed, and admitted and authorized for trading, subject to official
notice of issuance and evidence of satisfactory distribution, on the Nasdaq
National Market; the certificates for the Securities are in valid and sufficient
form; the holders of outstanding shares of capital stock of the Company are not
entitled to preemptive or other rights to subscribe for the Securities except
for such rights of as have been effectively waived; and, except as set
forth in the Prospectus, no options, warrants or other rights to purchase,
agreements or other obligations to issue, or rights to convert any obligations
into or exchange any securities for, shares of capital stock of or ownership
interests in the Company are outstanding.
(e) There is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectus, or to be
filed as an exhibit thereto, which is not described or filed as required; and
the statements in the Prospectus under the headings "Tax Matters" and
"Government Regulation" fairly summarize the matters therein described.
(f) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms.
(g) The Company is not and, after giving effect to the offering and sale
of the Securities and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as defined in the Investment
<PAGE>
4
Company Act of 1940, as amended.
(h) No consent, approval, authorization, filing with or order of any
court or governmental agency or body is required in connection with the
transactions contemplated herein, except such as have been obtained under the
Act and such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Securities by the
Underwriters in the manner contemplated herein and in the Prospectus.
(i) Neither the issue and sale of the Securities nor the consummation of
any other of the transactions herein contemplated nor the fulfillment of the
terms hereof will conflict with, result in a breach or violation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company
pursuant to, (i) the charter or by-laws of the Company, (ii) the terms of any
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument to
which the Company is a party or bound or to which its property is subject, or
(iii) any statute, law, rule, regulation, judgment, order or decree applicable
to the Company of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or any of its properties.
(j) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement except for such
rights of as have been effectively waived.
(k) The consolidated historical financial statements and schedules of
the Company included in the Prospectus and the Registration Statement present
fairly in all material respects the financial condition, results of operations
and cash flows of the Company as of the dates and for the periods indicated,
comply as to form with the applicable accounting requirements of the Act and
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
otherwise noted therein). The selected financial data set forth under the
caption "Selected Financial Data" in the Prospectus and Registration Statement
fairly present, on the basis stated in the Prospectus and the Registration
Statement, the information included therein. The pro forma financial statements
included in the Prospectus and the Registration Statement include assumptions
that provide a reasonable basis for presenting the significant effects directly
attributable to the transactions and events described therein, the related pro
forma adjustments give appropriate effect to those assumptions, and the pro
forma adjustments reflect the proper application of those adjustments to the
historical financial statement amounts in the pro forma financial statements
included in the Prospectus and the Registration Statement. The pro forma
financial statements included in the Prospectus and the Registration Statement
comply as to form in all material respects with the
<PAGE>
5
applicable accounting requirements of Regulation S-X under the Act and the pro
forma adjustments have been properly applied to the historical amounts in the
compilation of those statements.
(l) No action, suit or proceeding by or before any court or governmental
agency, authority or body or any arbitrator involving the Company or its
property is pending or, to the best knowledge of the Company, threatened that
(i) could reasonably be expected to have a material adverse effect on the
performance of this Agreement or the consummation of any of the transactions
contemplated hereby or (ii) could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(m) The Company owns or leases all such properties as are necessary to
the conduct of its operations as presently conducted.
(n) The Company is not in violation or default of (i) any provision of
its charter or bylaws, (ii) the terms of any indenture, contract, lease,
mortgage, deed of trust, note agreement, loan agreement or other agreement,
obligation, condition, covenant or instrument to which it is a party or bound or
to which its property is subject, or (iii) any statute, law, rule, regulation,
judgment, order or decree of any court, regulatory body, administrative agency,
governmental body, arbitrator or other authority having jurisdiction over the
Company or any of its properties, as applicable.
(o) PricewaterhouseCoopers, who have certified certain financial
statements of the Company and delivered their report with respect to the audited
consolidated financial statements and schedules included in the Prospectus, are
independent public accountants with respect to the Company within the meaning of
the Act and the applicable published rules and regulations thereunder.
(p) There are no transfer taxes or other similar fees or charges under
Federal law or the laws of any state, or any political subdivision thereof,
required to be paid in connection with the execution and delivery of this
Agreement or the issuance by the Company or sale by the Company of the
Securities.
(q) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the condition (financial or otherwise), prospects, earnings,
business or properties of the Company, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set forth in or
contemplated in the
<PAGE>
6
Prospectus (exclusive of any supplement thereto) and has paid all taxes required
to be paid by it and any other assessment, fine or penalty levied against it, to
the extent that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good faith or
as would not have a material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto).
(r) No labor problem or dispute with the employees of the Company exists
or is threatened or imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its principal suppliers,
contractors or customers, that could have a material adverse effect on the
condition (financial or otherwise), prospects, earnings, business or properties
of the Company, taken as a whole, whether or not arising from transactions in
the ordinary course of business, except as set forth in or contemplated in the
Prospectus (exclusive of any supplement thereto).
(s) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which they are engaged; all policies of
insurance insuring the Company or its business, assets, employees, officers and
directors are in full force and effect; the Company is in compliance with the
terms of such policies and instruments in all material respects; and there are
no claims by the Company under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause; the Company has not been refused any insurance coverage sought or
applied for; and the Company does not have any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a material adverse effect
on the condition (financial or otherwise), prospects, earnings, business or
properties of the Company, taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(t) The Company possesses all licenses, certificates, permits and other
authorizations issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and the Company
has not received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
prospects, earnings,
<PAGE>
7
business or properties of the Company, taken as a whole, whether or not arising
from transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus (exclusive of any supplement thereto).
(u) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) The Company has not taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result, under the Exchange Act or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities.
(w) The Company is (i) in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received and is in compliance with all permits, licenses or other approvals
required of them under applicable Environmental Laws to conduct its business and
(iii) has not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or toxic
substances or wastes, pollutants or contaminants, except where such
non-compliance with Environmental Laws, failure to receive required permits,
licenses or other approvals, or liability would not, individually or in the
aggregate, have a material adverse change in the condition (financial or
otherwise), prospects, earnings, business or properties of the Company, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus (exclusive of
any supplement thereto). Except as set forth in the Prospectus, the Company has
not been named as a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended.
(x) In the ordinary course of its business, the Company periodically
reviews the effect of Environmental Laws on the business, operations and
properties of the Company, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance
<PAGE>
8
with Environmental Laws, or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties). On the basis of such review, the Company has reasonably concluded that
such associated costs and liabilities would not, singly or in the aggregate,
have a material adverse effect on the condition (financial or otherwise),
prospects, earnings, business or properties of the Company, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
except as set forth in or contemplated in the Prospectus (exclusive of any
supplement thereto).
(y) The Company has fulfilled its obligations, if any, under the minimum
funding standards of Section 302 of the United States Employee Retirement Income
Security Act of 1974 ("ERISA") and the regulations and published interpretations
thereunder with respect to each "plan" (as defined in Section 3(3) of ERISA and
such regulations and published interpretations) in which employees of the
Company are eligible to participate and each such plan is in compliance in all
material respects with the presently applicable provisions of ERISA and such
regulations and published interpretations. The Company has not incurred any
unpaid liability to the Pension Benefit Guaranty Corporation (other than for the
payment of premiums in the ordinary course) or to any such plan under Title IV
of ERISA.
(z) The Company owns, possesses, licenses or has other rights to use, on
reasonable terms, all patents, patent applications, trade and service marks,
trade and service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets, technology, know-how and other intellectual property
(collectively, the "Intellectual Property") necessary for the conduct of the
Company's business as now conducted or as proposed in the Prospectus to be
conducted. Except as set forth in the Prospectus under the caption
"Business--Intellectual Property" (a) there are no rights of third parties to
any such Intellectual Property; (b) there is no material infringement by third
parties of any such Intellectual Property; (c) there is no pending or threatened
action, suit, proceeding or claim by others challenging the Company's rights in
or to any such Intellectual Property, and the Company is unaware of any facts
which would form a reasonable basis for any such claim; (d) there is no pending
or threatened action, suit, proceeding or claim by others challenging the
validity or scope of any such Intellectual Property, and the Company is unaware
of any facts which would form a reasonable basis for any such claim; (e) there
is no pending or threatened action, suit, proceeding or claim by others that the
Company infringes or otherwise violates any patent, trademark, copyright, trade
secret or other proprietary rights of others, and the Company is unaware of any
other fact which would form a reasonable basis for any such claim; (f) there is
no U.S. patent or published U.S. patent application which contains claims that
dominate or may dominate any Intellectual Property described in the Prospectus
as being owned by or licensed to the Company or that
<PAGE>
9
interferes with the issued or pending claims of any such Intellectual Property;
and (g) there is no prior art of which the Company is aware that may render any
U.S. patent held by the Company invalid or any U.S. patent application held by
the Company unpatentable which has not been disclosed to the U.S. Patent and
Trademark Office.
(aa) The statements contained in the Prospectus under the
captions, _____________ and _________________, insofar as such
statements summarize legal matters, agreements, documents, or
proceedings discussed therein, are accurate and fair summaries of such
legal matters, agreements, documents or proceedings.
(bb) Except as disclosed in the Registered Statement and the
Prospectus, the Company (i) does not have any material lending or other
relationship with any bank or lending affiliate of Salomon Smith Barney
Holdings Inc. and (ii) does not intend to use any of the proceeds from
the sale of the Securities hereunder to repay any outstanding debt owed
to any affiliate of Salomon Smith Barney Holding Inc.
(cc) The Company and its subsidiaries have implemented a
comprehensive, detailed program to analyze and address the risk that
their computer hardware and software may be unable to recognize and
properly execute date-sensitive functions involving any dates after
December 31, 1999 (the "Year 2000 Problem") and has determined that
their computer hardware and software are, and will continue to be, able
to process all date information without any errors, aborts, delays or
other interruptions in operations associated with the Year 2000 Problem;
and the Company believes, after due inquiry, that each supplier, vendor,
customer or financial service organization used or serviced by the
Company and its subsidiaries has remedied the Year 2000 Problem, except
to the extent that a failure to remedy by any such supplier, vendor,
customer or financial service organization would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
Furthermore, the Company represents and warrants to Salomon
Smith Barney Inc. that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements thereto
will comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
laws and regulations of foreign jurisdictions in which the
<PAGE>
10
Directed Shares are offered outside the United States.
The Company has not offered, or caused the Underwriters to offer,
Securities to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company, or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
Any certificate signed by any officer of the Company and delivered to the
Representatives or counsel for the Underwriters in connection with the offering
of the Securities shall be deemed a representation and warranty by the Company,
as to matters covered thereby, to each Underwriter.
2. Purchase and Sale. (a) Subject to the terms and conditions and in
-----------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to each Underwriter, and each Underwriter agrees, severally and
not jointly, to purchase from the Company, at a purchase price of $ per share
the amount of the Underwritten Securities set forth opposite such Underwriter's
name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
Option Securities at the same purchase price per share as the
Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
the Prospectus upon written or telegraphic notice by the Representatives to the
Company setting forth the number of shares of the Option Securities as to which
the several Underwriters are exercising the option and the settlement date. The
number of Option Securities to be purchased by each Underwriter shall be the
same percentage of the total number of shares of the Option Securities to be
purchased by the several Underwriters as such Underwriter is purchasing of the
Underwritten Securities, subject to such adjustments as you in your absolute
discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the Underwritten
--------------------
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the third Business Day prior to
the Closing Date) shall be made at 10:00 AM, New York City time, on , 2000,
or at such time on such later date not more than three Business Days after the
foregoing date as the Representatives shall designate, which date and time may
be postponed by agreement between the Representatives and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for the
Securities being herein called the "Closing Date"). Delivery of the Securities
shall be made to the Representatives for the respective
<PAGE>
11
accounts of the several Underwriters against payment by the several Underwriters
through the Representatives of the purchase price thereof to or upon the order
of the Company by wire transfer payable in same-day funds to an account
specified by the Company. Delivery of the Underwritten Securities and the Option
Securities shall be made through the facilities of The Depository Trust Company
unless the Representatives shall otherwise instruct.
If the option provided for in Section 2(b) hereof is exercised after the
third Business Day prior to the Closing Date, the Company will deliver the
Option Securities (at the expense of the Company) to the Representatives, at 388
Greenwich Street, New York, New York, on the date specified by the
Representatives (which shall be within three Business Days after exercise of
said option) for the respective accounts of the several Underwriters, against
payment by the several Underwriters through the Representatives of the purchase
price thereof to or upon the order of the Company by wire transfer payable in
same-day funds to an account specified by the Company. If settlement for the
Option Securities occurs after the Closing Date, the Company will deliver to the
Representatives on the settlement date for the Option Securities, and the
obligation of the Underwriters to purchase the Option Securities shall be
conditioned upon receipt of, supplemental opinions, certificates and letters
confirming as of such date the opinions, certificates and letters delivered on
the Closing Date pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several Underwriters
------------------------
propose to offer the Securities for sale to the public as set forth in the
Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
----------
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereof, to
become effective. Prior to the termination of the offering of the Securities,
the Company will not file any amendment of the Registration Statement or
supplement to the Prospectus or any Rule 462(b) Registration Statement unless
the Company has furnished you a copy for your review prior to filing and will
not file any such proposed amendment or supplement to which you reasonably
object. Subject to the foregoing sentence, if the Registration Statement has
become or becomes effective pursuant to Rule 430A, or filing of the Prospectus
is otherwise required under Rule 424(b), the Company will cause the Prospectus,
properly completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Representatives of such
timely filing. The Company will promptly advise the Representatives (1) when the
Registration Statement, if not effective at the Execution Time, shall have
become effective, (2) when the Prospectus, and any supplement thereto, shall
have been filed (if
<PAGE>
12
required) with the Commission pursuant to Rule 424(b) or when any Rule 462(b)
Registration Statement shall have been filed with the Commission, (3) when,
prior to termination of the offering of the Securities, any amendment to the
Registration Statement shall have been filed or become effective, (4) of any
request by the Commission or its staff for any amendment of the Registration
Statement, or any Rule 462(b) Registration Statement, or for any supplement to
the Prospectus or for any additional information, (5) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that purpose
and (6) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the institution or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
or the suspension of any such qualification and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend the Registration Statement
or supplement the Prospectus to comply with the Act or the rules thereunder, the
Company promptly will (1) notify the Representatives of any such event, (2)
prepare and file with the Commission, subject to the second sentence of
paragraph (a) of this Section 5, an amendment or supplement which will correct
such statement or omission or effect such compliance; and (3) supply any
supplemented Prospectus to you in such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally available to
its security holders and to the Representatives an earnings statement or
statements of the Company and its subsidiaries which will satisfy the provisions
of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for the
Underwriters signed copies of the Registration Statement (including exhibits
thereto) and to each other Underwriter a copy of the Registration Statement
(without exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many copies of each
Preliminary Prospectus and the Prospectus and any supplement thereto as the
Representatives may reasonably request.
(e) The Company will arrange, if necessary, for the qualification of the
Securities for sale under the laws of such jurisdictions as the Representatives
may designate and will maintain such qualifications in effect so long as
required for
<PAGE>
13
the distribution of the Securities; provided that in no event shall the Company
be obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action that would subject it to service of process
in suits, other than those arising out of the offering or sale of the
Securities, in any jurisdiction where it is not now so subject.
(f) The Company will not, without the prior written consent of Salomon
Smith Barney Inc., offer, sell, contract to sell, pledge, or otherwise dispose
of, (or enter into any transaction which is designed to, or might reasonably be
expected to, result in the disposition (whether by actual disposition or
effective economic disposition due to cash settlement or otherwise) by the
Company or any affiliate of the Company or any person in privity with the
Company or any affiliate of the Company) directly or indirectly, including the
filing (or participation in the filing) of a registration statement with the
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Exchange Act, any other shares of Common Stock or any securities
convertible into, or exercisable, or exchangeable for, shares of Common Stock;
or publicly announce an intention to effect any such transaction, for a period
of 180 days after the date of the Underwriting Agreement, provided, however,
-------- -------
that the Company may issue and sell Common Stock pursuant to any employee stock
option plan, stock ownership plan or dividend reinvestment plan of the Company
in effect at the Execution Time and the Company may issue Common Stock issuable
upon the conversion of securities or the exercise of warrants outstanding at the
Execution Time.
(g) The Company will not take, directly or indirectly, any action designed
to or which has constituted or which might reasonably be expected to cause or
result, under the Exchange Act or otherwise, in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities.
(h) The Company agrees to pay the costs and expenses relating to the
following matters: (i) the preparation, printing or reproduction and filing with
the Commission of the Registration Statement (including financial statements and
exhibits thereto), each Preliminary Prospectus, the Prospectus, and each
amendment or supplement to any of them; (ii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, and all amendments or supplements to any of them, as
may, in each case, be reasonably requested for use in connection with the
offering and sale of the Securities; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Securities,
including any stamp or transfer taxes in connection with the original issuance
and sale of the Securities; (iv) the
<PAGE>
14
printing (or reproduction) and delivery of this Agreement, any blue sky
memorandum and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Securities; (v) the
registration of the Securities under the Exchange Act and the listing of
the Securities on or the Nasdaq National Market; (vi) any registration
or qualification of the Securities for offer and sale under the
securities or blue sky laws of the several states (including filing fees
and the reasonable fees and expenses of counsel for the Underwriters
relating to such registration and qualification); (vii) any filings
required to be made with the National Association of Securities Dealers,
Inc. (including filing fees and the reasonable fees and expenses of
counsel for the Underwriters relating to such filings); (viii) the
transportation and other expenses incurred by or on behalf of Company
representatives in connection with presentations to prospective
purchasers of the Securities; (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including
local and special counsel) for the Company; and (x) all other costs and
expenses incident to the performance by the Company of its obligations
hereunder.
(i) In connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Salomon Smith Barney Inc.
will notify the Company as to which Participants will need to be so
restricted. The Company will direct the transfer restrictions upon such
period of time.
(j) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share
Program and stamp duties, similar taxes or duties or other taxes, if
any, incurred by the Underwriters in connection with the Directed Share
Program.
Furthermore, the Company covenants with Salomon Smith Barney
Inc. that the Company will comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program.
6. Conditions to the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the Underwriters to purchase the Underwritten Securities and the
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any settlement date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
<PAGE>
15
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Representatives agree in writing to a later time, the
Registration Statement will become effective not later than (i) 6:00 PM New York
City time on the date of determination of the public offering price, if such
determination occurred at or prior to 3:00 PM New York City time on such date or
(ii) 9:30 AM on the Business Day following the day on which the public offering
price was determined, if such determination occurred after 3:00 PM New York City
time on such date; if filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b), the Prospectus, and any such supplement, will
be filed in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been instituted
or threatened.
(b) The Company shall have requested and caused Skadden, Arps, Slate,
Meagher & Flom LLP, counsel for the Company, to have furnished to the
Representatives their opinion, dated the Closing Date and addressed to the
Representatives, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized, with full corporate
power and authority to own or lease, as the case may be, and to operate
its properties and conduct its business as described in the Prospectus,
and is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each jurisdiction which requires such
qualification;
(ii) the Company's authorized equity capitalization is as set
forth in the Prospectus; the capital stock of the Company conforms in
all material respects to the description thereof contained in the
Prospectus; the outstanding shares of Common Stock have been duly and
validly authorized and issued and are fully paid and nonassessable; the
Securities have been duly and validly authorized, and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be fully paid and nonassessable; the Securities are duly
listed, and admitted and authorized for trading, subject to official
notice of issuance and evidence of satisfactory distribution, on Nasdaq
National Market; the certificates for the Securities are in valid and
sufficient form; the holders of outstanding shares of capital stock of
the Company are not entitled to preemptive or other rights to subscribe
for the Securities except for such rights of as have been effectively
waived; and, except as set forth in the Prospectus, no options, warrants
or other rights to purchase, agreements or other obligations to issue,
or rights to convert any obligations into or exchange any securities
for, shares of capital stock of or ownership interests in the
<PAGE>
16
Company are outstanding;
(iii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the
Company or its property of a character required to be disclosed in the
Registration Statement which is not adequately disclosed in the
Prospectus, and there is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit thereto, which is not described
or filed as required; and the statements included in the Prospectus
under the headings "Tax Matters" and "Government Regulations" fairly
summarize the matters therein described;
(iv) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued, no proceedings for that purpose have been instituted or
threatened and the Registration Statement and the Prospectus (other than
the financial statements and other financial information contained
therein, as to which such counsel need express no opinion) comply as to
form in all material respects with the applicable requirements of the
Act and the rules thereunder; and such counsel has no reason to believe
that on the Effective Date or at the Execution Time the Registration
Statement contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus as of
its date and on the Closing Date included or includes any untrue
statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (in each case,
other than the financial statements and other financial information
contained therein, as to which such counsel need express no opinion);
(v) this Agreement has been duly authorized, executed and
delivered by the Company;
(vi) the Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be, an "investment company" as
defined in the Investment Company Act of 1940, as amended;
<PAGE>
17
(vii) no consent, approval, authorization, filing with or order
of any court or governmental agency or body is required in connection
with the transactions contemplated herein, except such as have been
obtained under the Act and such as may be required under the blue sky
laws of any jurisdiction in connection with the purchase and
distribution of the Securities by the Underwriters in the manner
contemplated in this Agreement and in the Prospectus and such other
approvals (specified in such opinion) as have been obtained;
(viii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor
the fulfillment of the terms hereof will conflict with, result in a
breach or violation of or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to, (i) the charter
or by-laws of the Company, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the
Company is a party or bound or to which its or their property is
subject, or (iii) any statute, law, rule, regulation, judgment, order or
decree applicable to the Company of any court, regulatory body,
administrative agency, governmental body, arbitrator or other authority
having jurisdiction over the Company or any of its properties; and
(ix) no holders of securities of the Company have rights to the
registration of such securities under the Registration Statement except
for such rights of as have been effectively waived.
In rendering such opinion, such counsel may rely (A) as to matters involving the
application of laws of any jurisdiction other than the State of California and
Delaware or the Federal laws of the United States, to the extent they deem
proper and specified in such opinion, upon the opinion of other counsel of good
standing whom they believe to be reliable and who are satisfactory to counsel
for the Underwriters and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (b) include any
supplements thereto at the Closing Date.
(c) The Representatives shall have received from Brobeck, Phleger &
Harrison LLP, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date and addressed to the Representatives, with respect to the issuance
and sale of the Securities, the Registration Statement, the Prospectus (together
with any supplement thereto) and other related matters as the Representatives
may reasonably require, and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass upon
such
<PAGE>
18
matters.
(d) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have carefully
examined the Registration Statement, the Prospectus, any supplements to the
Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of the
Closing Date with the same effect as if made on the Closing Date and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge, threatened;
and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there
has been no material adverse effect on the condition (financial or
otherwise), prospects, earnings, business or properties of the Company,
taken as a whole, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(e) The Company shall have requested and caused PricewaterhouseCoopers
to have furnished to the Representatives, at the Execution Time and at the
Closing Date, letters, dated respectively as of the Execution Time and as of the
Closing Date, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of the Act
and the applicable rules and regulations adopted by the Commission thereunder
and that they have performed a review of the unaudited interim financial
information of the Company for the thirteen week period ended October 3, 1999
and January 2, 2000, and as at October 3, 1999 and January 2, 2000, in
accordance with Statement on Auditing Standards No. 71 and stating in effect
that:
(i) in their opinion the audited financial statements and
financial statement schedules and pro forma financial statements
included in the Registration Statement and the Prospectus and reported
on by them comply as to form in all material respects with the
applicable accounting
<PAGE>
19
requirements of the Act and the related rules and regulations adopted by
the Commission;
(ii) on the basis of a reading of the latest unaudited financial
statements made available by the Company; their limited review, in
accordance with standards established under Statement on Auditing
Standards No. 71, of the unaudited interim financial information for the
thirteen-week period ended October 3, 1999 and January 2, 2000, and as
at October 3, 1999 and January 2, 2000, as indicated in their report
dated , 2000; carrying out certain specified procedures (but
not an examination in accordance with generally accepted auditing
standards) which would not necessarily reveal matters of significance
with respect to the comments set forth in such letter; a reading of the
minutes of the meetings of the stockholders, directors and compensation
and audit committees of the Company; and inquiries of certain officials
of the Company who have responsibility for financial and accounting
matters of the Company as to transactions and events subsequent to
January 2, 2000, nothing came to their attention which caused them to
believe that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectus do not comply as to
form in all material respects with applicable accounting
requirements of the Act and with the related rules and
regulations adopted by the Commission with respect to
registration statements on Form S-1; and said unaudited
financial statements are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement and the Prospectus;
(2) with respect to the period subsequent to January 2,
2000, there were any changes, at a specified date not more than
five days prior to the date of the letter, in the long-term debt
of the Company or capital stock of the Company or decreases in
the stockholders' equity of the Company and _________________ as
compared with the amounts shown on the January 2, 2000
consolidated balance sheet included in the Registration
Statement and the Prospectus, or for the period January 3, 2000
to ___________, 2000 there were any changes other than
increases, in net revenues of $_____, in income before income
taxes of $__________ and in total or per share amounts of net
income of the Company of $_________, except in all instances for
changes or decreases set forth in such letter, in which case the
letter shall be accompanied by an explanation by the Company as
to the
<PAGE>
20
significance thereof unless said explanation is not deemed
necessary by the Representatives;
(3) the information included in the Registration
Statement and Prospectus in response to Regulation S-K, Item 301
(Selected Financial Data), Item 302 (Supplementary Financial
Information), Item 402 (Executive Compensation) and Item 503(d)
(Ratio of Earnings to Fixed Charges) is not in conformity with
the applicable disclosure requirements of Regulation S-K.
(iii) they have performed certain other specified procedures as
a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company) set forth in the Registration
Statement and the Prospectus, including the information set forth under
the captions " " and " " in the Prospectus, agrees with the accounting
records of the Company, excluding any questions of legal interpretation.
(iv) on the basis of a reading of the unaudited pro forma
financial statements included in the Registration Statement and the
Prospectus (the "pro forma financial statements"); carrying out certain
specified procedures; inquiries of certain officials of the Company and
Digital Communities, Inc., who have responsibility for financial and
accounting matters; and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the pro forma financial statements, nothing came to their attention
which caused them to believe that the pro forma financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of such statements.
References to the Prospectus in this paragraph (e) include any
supplement thereto at the date of the letter.
The Company shall have received from PricewaterhouseCoopers (and
furnished to the Representatives) a report with respect to a review of unaudited
interim financial information of the Company for the three quarters ending
January 2, 2000, in accordance with Statement on Auditing Standards No. 71.
The Company shall have received from PricewaterhouseCoopers (and
furnished to the Representatives) an examination report with respect to
<PAGE>
21
Management's Discussion and Analysis of Financial Condition and Results
of Operations of the Company for the period from inception through
January 2, 2000, in accordance with Statement on Standards for
Attestation Engagements No. 8 issued by the Auditing Standards Board of
the American Institute of Certified Public Accountants, and such
examination report shall be included in the Registration Statement.
(f) Subsequent to the Execution Time or, if earlier, the dates
as of which information is given in the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change or
decrease specified in the letter or letters referred to in paragraph (e)
of this Section 6 or (ii) any change, or any development involving a
prospective change, in or affecting the condition (financial or
otherwise), earnings, business or properties of the Company, taken as a
whole, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto) the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the sole judgment of the
Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities
as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement
thereto).
(g) Prior to the Closing Date, the Company shall have furnished
to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
(h) At the Execution Time, the Company shall have furnished to
the Representatives a letter substantially in the form of Exhibit A
hereto from each officer, director and holders of more than 1% of the
common stock of the Company, a letter substantially in the form of
Exhibit A-1 hereto from Petsmart.com, Inc., addressed to the
Representatives.
[Insert additional closing conditions, if any, such as
concurrent offering closing, repayment of debt, recapitalization,
reorganization, credit facility closing, additional borrowing,
acquisition closing and stock split.]
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in
this Agreement, or if any of the opinions and certificates mentioned
above or elsewhere in this Agreement shall not be in all material
respects reasonably satisfactory in form and substance to the
Representatives and counsel for the Underwriters, this Agreement and all
obligations of the Underwriters hereunder may be canceled at, or at any
time prior to, the Closing Date by the Representatives. Notice of such
cancellation shall be given to the Company in writing or by telephone or
facsimile confirmed in writing.
<PAGE>
22
The documents required to be delivered by this Section 6 shall be
delivered at the office of Brobeck, Phleger & Harrison LLP, counsel for the
Underwriters, at 550 South Hope Street, Suite 2400, Los Angeles, California
90071, on the Closing Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the
---------------------------------------
Securities provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 6 hereof is not satisfied,
because of any termination pursuant to Section 10 hereof or because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company will reimburse the Underwriters
severally through Salomon Smith Barney on demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution. (a) The Company agrees to indemnify
--------------------------------
and hold harmless each Underwriter, the directors, officers, employees and
agents of each Underwriter and each person who controls any Underwriter within
the meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the registration statement for the registration of the
Securities as originally filed or in any amendment thereof, or in any
Preliminary Prospectus or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion therein. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
The Company agrees to indemnify and hold harmless Salomon Smith Barney
Inc., the directors, officers, employees and agents of Salomon Smith Barney Inc.
and each person, who controls Salomon Smith Barney Inc. within the meaning of
either the Act or the Exchange Act ("Salomon Smith Barney Inc. Entities"),
against any and all losses, claims, damages and liabilities to which they may
become subject under the Act,
<PAGE>
23
the Exchange Act or other Federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims damages or liabilities
(or actions in respect thereof) (i) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
prospectus wrapper material prepared by or with the consent of the Company for
distribution in foreign jurisdictions in connection with the Directed Share
Program attached to the Prospectus or any preliminary prospectus, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein, when considered in conjunction with the Prospectus or any applicable
preliminary prospectus, not misleading; (ii) caused by the failure of any
Participant to pay for and accept delivery of the securities which immediately
following the Effective Date of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of Salomon Smith Barney Inc. specifically for inclusion
therein.
(b) Each Underwriter severally and not jointly agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who signs
the Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the statements
set forth in the last paragraph of the cover page regarding delivery of the
Securities, the legend in block capital letters on page ____ related to
stabilization, syndicate covering transactions and penalty bids and, under the
heading "Underwriting" or "Plan of Distribution", (i) the list of Underwriters
and their respective participation in the sale of the Securities, (ii) the
sentences related to concessions and reallowances and (iii) the paragraph
related to stabilization, syndicate covering transactions and penalty bids in
any Preliminary Prospectus and the Prospectus constitute the only information
furnished in writing by or on behalf of the several Underwriters for inclusion
in any Preliminary Prospectus or the Prospectus.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a)
<PAGE>
24
or (b) above unless and to the extent it did not otherwise learn of such action
and such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or parties except as
set forth below); provided, however, that such counsel shall be satisfactory to
-------- -------
the indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the indemnified
party shall have the right to employ separate counsel (including local counsel),
and the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
Notwithstanding anything contained herein to the contrary, if indemnity
may be sought pursuant to Section 8(a) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for Salomon
Smith Barney Inc., the directors, officers, employees and agents of Salomon
Smith Barney Inc., and all persons, if any, who control Salomon Smith Barney
Inc. within the meaning of either the Act or the Exchange Act for the defense of
any losses, claims, damages and liabilities arising out of the Directed Share
Program.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any
<PAGE>
25
reason, the Company and the Underwriters severally agree to contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Underwriters
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and by the Underwriters on the
other from the offering of the Securities; provided, however, that in no case
-------- -------
shall any Underwriter (except as may be provided in any agreement among
underwriters relating to the offering of the Securities) be responsible for any
amount in excess of the underwriting discount or commission applicable to the
Securities purchased by such Underwriter hereunder. If the allocation provided
by the immediately preceding sentence is unavailable for any reason, the Company
and the Underwriters severally shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company shall be deemed to be equal to the total net proceeds from the offering
(before deducting expenses) received by it, and benefits received by the
Underwriters shall be deemed to be equal to the total underwriting discounts and
commissions, in each case as set forth on the cover page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
any untrue or any alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information provided by the
Company on the one hand or the Underwriters on the other, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters shall fail
-------------------------
to purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters
<PAGE>
26
shall be obligated severally to take up and pay for (in the respective
proportions which the amount of Securities set forth opposite their names in
Schedule I hereto bears to the aggregate amount of Securities set forth opposite
the names of all the remaining Underwriters) the Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase; provided, however,
-------- -------
that in the event that the aggregate amount of Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of
the aggregate amount of Securities set forth in Schedule I hereto, the remaining
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the Securities, and if such nondefaulting
Underwriters do not purchase all the Securities, this Agreement will terminate
without liability to any nondefaulting Underwriter or the Company. In the event
of a default by any Underwriter as set forth in this Section 9, the Closing Date
shall be postponed for such period, not exceeding five Business Days, as the
Representatives shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall relieve
any defaulting Underwriter of its liability, if any, to the Company and any
nondefaulting Underwriter for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in the
-----------
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if at any time prior to such time
(i) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or the Nasdaq National Market, (ii) a banking moratorium shall have
been declared either by Federal or New York State authorities or (iii) there
shall have occurred any outbreak or escalation of hostilities, declaration by
the United States of a national emergency or war, or other calamity or crisis
the effect of which on financial markets is such as to make it, in the sole
judgment of the Representatives, impractical or inadvisable to proceed with the
offering or delivery of the Securities as contemplated by the Prospectus
(exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors, employees, agents or controlling persons referred to in
Section 8 hereof, and will survive delivery of and payment for the Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or
<PAGE>
27
telefaxed to the Salomon Smith Barney Inc. General Counsel (fax no.: (212)
816-7912) and confirmed to the General Counsel, Salomon Smith Barney Inc., at
388 Greenwich Street, New York, New York, 10013, Attention: General Counsel; or,
if sent to the Company, will be mailed, delivered or telefaxed to (626) 817-7101
and confirmed to it at 35 Hughes Alley, #210, Pasadena, California 91103,
attention of the Legal Department.
13. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the
officers, directors, employees, agents and controlling persons referred to in
Section 8 hereof, and no other person will have any right or obligation
hereunder.
14. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York applicable to contracts made
and to be performed within the State of New York.
15. Counterparts. This Agreement may be signed in one or more
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.
16. Headings. The section headings used herein are for convenience only
--------
and shall not affect the construction hereof.
17. Definitions. The terms which follow, when used in this Agreement,
-----------
shall have the meanings indicated.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Date" shall mean each date and time that the Registration
Statement, any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or become effective.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
<PAGE>
28
"Preliminary Prospectus" shall mean any preliminary prospectus referred
to in paragraph 1(a) above and any preliminary prospectus included in the
Registration Statement at the Effective Date that omits Rule 430A Information.
"Prospectus" shall mean the prospectus relating to the Securities that
is first filed pursuant to Rule 424(b) after the Execution Time or, if no filing
pursuant to Rule 424(b) is required, shall mean the form of final prospectus
relating to the Securities included in the Registration Statement at the
Effective Date.
"Registration Statement" shall mean the registration statement referred
to in paragraph 1(a) above, including exhibits and financial statements, as
amended at the Execution Time (or, if not effective at the Execution Time, in
the form in which it shall become effective) and, in the event any
post-effective amendment thereto or any Rule 462(b) Registration Statement
becomes effective prior to the Closing Date, shall also mean such registration
statement as so amended or such Rule 462(b) Registration Statement, as the case
may be. Such term shall include any Rule 430A Information deemed to be included
therein at the Effective Date as provided by Rule 430A.
"Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the
Act.
"Rule 430A Information" shall mean information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" shall mean a registration statement
and any amendments thereto filed pursuant to Rule 462(b) relating to the
offering covered by the registration statement referred to in Section 1(a)
hereof.
<PAGE>
29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Underwriters.
Very truly yours,
PETsMART.com, Inc.
By: ..............................
Name:
Title:
<PAGE>
30
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Smith Barney Inc.
By:
..................................
Name:
Title:
For itself and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE>
SCHEDULE I
----------
Number of Underwritten
Securities to be
Underwriters Purchased
- ------------ ----------------------
Salomon Smith Barney Inc. . . . . . . . .
Chase, Hambrecht & Quist. . . . . . . . .
JP Morgan & Co. Incorporated. . . . . . .
------------
Total. . . . . . . . .
=====
<PAGE>
Form of Lock-Up Agreement EXHIBIT A
[Letterhead of officer, director or 1% shareholder of
PETsMART.com, Inc.]
PETsMART.com, Inc.
------------------
Public Offering of Common Stock
-------------------------------
, 2000
Salomon Smith Barney Inc.
As Representative of the several Underwriters,
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between PETsMART.com,
Inc., a Delaware corporation (the "Company"), and you as representative of a
group of Underwriters named therein, relating to an underwritten public offering
of Common Stock, $ par value (the "Common Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of Salomon Smith Barney Inc., offer, sell, contract to sell, pledge or
otherwise dispose of, (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise)) directly or indirectly, including the filing (or participation in
the filing of) a registration statement with the Securities and Exchange
Commission in respect of, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder
with respect to, any shares of capital stock of the Company or any securities
convertible into, or exercisable or exchangeable for such capital stock, or
publicly announce an intention to effect any such transaction, for a period of
180 days after the date of this Agreement, other than shares of Common Stock
disposed of as bona fide gifts approved by Salomon Smith Barney Inc.
<PAGE>
2
If for any reason the Underwriting Agreement shall be terminated prior
to the Closing Date (as defined in the Underwriting Agreement), the agreement
set forth above shall likewise be terminated.
Yours very truly,
By:_______________________________
Name:
Title:
Address: _____________________
_____________________
_____________________
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
INTERPET, INC.
AND
K&K HANSEN, INC.,
DBA MASON DISTRIBUTING COMPANY
Dated as of March 31, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I ASSET PURCHASE 1
1.1 Acquisition of Assets.................................... 1
1.2 Assumption of Liabilities and Obligations................ 2
1.3 Consideration for Assets................................. 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER 4
2.1 Organization of Seller................................... 4
2.2 Authority................................................ 4
2.3 Seller Financial Statements.............................. 5
2.4 Tax and Other Returns and Reports........................ 5
2.5 Restrictions on Business Activities...................... 6
2.6 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment................................... 6
2.7 Intellectual Property.................................... 6
2.8 Contracts................................................ 7
2.9 Governmental Authorization............................... 7
2.10 Litigation............................................... 7
2.11 Compliance with Laws..................................... 8
2.12 Representations Complete................................. 8
2.13 Investment............................................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER 9
3.1 Organization, Standing and Power......................... 9
3.2 Authority................................................ 9
ARTICLE IV ADDITIONAL AGREEMENTS 9
4.1 Further Assurances....................................... 9
4.2 Tax Returns.............................................. 9
4.3 Bulk Sales............................................... 10
4.4 Taxes 10
4.5 Actions by Board of Directors............................ 10
4.6 Actions by Seller Shareholders........................... 10
4.7 Noncompetition Agreement................................. 10
4.8 Offer Letter............................................. 11
ARTICLE V SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 11
5.1 Survival of Representations and Warranties............... 11
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.2 Indemnification.......................................... 11
ARTICLE VI GENERAL PROVISIONS 13
6.1 Amendment................................................ 13
6.2 Notices.................................................. 13
6.3 Interpretation........................................... 14
6.4 Counterparts............................................. 14
6.5 Entire Agreement; Assignment............................. 15
6.6 Severability............................................. 15
6.7 Other Remedies........................................... 15
6.8 Governing Law............................................ 15
6.9 Rules of Construction.................................... 15
</TABLE>
-ii-
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of March 31, 1999 by and between Interpet, Inc., a Delaware corporation
("Buyer"), and K&K Hansen, Inc., dba Mason Distributing Company ("Seller"), a
California corporation.
RECITALS
A. The Board of Directors of each of Buyer and Seller believe it is in
the best interests of each company and their respective shareholders that Buyer
acquire substantially all of the assets of Seller and assume certain liabilities
of Seller (the "Acquisition") and, in furtherance thereof, have approved the
Acquisition.
B. Buyer and Seller desire to make certain representations, warranties,
covenants and other agreements in connection with the Acquisition.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
ASSET PURCHASE
1.1 Acquisition of Assets. On the terms and subject to the conditions of
---------------------
this Agreement, Seller hereby sells, conveys, assigns, transfers and delivers to
Buyer, and Buyer hereby purchases, acquires and accepts from Seller, all right,
title and interest in and to all assets and properties of Seller (collectively,
the "Assets"), free and clear of all liens, pledges, charges, claims, security
interests and other encumbrances of any sort (collectively, "Liens"), including
without limitation, the following (provided, however, that the Assets to be so
purchased shall not include those assets set forth on Schedule 1.1 (the
------------
"Excluded Assets")):
(a) all cash, cash equivalents, securities, notes and accounts
receivable net of allowances for doubtful accounts, of, and other evidences of
indebtedness and receivables owing to, Seller existing as of the date hereof;
(b) all indentures, leases, subleases, licenses, loan agreements,
mortgages, notes, indentures, restrictions, wills, trusts, commitment
obligations or other contracts, agreements or instruments, whether written or
oral or other similar agreements and rights thereunder, including without
limitation, the contracts and agreements set forth on Schedule 1.2 (such
------------
scheduled contracts and agreements collectively referred to herein as the
"Contracts");
-1-
<PAGE>
(c) all tangible personal property, including without limitation,
inventory, office furniture, office equipment, warehouse equipment, warehouse
fixtures and leasehold improvements, but excluding accounting software;
(d) all books, records, customer orders, customer lists, supplier
lists and other proprietary or confidential information or data relating to the
Assets;
(e) all intangible assets of Seller;
(f) the benefit of all right, title and interest of Seller to claims
and causes of action relating to the Assets;
(g) all patents, patent applications, copyrights, trademarks, service
marks, trade names, trade secrets, proprietary information, technology rights
and licenses, proprietary rights and processes, know-how, research and
development in progress, and any and all other intellectual property including,
without limitation, all Intellectual Property of Seller (as defined in Section
2.7);
(h) all rights with respect to leasehold interests and subleases and
rights thereunder relating to the real and personal property; and
(i) all prepaid rentals and other prepaid expenses of Seller.
1.2 Assumption of Liabilities and Obligations. Buyer shall not assume any
-----------------------------------------
liabilities or obligations of Seller, except for those liabilities and
obligations listed on Schedule 1.2 (collectively, the "Assumed Liabilities"),
------------
which Buyer expressly assumes. Buyer will not assume or have any responsibility
with respect to any other obligation or liability of Seller not included on
Schedule 1.2 (the "Excluded Liabilities"). Other than as set forth on Schedule
- ------------ --------
1.2, Buyer is not agreeing to pay, perform or assume or have any responsibility
- ---
for any obligation or liability of Seller or otherwise as a result of the
transactions contemplated hereby.
1.3 Consideration for Assets.
------------------------
(a) Acquisition Consideration. As full payment for transfer of the
-------------------------
Assets, Buyer shall pay to Seller (i) ninety (90) days after the date hereof
(the "First Payment Date") the First Payment (as defined in and subject to
Section 1.3(b)); (ii) one hundred eighty (180) days after the date hereof the
Second Payment (as defined in Section 1.3(c)); and (iii) one (1) year after the
date hereof the Third Payment (as defined in Section 1.3(d)) (collectively, the
"Purchase Price"). Buyer's payment of the Purchase Price shall be secured by a
security interest of Seller in all of Buyer's inventory.
(b) First Payment.
-------------
(i) The amount of the "First Payment" shall be $150,000,
subject to the adjustment pursuant to Section 1.3(b)(iv). The amount of the
First Payment, less $25,000, shall be
-2-
<PAGE>
paid by Buyer to Seller by wire transfer of immediately available funds on the
First Payment Date. If, between the date hereof and the date sixty (60) days
after the First Payment Date, Buyer closes a round of financing in which Buyer
issues Series A Preferred Stock of Buyer ("Series A Preferred"), then, at
Seller's sole election, a portion of the First Payment not to exceed $25,000 may
be paid by Buyer to Seller in the form of Series A Preferred at a per share
price equal to its then-fair market value. If (x) Seller does not elect to
receive a portion of the First Payment, pursuant to this Section 1.1(b)(i), in
Series A Preferred, or (y) on the date sixty (60) days after the First Payment
Date, Buyer has not closed a financing in which it issued Series A Preferred, or
(z) Seller elects to have a portion of the First Payment, less than $25,000,
paid in Series A Preferred, then, on the date sixty (60) days after the First
Payment Date, Buyer shall pay to Seller by wire transfer of immediately
available funds any amount of the First Payment not previously paid by Buyer to
Seller.
(ii) Within fourteen (14) days of the date hereof, Seller shall
prepare and deliver to Buyer a balance sheet as of the close of business on the
date immediately preceding the date hereof (the "Closing Balance Sheet"). The
Closing Balance Sheet shall be prepared in accordance with the accounting
policies attached hereto as Exhibit A and with consistent classification,
---------
judgments and estimation methodology employed in the preparation of the 12/31/98
Balance Sheet (as defined in Section 1.3(b)(iii)). For purposes of this
Agreement, "Closing Book Value" shall mean the amount obtained by subtracting
(x) the total trade accounts payable from (y) the total assets, in each case as
set forth on the Closing Balance Sheet.
(iii) For purposes of this Agreement, the "12/31/98 Balance
Sheet" shall mean the December 31, 1998 unaudited balance sheet of Seller
attached hereto as Exhibit B. The "12/31/98 Book Value" shall mean the amount
---------
obtained by subtracting (x) the total trade accounts payable from (y) the total
assets, in each case as set forth on the 12/31/98 Balance Sheet.
(iv) If the Closing Book Value exceeds the 12/31/98 Book Value,
Buyer will add to the amount to be paid to Seller pursuant to Section 1.3(b)(i)
an amount equal to such excess. If the Closing Book Value is less than the
12/31/98 Book Value, Buyer shall deduct from the amount to be paid to Seller
pursuant to Section 1.3(b)(i) an amount equal to such deficiency.
(c) Second Payment. The amount of the "Second Payment" shall be
--------------
$200,000. The Second Payment shall be paid by Buyer to Seller by wire transfer
of immediately available funds.
(d) Third Payment.
-------------
(i) The amount of the "Third Payment" shall be calculated by
multiplying (x) $220,000 by (y) the quotient resulting from dividing the Post-
Closing Gross Profit (as defined in Section 1.1(d)(ii)) by the Pre-Closing Gross
Profit (as defined in Section 1.1(d)(iii)). The Third Payment shall be paid by
Buyer to Seller by wire transfer of immediately available funds.
-3-
<PAGE>
(ii) For the purposes of this Agreement, "Post-Closing Gross
Profit" shall equal, for wholesale sales of pet supplies only, Buyer's (x) total
revenue less (y) total cost of sales less (z) sales commissions for the Post-
Closing Period, after adjustment for doubtful accounts receivable and slow-
moving inventory in accordance with the accounting policies attached hereto as
Exhibit A. The "Post-Closing Period" shall mean that period from April 1, 1999
- ---------
until March 31, 2000. For purposes of this Section 1.3(d)(ii), total revenue,
total cost of sales and sales commissions for wholesale sales of pet supplies
shall be as set forth on the statement of operations of the Buyer for the Post-
Closing Period.
(iii) For the purposes of this Agreement, "Pre-Closing Gross
Profit" shall equal Seller's (x) total revenue less (y) total cost of sales less
(z) sales commissions for the Pre-Closing Period. The "Pre-Closing Period"
shall mean that period from April 1, 1998 until March 31, 1999. For purposes of
this Section 1.3(d)(iii), total revenue, total cost of sales and sales
commissions shall be as set forth on the statement of operations of Seller for
the Pre-Closing Period.
(iv) Notwithstanding anything to the contrary contained in this
Section 1.3(d), in no event shall the amount of the Third Payment be less than
$100,000 or greater than $300,000.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer, subject to such exceptions
as are specifically disclosed in the disclosure schedules, referencing the
appropriate section and paragraph numbers (the "Company Schedules"), delivered
herewith, that the statements contained in this Article II are correct and
complete.
2.1 Organization of Seller. Seller is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of California.
Seller has the corporate power to own its properties and assets and to carry on
its business as now being conducted. Seller is duly qualified to do business and
in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on the Assets
(or the rights of Buyer in and to the Assets).
2.2 Authority. Seller has all requisite corporate power and authority to
---------
enter into this Agreement, to consummate the transactions contemplated hereby
and to perform its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary legal and corporate action on the part of
Seller. This Agreement has been duly executed and delivered by Seller and
constitutes the valid and binding obligation of Seller, enforceable in
accordance with its terms and conditions. The execution and delivery of this
Agreement by Seller, the sale and transfer of the Assets and the assumption of
the Assumed Liabilities do not conflict with, or result in any violation of, or
default
-4-
<PAGE>
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any benefit or creation of any security interest under (any such event, a
"Conflict") (i) any provision of the Articles of Incorporation or Bylaws of
Seller or (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Seller or its
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party (so as not to trigger any Conflict), is required by or with respect
to Seller in connection with the execution and delivery of this Agreement, the
sale and transfer of the Assets or the consummation of the transactions
contemplated hereby, except for such consents, waivers, authorizations, filings,
approvals and registrations which are set forth on Schedule 2.2. Other than as
------------
set forth on Schedule 2.2, no consent or approval is needed from any third party
------------
in order to effect the Acquisition or any of the transactions contemplated by
this Agreement.
2.3 Seller Financial Statements. Exhibit B sets forth Seller's unaudited
--------------------------- ---------
balance sheet as of December 31, 1998 and the related unaudited statements of
income and cash flow for the twelve-month period then ended (together, the
"Seller Financials") and Seller's unaudited balance sheet (the "Current Balance
Sheet") and the related unaudited statements of income and cash flow for the two
(2)-month period ended February 28, 1999. The Seller Financials present fairly
the financial condition, operating results and cash flows of Seller as of and
for the twelve-month period ended December 31, 1998, and were prepared in
accordance with the accounting policies attached hereto as Exhibit A. The
---------
Current Balance Sheet was prepared on a basis consistent with the Seller
Financials and presents fairly the financial condition of Seller as of February
28, 1999.
2.4 Tax and Other Returns and Reports.
---------------------------------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
-------------------
or, collectively, "Taxes," means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) To the extent the failure to do so would adversely affect
Seller's ability to delivery free and clear title to the Assets or Buyer's right
to hold, own or use the Assets, Seller has filed within the time period for
filing or any extension granted with respect thereto all federal, state, local,
foreign and other returns, estimates and reports ("Returns") which it is
required to file relating
-5-
<PAGE>
or pertaining to any and all Taxes attributable to, levied or imposed upon, or
incurred in connection with the Assets and each portion of any Tax Return
pertaining or related to the Assets is true and correct and has been completed
in accordance with applicable law. Seller has paid all Taxes relating to all the
Assets and has withheld with respect to its employees and paid to the
appropriate taxing authority all federal, state and local income taxes, FICA,
FUTA and any other Taxes required to be withheld with respect to the Assets.
(ii) There are no Liens on the Assets relating to or
attributable to Taxes.
2.5 Restrictions on Business Activities. No agreement or contract
-----------------------------------
constituting part of the Assets has, or to the knowledge of Seller could be
reasonably expected to have, the effect of prohibiting or impairing the use by
Buyer of the Assets following the date hereof (including, by way of example,
effects of noncompetition, exclusivity and other such similar provisions).
2.6 Title to Properties; Absence of Liens and Encumbrances; Condition of
--------------------------------------------------------------------
Equipment. Seller has good, valid and marketable title to, or, in the case of
- ---------
leased properties and assets, valid leasehold interests in, all of the Assets,
free and clear of any Liens and security interests, except as reflected in
Schedule 2.6 and except for Liens for Taxes not yet due and payable. Seller has
- ------------
full corporate right and corporate power to (and at the Closing will) sell,
convey, assign, transfer and deliver to Buyer good and valid title to all of the
Assets, free and clear of Liens, except for Liens for Taxes not yet due and
payable. All material items of equipment owned or leased by Seller are in good
operating condition, regularly and properly maintained, subject to normal wear
and tear.
2.7 Intellectual Property.
---------------------
(a) For the purposes of this Agreement, "Intellectual Property" shall
mean any or all of the following and all rights associated therewith used or
held for use by Seller in connection with the Assets: (i) all customer lists,
and all documentation relating to the foregoing; and (ii) all trade names,
logos, common law trademarks and service marks; trademark and service mark
registrations and applications therefor and all goodwill associated therewith.
(b) Except as set forth on Schedule 2.7(b), (i) Seller has all right,
---------------
title and interest in and to the Intellectual Property; (ii) Seller is not
making use of any patentable or unpatentable invention, software, technology or
proprietary information in connection with the Assets in which any present or
past employee of Seller has or has claimed an interest, and Seller has no
knowledge of facts that could reasonably be expected to give rise to such a
claim; (iii) Seller is in full compliance with all agreements pursuant to which
it acquired any Intellectual Property; (iv) the Intellectual Property does not
infringe upon any patent, trademark, trade name, copyright or other intellectual
property right of any third party; (v) no third party has asserted or, to
Seller's knowledge, threatened to assert against Seller or any of its officers
or directors any conflicting rights to any Intellectual Property and Seller has
no knowledge of facts that could reasonably be expected to give rise to such a
claim; (vi) Seller has no knowledge that any third party is infringing upon any
of the Intellectual Property; and (vii) the Intellectual Property will not be
rendered invalid or adversely affected in any
-6-
<PAGE>
way by virtue of the execution, delivery or performance of this Agreement or the
occurrence of the transactions contemplated hereby.
2.8 Contracts. Schedule 1.2 hereto sets forth all material contracts and
--------- ------------
agreements to which Seller is a party or by which it is bound. To the knowledge
of Seller, Seller has not breached, violated or defaulted under, or received
written notice that it has breached, violated or defaulted under, any of the
terms or conditions of any Contract. Each such Contract is in full force and
effect and is not subject to any default thereunder by any party obligated to
Seller pursuant thereto. Seller has delivered to Buyer a correct and complete
copy of each written agreement listed in Schedule 1.2 and a written summary
------------
setting forth the terms and conditions of each oral agreement referred to in
Schedule 1.2. With respect to each Contract: (A) the Contract is legal, valid,
- ------------
binding, enforceable, and in full force and effect; (B) the Contract will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the Contract; and (D) no party
has repudiated any provision of the Contract. Seller has obtained all necessary
consents, waivers and approvals of parties to any Contract as are required to
assign all rights and benefits thereunder to Buyer as of the date hereof.
2.9 Governmental Authorization. No consent, license, permit, grant or
--------------------------
other authorization issued to Seller by a Governmental Entity is required for
the holding of any interest in any of the Assets.
2.10 Litigation. Except as set forth on Schedule 2.10, there is no action,
---------- -------------
suit or proceeding of any nature pending or, to the knowledge of Seller,
threatened, against Seller, its properties or any of its officers or directors,
nor, to the knowledge of Seller, is there any reasonable basis therefor. There
is no investigation pending or, to the knowledge of Seller, threatened against
Seller, the Assets or any of its officers or directors in their capacities as
such (nor to the knowledge of Seller is there any reasonable basis therefor) by
or before any Governmental Entity. No Governmental Entity has at any time
challenged or questioned the legal right of Seller to produce, offer or sell any
of its products or services in the present manner or style thereof. None of the
actions, suits, proceedings, hearings and investigations set forth in Schedule
--------
2.10 hereof could result in any material adverse change in the business,
- ----
financial condition, operations, results of operations, or future prospects of
Seller. None of Seller's stockholders and the directors and officers (and
employees with responsibilities for litigation matters) of Seller, has any
reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against Seller.
2.11 Compliance with Laws. To the best of Seller's knowledge, Seller has
--------------------
complied with, is not in violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation relating to or affecting in any way the Assets.
2.12 Representations Complete. None of the representations or warranties
------------------------
made by Seller, nor any statement made in any Schedule or certificate furnished
by Seller pursuant to this
-7-
<PAGE>
Agreement, or furnished in or in connection with documents mailed or delivered
to the shareholders of Seller in connection with soliciting their consent to
this Agreement and the Acquisition, contains or any untrue statement of a
material fact, or omits any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
2.13 Investment. Seller (i) understands that the shares of Series A
----------
Preferred have not been, and will not be, registered under the Securities Act of
1933, or under any state securities laws, and are being offered and sold in
reliance upon federal and state exemptions for transactions not involving any
public offering, (ii) is acquiring the Series A Preferred solely for its own
account for investment purposes, and not with a view to the distribution
thereof, (iii) is a sophisticated investor with knowledge and experience in
business and financial matters, (iv) has received certain information concerning
Buyer and has had the opportunity to obtain additional information as desired to
evaluate the merits and risks inherent in holding the Series A Preferred, (v) is
able to bear the economic risk and lack of liquidity inherent in holding the
Series A Preferred, and (vi) is an accredited investor, as defined in Regulation
D of the Securities Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
3.1 Organization, Standing and Power. Buyer is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
3.2 Authority. Buyer has all requisite corporate power and authority to
---------
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes the valid and binding obligations of Buyer,
enforceable in accordance with its terms, except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
-8-
<PAGE>
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Further Assurances. Each party hereto, at the request of the other
------------------
party hereto, shall execute and deliver such other instruments and do and
perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
4.2 Tax Returns. Seller shall be responsible for and pay when due (i) all
-----------
of Seller's Taxes attributable to or levied or imposed upon the Assets relating
or pertaining to the period (or that portion of a period) ending on the date
hereof and (ii) all Taxes attributable to, levied or imposed upon, or incurred
in connection with Seller's business operations. Seller shall continue to timely
file within the time period for filing, or any extension granted with respect
thereto, all of Seller's Tax Returns required to be filed in connection with the
Assets and any portion of any such Tax Returns connected therewith shall be true
and correct and completed in accordance with applicable laws.
4.3 Bulk Sales. Buyer hereby waives the requirement, if any, that Seller
----------
comply with any bulk transfer law which may be applicable to the transactions
contemplated by this Agreement; provided, that Seller agrees to indemnify and
hold harmless Buyer with respect to any noncompliance with such laws and Buyers
waiver with respect thereto.
4.4 Taxes. Seller shall be responsible for the payment of the following:
-----
(a) all federal, state and other taxes imposed upon Seller's net
income from the transactions contemplated in this Agreement;
(b) taxes payable by Seller on gross income from the sale of the
Assets to Buyer pursuant to this Agreement;
(c) all sales and use taxes imposed on the purchase, sale, use or
transfer of property by Seller prior to and as a result of the Acquisition; and
(d) any penalties, interest or similar charges with respect to the
foregoing taxes enumerated in this Section.
4.5 Maintenance of Books and Records. Seller hereby covenants and agrees
--------------------------------
that it shall keep and maintain the books and records of Seller in existence on
the date hereof for seven (7) years from the date hereof. Seller also covenants
and agrees that it and its officers shall assist Buyer, without compensation, in
any audit of Seller's financial records.
4.6 Actions by Board of Directors. Each of Buyer and Seller has delivered
-----------------------------
to the other as of the date hereof resolutions of its Board of Directors
approving this Agreement, and authorizing its execution, delivery and
performance.
-9-
<PAGE>
4.7 Actions by Seller Shareholders. As of the date hereof, Seller has
------------------------------
delivered to Buyer resolutions of a majority of its shareholders approving this
Agreement, and authorizing its execution, delivery and performance by the
Seller.
4.8 Noncompetition Agreement. The parties have delivered as of the date
------------------------
hereof a Noncompetition Agreement executed between Buyer and Hansen,
substantially in the form of Exhibit C (the "Noncompetition Agreement").
---------
4.9 Offer Letter. The parties have delivered as of the date hereof an
------------
offer letter regarding Buyer's employment of Hansen executed between Buyer and
Hansen, substantially in the form of Exhibit D.
---------
ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
5.1 Survival of Representations and Warranties. All of the representations
------------------------------------------
and warranties made by Seller in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Acquisition and continue until the
second anniversary of the date hereof; provided, that the representations and
warranties and covenants relating or pertaining to any Tax or Returns related to
such Tax set forth in Section 2.4, shall survive until ninety (90) days
following the expiration of all applicable statutes of limitations, or
extensions thereof, governing each Tax or Returns related to such Tax.
5.2 Indemnification.
---------------
(a) Indemnification by Seller. Seller agrees to indemnify and hold
-------------------------
Buyer and its officers, directors and affiliates harmless against all claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses of investigation (hereinafter
individually a "Loss" and collectively "Losses") incurred by Buyer, its
officers, directors, or affiliates, directly or indirectly as a result of (i)
any inaccuracy or breach of a representation or warranty of Seller contained in
Article II herein, (ii) any failure by Seller to perform or comply with any
covenant contained herein or (iii) any liability resulting from, or any failure
of Seller to pay, any liability that is not an Assumed Liability. In addition,
Buyer may, at its discretion, seek indemnification for Losses directly from
Seller in the manner and to the extent provided in Section 5.2(b), (d) and (e).
(b) Officer's Certificate. In the event Buyer shall have incurred any
---------------------
Losses for which indemnification pursuant to this Article V is sought, Buyer
shall promptly deliver to Seller a certificate signed by any officer of Buyer
(an "Officer's Certificate"): (i) stating the grounds for recovery by Buyer in
sufficient detail to permit Seller to understand the general basis for the
claim, (ii) stating that Buyer has paid or properly accrued or reasonably
anticipates that it will have to pay or accrue Losses, and (iii) specifying in
reasonable detail the individual items of Losses included in the
-10-
<PAGE>
amount so stated, the date each such item was paid or properly accrued, or the
basis for such anticipated liability.
(c) Timing for Payment. In the event that Buyer has elected to pursue
------------------
indemnity directly from Seller, Seller shall promptly, and in no event later
than thirty (30) days after delivery of the Officer's Certificate, wire transfer
to Buyer, the amount of such Loss, unless Seller contests such Buyer claim by
following the procedures set forth in Section 5.2(e).
(d) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case Seller shall object in writing to any claim or
claims made in any Officer's Certificate within thirty (30) days after delivery
of such Officer's Certificate, Seller and Buyer shall attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
claims. If Seller and Buyer should so agree, a memorandum setting forth such
agreement shall be prepared and signed by all parties.
(ii) If no such agreement can be reached after good faith
negotiation, either Buyer or Seller may demand arbitration of the matter unless
the amount of the damage or loss is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either such event the
matter shall be settled by arbitration conducted by one arbitrator mutually
agreeable to Buyer and Seller. In the event that, within forty-five (45) days
after submission of any dispute to arbitrators, Buyer and Seller cannot mutually
agree on one arbitrator, Buyer and Seller shall each select one arbitrator, and
the two arbitrators so selected shall select a third arbitrator. The arbitrator
or arbitrators shall set a limited time period and establish procedures designed
to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator or a majority of
the three arbitrators, as the case may be, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrator or
a majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a court of competent
law or equity, should the arbitrator or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator(s). The arbitrator(s) shall not have
the authority to award Buyer more than that requested in the Officer's
Certificate. Within thirty (30) days of a decision of the arbitrator(s)
requiring payment by Seller, Seller shall make the payment to Buyer.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Los Angeles, California under
-11-
<PAGE>
the rules of the American Arbitration Association then in effect. The
arbitrator(s) shall determine how all expenses relating to the arbitration shall
be paid, including without limitation, the respective expenses of each party,
the fees of the arbitrator and the administrative fee of the American
Arbitration Association.
(e) Third-Party Claims. In the event that Buyer becomes aware of a
------------------
third-party claim which Buyer believes will be covered by the indemnification
obligation contained in this Article V, Buyer shall notify Seller of such claim,
and Seller shall be entitled, at its expense, to participate in any defense of
such claim. Buyer shall have the right in its sole discretion, to settle any
such claim; provided, that except with the consent of Seller, no settlement of
any such claim with third-party claimants shall be determinative of the amount
of any claim against Seller.
ARTICLE VI
GENERAL PROVISIONS
6.1 Amendment. Except as is otherwise required by applicable law, this
---------
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
6.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Buyer, to:
Interpet, Inc.
130 West Union Street
Pasadena, CA 91103
Attention: Tom McGovern, Jr.
Telephone No.: (626) 535-2735
Facsimile No: (626) 535-2701
-12-
<PAGE>
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attention: Martin W. Korman, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to Seller, to:
K&K Hansen, Inc.
dba Mason Distributing Company
4935 Warner Boulevard
Huntington Beach, CA 92649
Attention: Kyle Hansen
Telephone No.: (714) 840-6430
Facsimile No.: (714) 846-4080
with a copy to:
James P. Baron
A Professional Law Corporation
One Corporate Plaza, Suite 110
Newport Beach, CA 92660
Telephone No.: (949) 759-7888
Facsimile No.: (949) 640-9009
6.3 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
6.5 Entire Agreement; Assignment. This Agreement, the Schedules and
----------------------------
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein:
-13-
<PAGE>
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided, except that Buyer may
assign its rights and delegate its obligations hereunder to any affiliate,
subsidiary, parent or successor of Buyer, but no such assignment shall relieve
Buyer from any of its obligations hereunder.
6.6 Severability. In the event that any provision of this Agreement or
------------
the application thereof becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
6.7 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
6.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Los Angeles County, California, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons, and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction, venue and such process.
6.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
[Signatures Appear on Next Page]
-14-
<PAGE>
IN WITNESS WHEREOF, Buyer and Seller have caused this Asset Purchase
Agreement to be signed by their respective duly authorized officers, as of the
date first written above.
K&K HANSEN, INC., INTERPET, INC.
DBA MASON DISTRIBUTING COMPANY
By: /s/ Kyle Hansen By: /s/ Tom McGovern
------------------------- ---------------------
Kyle Hansen Tom McGovern, Jr.
President President
-15-
<PAGE>
Exhibit A
---------
Accounting Policies
<PAGE>
K&K Hansen, Inc. (Mason Distributing)
Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Inventories
Inventories are valued at average cost. Inventory costs include freight and
product cost.
Revenue recognition
Revenues from product sales are recognized upon shipment of the products to
customers.
Property and equipment
Depreciation and amortization of property and equipment are provided using tax
basis accounting over the following useful lives:
Automobiles 5 years
Furniture and office equipment 5 years
Computers, machinery and support 5-7 years
<PAGE>
Exhibit B
---------
12/31/98 Balance Sheet
<PAGE>
MASON PET SUPPLIES
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash In Bank - Wells Fargo $ (42,538.26)
Petty Cash 416.81
Accounts Receivable-Trade 175,836.27
Account Receivable-Trade 3,100.00
Inter-Company Account 29,575.43
Reserve For Doubtful Accounts (17,859.27)
Inventory - Product 373,009.85
Prepaid Expenses 4,074.75
------------
TOTAL CURRENT ASSETS 525,615.68
FIXED ASSETS
Warehouse Equipment 46,304.55
Office Furniture & Equipment 35,644.44
Autos & Trucks 20,604.31
Reserve for Depreciation (74,567.00)
------------
TOTAL FIXED ASSETS 27,986.30
OTHER ASSETS
Deposits 3,156.93
Corporation Expense 1,809.35
Reserve for Amortization (1,809.00)
Goodwill 29,000.00
------------
TOTAL OTHER ASSETS 32,157.28
------------
TOTAL ASSETS $ 585,759.26
============
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts Payable 140,528.03
Accrued Liabilities 963.49
Wells Fargo Line of Credit 49,715.83
Accrued Salaries & Wages 3,221.60
Sales Tax Payable 102.80
------------
TOTAL CURRENT LIABILITIES 194,531.75
</TABLE>
<PAGE>
MASON PET SUPPLIES
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
LONG-TERM LIABILITIES
NOTE PAYABLEBTRHBL/T 718,426.01
Notes Payable - JJ Hansen 27,000.00
TOTAL LONG-TERM LIABILITIES $ 745,426.01
------------
TOTAL LIABILITIES 939,957.76
EQUITY
Common Stock 2,000.00
Paid In Surplus 60,000.00
RETAINED EARNINGS - PRIOR (432,645.98)
RETAINED EARNINGS - CURRENT YEAR 16,447.48
------------
TOTAL EQUITY (354,198.50)
------------
TOTAL LIABILITIES AND EQUITY $ 585,759.26
============
</TABLE>
<PAGE>
Exhibit C
---------
Noncompetition Agreement
<PAGE>
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made and entered into
this 31st day of March, 1999, by and between Interpet, Inc., a Delaware
corporation (the "Buyer"), and Kyle Hansen ("Executive"), with reference to the
following facts:
A. The Buyer is purchasing substantially all the assets of K&K Hansen
Inc., dba Mason Distributing Company (the "Seller") pursuant to an Asset
Purchase Agreement dated as of the date hereof (the "Purchase Agreement").
B. Executive is the President and a stockholder of the Seller.
C. It is a condition to the Buyer's willingness to agree to proceed with
the transactions contemplated in the Purchase Agreement (the "Acquisition") that
the Buyer and Executive enter into this Agreement.
D. It is a condition to Executive's willingness to enter into this
Agreement that the Buyer agree to be bound by the terms hereof.
NOW, THEREFORE, in consideration of the premises, mutual covenants, and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. COVENANT NOT TO COMPETE: For the period from and including the date
of this Agreement to the earlier of (i) the third anniversary of this Agreement
or (ii) the date on which Buyer ceases to engage in the Business (as defined
herein), Executive will not, without prior written consent of the Buyer,
directly engage in or assist any activity that is the same as or that materially
competes with the Business (other than on behalf of the Buyer or any of its
affiliates) including, without limitation, whether such engagement or assistance
is as an officer, director, proprietor, employee, partner, investor (other than
as a holder of less than 5% of the outstanding capital stock of a publicly
traded corporation or other entity), guarantor, consultant, advisor, agent,
sales representative or other participant, anywhere in the Territory (as defined
herein). The "Territory" shall mean the United States. The "Business" shall mean
the wholesale sale and distribution of pet supplies; provided, however, that
Executive's ownership of and employment by The Kyjen Company, Inc. shall not
constitute a breach of this Agreement for so long as The Kyjen Company, Inc.
continues to engage principally in the design, development, sourcing and
wholesale sale of pet supplies.
2. SOLICITATION OF EMPLOYEES: For a period of one year following the
date of termination of Executive's employment with the Buyer for any reason,
Executive shall not directly or indirectly solicit or attempt to solicit any
employee of the Buyer, its subsidiaries or affiliates, other than Richard
Durban, to leave the employ of the Buyer or to cease providing or
<PAGE>
otherwise alter the services then provided to the Buyer, its subsidiaries or
affiliates in connection with the operation of any business (whether or not the
same as or similar to the Business).
3. NON-SOLICITATION OF CUSTOMERS: For a period of one year following the
date of termination of Executive's employment with the Buyer for any reason,
Executive shall not, directly or indirectly, on his own behalf or otherwise,
solicit any customers, advertisers or other clients of the Buyer or any of its
subsidiaries or affiliates or encourage any such customers, advertisers or
clients to use the facilities or services of any competitor of the Buyer, its
subsidiaries or affiliates.
4. EQUITABLE RELIEF: Executive acknowledges that the covenants contained
in Paragraphs 1, 2 and 3 hereof are reasonable and necessary to protect the
legitimate interests of the Buyer and that in the absence of such covenants, the
Buyer would not have agreed to proceed with the Acquisition, that any breach or
threatened breach of such covenants will result in irreparable injury to the
Buyer and that the remedy at law for such breach or threatened breach would be
inadequate. Accordingly, the Executive agrees that the Buyer, in addition to any
other rights or remedies which it may have, shall be entitled to seek such
equitable and injunctive relief as may be available from any court of competent
jurisdiction to restrain the Executive from any breach or threatened breach of
such covenants.
5. COMPLETE AGREEMENT; MODIFICATIONS: Except as specifically provided
herein, this Agreement and any documentation referred to herein constitute the
parties' entire agreement with respect to the subject matter hereof and
supersede all agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Agreement may be executed in counterparts and may not be amended,
altered or modified except by a writing signed by the parties.
6. GOVERNING LAW; JURISDICTION: All questions with respect to this
Agreement and the rights and liabilities of the parties will be governed by the
laws of the State of California. Any and all disputes between the parties which
may arise pursuant to this Agreement will be heard and determined before an
appropriate federal court in California, or, if not maintainable therein, then
in an appropriate California State Court. The parties hereto acknowledge that
such courts, as applicable, have jurisdiction to interpret and enforce the
provisions of this Agreement, and the parties consent to, and waive any and all
objections that they may have as to, personal jurisdiction and/or venue in any
such court.
7. SEVERABILITY: The validity, legality, or enforceability of the
remainder of this Agreement will not be affected even if one or more of the
provisions of this Agreement is held invalid, illegal or unenforceable in any
respect. Further, if the period of time, the extent of the geographic area, or
the scope of proscribed activities covered by this Agreement should be deemed
unenforceable, then this Agreement shall be construed to cover the maximum
period of time, geographic area or scope of proscribed activities (not to exceed
the maximum period of time or scope set forth herein) as may be valid under the
applicable law, and each of the parties
2
<PAGE>
hereto shall request any court considering the enforceability of this Agreement
to construe and/or reform it so as to render it enforceable to the maximum
extent as provided above.
IN WITNESS WHEREOF, the parties hereto have executed this Noncompetition
Agreement as of the date first set forth above.
INTERPET, INC.
/s/ Tom McGovern /s/ Kyle Hansen
- -------------------------- -------------------------------
Tom McGovern, Jr. Kyle Hansen
Chief Executive Officer
<PAGE>
Exhibit D
---------
Offer Letter
<PAGE>
March 31, 1999
OFFER LETTER
------------
Mr. Kyle Hansen
4935 Warner Blvd.
Huntington Beach, CA 92649
Dear Mr. Hansen:
I am pleased to offer you a position with Interpet, Inc. (the "Company") as
its President of Masons Distribution and Vice President of Interpet Merchandise
Sourcing, commencing on April 1, 1999. You will receive an annual salary of
$70,000, which will not be decreased during your first year of employment
without the mutual consent of you and the Company, and which will be paid in
semi-monthly installments in accordance with the Company's normal payroll
procedures. As a Company employee, you are also eligible to receive certain
employee benefits, including participation in the Company's health, eye care and
dental plans. You should note that the Company may modify salaries and benefits
from time to time as it deems necessary.
We will recommend to the Board of Directors of the Company that, at the
next Board meeting, you be granted an incentive stock option entitling you to
purchase up to 250,000 shares of Common Stock of the Company at the then current
fair market value as determined by the Board at that meeting. Such options shall
be subject to the terms and conditions of the Company's Stock Option Plan and
Stock Option Agreement, including vesting requirements. We will recommend to the
Board a vesting schedule for such options as follows: 20% on the date of grant,
40% on the first anniversary of the grant date, and 40% on the second
anniversary of the grant date.
In addition, should you desire to do so, you may purchase up to 100,000
shares of Common Stock of the Company for a per share price of $0.25 per share
on such additional terms and conditions as are mutually agreed upon by you and
the Company.
You should be aware that your employment with the Company is for no
specified period and constitutes at will employment. As a result, you are free
to resign at any time, for any reason or for no reason. Similarly, the Company
is free to conclude its employment relationship with you at any time, with or
without cause, and with or without notice.
For purposes of federal immigration law, you will be required to provide to
the Company documentary evidence of your identity and eligibility for employment
in the United States. Such documentation must be provided to us within three (3)
business days of your date of hire, or our employment relationship with you may
be terminated.
You agree that, with the exception of your position as an owner or employee
of The Kyjen Company, Inc. for so long as The Kyjen Company, Inc. continues to
engage principally in the design, development, sourcing and wholesale sale of
pet supplies, during the term of your
<PAGE>
Mr. Kyle Hansen
March 31, 1999
Page 2 of 2
employment with the Company, you will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of your employment, nor will you engage in any other activities that
conflict with your obligations to the Company.
As a Company employee, you will be expected to abide by company rules and
regulations. You will be specifically required to sign an acknowledgment that
you have read and understand the company rules of conduct which will be included
in a handbook which the company will soon complete and distribute. You will be
expected to sign and comply with an Employment, Confidential Information,
Invention Assignment and Arbitration Agreement which requires, among other
provisions, the assignment of patent rights to any invention made during your
employment at the Company and non-disclosure of proprietary information.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to me. A duplicate
original is enclosed for your records. This letter, along with the agreement
relating to proprietary rights between you and the Company, sets forth the terms
of your employment with the Company and supersedes any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by an officer of the Company and by you.
We look forward to working with you at Interpet, Inc.
Sincerely,
INTERPET, INC.
/s/ Tom McGovern
---------------------------------
Tom McGovern, Jr.
Chief Executive Officer
ACCEPTED AND AGREED TO this
31/st/ day of March, 1999.
/s/ Kyle Hansen
- -----------------------------
Kyle Hansen
Enclosures: Duplicate Original Letter
Employment, Confidential Information, Invention Assignment
and Arbitration Agreement
2
<PAGE>
INTERPET, INC.
West Union Street
Pasadena, CA 91103
March 31, 1999
Mr. Kyle Hansen
4935 Warner Blvd.
Huntington Beach, CA 92649
Dear Mr. Hansen:
This letter will confirm our agreement with respect to your employment by
Interpet, Inc. ("Buyer"), as it relates to the Company's purchase of
substantially all the assets of K&K Hansen, Inc., dba Mason Distributing Company
("Seller") pursuant to the Asset Purchase Agreement between Buyer and Seller
dated as of the date hereof (the "Purchase Agreement").
Notwithstanding anything to the contrary contained in the Purchase
Agreement, in the event that your employment with Buyer is terminated prior to
the first anniversary of the Purchase Agreement, other than termination by the
Buyer without "Cause," the amount of the Third Payment (as defined in the
Purchase Agreement) shall be $100,000. For purposes hereof, "Cause" shall mean
(1) willful failure by you to perform your duties as determined by the Board of
Directors of Buyer, other than a failure resulting from your complete or partial
incapacity due to physical or mental illness or impairment, (2) a willful act by
you which constitutes gross misconduct and which is injurious to Buyer, or (3) a
material and willful violation of a federal or state law or regulation
applicable to the business of Buyer.
If your are in agreement with the foregoing, please sign this letter where
indicated below.
Sincerely,
INTERPET, INC.
By: /s/ Tom McGovern
---------------------------
Tom McGovern, Jr.
President
AGREED AND ACCEPTED
THIS 31/ST/ OF MARCH, 1999.
/s/ Kyle Hansen
- ---------------------------------
Kyle Hansen
<PAGE>
================================================================================
INTERPET, INC.
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
================================================================================
<PAGE>
INTERPET, INC.
EMPLOYMENT, CONFIDENTIAL INFORMATION AND
----------------------------------------
INVENTION ASSIGNMENT AGREEMENT
------------------------------
As a condition of my employment with Interpet, Inc. its subsidiaries,
affiliates, successors or assigns (together the "Corporation"), and in
consideration of my employment with the Corporation and my receipt of the
compensation now and hereafter paid to me by Corporation, I agree to the
following:
1. At-Will Employment. I UNDERSTAND AND ACKNOWLEDGE THAT MY EMPLOYMENT
------------------
WITH THE CORPORATION IS FOR AN UNSPECIFIED DURATION AND CONSTITUTES "AT-WILL"
EMPLOYMENT. I ACKNOWLEDGE THAT THIS EMPLOYMENT RELATIONSHIP MAY BE TERMINATED AT
ANY TIME, WITH OR WITHOUT GOOD CAUSE OR FOR ANY OR NO CAUSE, AT THE OPTION
EITHER OF THE CORPORATION OR MYSELF, WITH OR WITHOUT NOTICE.
2. Confidential Information.
------------------------
(a) Corporation Information. I agree at all times during the term of
-----------------------
my employment and thereafter, to hold in strictest confidence, and not to use,
except for the benefit of the Corporation, or to disclose to any person, firm or
corporation without written authorization of the Board of Directors of the
Corporation, any Confidential Information of the Corporation. I understand that
"Confidential Information" means any Corporation proprietary information,
technical data, trade secrets or know-how, including, but not limited to,
research, product plans, products, services, customer lists and customers
(including, but not limited to, customers of the Corporation on whom I called or
with whom I became acquainted during the term of my employment), markets,
software, developments, inventions, processes, formulas, technology, designs,
drawings, engineering, hardware configuration information, marketing, finances
or other business information disclosed to me by the Corporation either directly
or indirectly in writing, orally or by drawings or observation of parts or
equipment. I further understand that Confidential Information does not include
any of the foregoing items which has become publicly known and made generally
available through no wrongful act of mine or of others who were under
confidentiality obligations as to the item or items involved.
(b) Former Employer Information. I agree that I will not, during my
---------------------------
employment with the Corporation, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and that I will not bring onto the premises of the Corporation
any unpublished document or proprietary information belonging to any such
employer, person or entity unless consented to in writing by such employer,
person or entity.
<PAGE>
(c) Third Party Information. I recognize that the Corporation has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Corporation's part to maintain
the confidentiality of such information and to use it only for certain limited
purposes. I agree to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as necessary in carrying out my work for the
Corporation consistent with the Corporation's agreement with such third party.
3. Inventions.
----------
(a) Inventions Retained and Licensed. I have attached hereto, as
--------------------------------
Exhibit A, a list describing all inventions, original works of authorship,
- ---------
developments, improvements, and trade secrets which were made by me prior to my
employment with the Corporation (collectively referred to as "Prior
Inventions"), which belong to me, which relate to the Corporation's proposed
business, products or research and development, and which are not assigned to
the Corporation hereunder; or, if no such list is attached, I represent that
there are no such Prior Inventions. If in the course of my employment with the
Corporation, I incorporate into a Corporation product, process or machine a
Prior Invention owned by me or in which I have an interest, the Corporation is
hereby granted and shall have a nonexclusive, royalty-free, irrevocable,
perpetual, worldwide license to make, have made, modify, use and sell such Prior
Invention as part of or in connection with such product, process or machine,
except those Inventions that are conceived or developed solely in my capacity as
an owner or employee of The Kyjen Company, Inc.
(b) Assignment of Inventions. I agree that I will promptly make full
------------------------
written disclosure to the Corporation, will hold in trust for the sole right and
benefit of the Corporation, and hereby assign to the Corporation, or its
designee, all my right, title, and interest in and to any and all inventions,
original works of authorship, developments, concepts, improvements or trade
secrets, whether or not patentable or registrable under copyright or similar
laws, which I may solely or jointly conceive or develop or reduce to practice,
or cause to be conceived or developed or reduced to practice, during the period
of time I am in the employ of the Corporation, except those Inventions that are
conceived or developed solely in my capacity as an owner or employee of The
Kyjen Company, Inc (collectively referred to as "Inventions"), except as
provided in Section 3(f) below. I further acknowledge that all original works of
authorship which are made by me (solely or jointly with others) within the scope
of and during the period of my employment with the Corporation and which are
protectible by copyright are "works made for hire," as that term is defined in
the United States Copyright Act.
(c) Inventions Assigned to the United States. I agree to assign to
----------------------------------------
the United States government all my right, title, and interest in and to any and
all Inventions whenever such full title is required to be in the United States
by a contract between the Corporation and the United States or any of its
agencies.
2
<PAGE>
(d) Maintenance of Records. I agree to keep and maintain adequate and
----------------------
current written records of all Inventions made by me (solely or jointly with
others) during the term of my employment with the Corporation. The records will
be in the form of notes, sketches, drawings, and any other format that may be
specified by the Corporation. The records will be available to and remain the
sole property of the Corporation at all times.
(e) Patent and Copyright Registrations. I agree to assist the
----------------------------------
Corporation, or its designee, at the Corporation's expense, in every proper way
to secure the Corporation's rights in the Inventions and any copyrights,
patents, mask work rights or other intellectual property rights relating thereto
in any and all countries, including the disclosure to the Corporation of all
pertinent information and data with respect thereto, the execution of all
applications, specifications, oaths, assignments and all other instruments which
the Corporation shall deem necessary in order to apply for and obtain such
rights and in order to assign and convey to the Corporation, its successors,
assigns, and nominees the sole and exclusive rights, title and interest in and
to such Inventions, and any copyrights, patents, mask work rights or other
intellectual property rights relating thereto. I further agree that my
obligation to execute or cause to be executed, when it is in my power to do so,
any such instrument or papers shall continue after the termination of this
Agreement. If the Corporation is unable because of my mental or physical
incapacity or for any other reason to secure my signature to apply for or to
pursue any application for any United States or foreign patents or copyright
registrations covering Inventions or original works of authorship assigned to
the Corporation as above, then I hereby irrevocably designate and appoint the
Corporation and its duly authorized officers and agents as my agent and attorney
in fact, to act for and in my behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by me.
(f) Exception to Assignments. I understand that the provisions of
------------------------
this Agreement requiring assignment of Inventions to the Corporation do not
apply to any invention which qualifies fully under the provisions of California
Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the
---------
Corporation promptly in writing of any inventions that I believe meet the
criteria in California Labor Code Section 2870 and not otherwise disclosed on
Exhibit A.
- ---------
4. Conflicting Employment. I agree that, during the term of my employment
----------------------
with the Corporation, I will not engage in any other employment, occupation,
consulting or other business activity directly related to the business in which
the Corporation is now involved or becomes involved during the term of my
employment, nor will I engage in any other activities that conflict with my
obligations to the Corporation; provided, however, that my ownership of or
employment by The Kyjen Company, Inc. shall not constitute a breach of this
Agreement for so long as The Kyjen Company, Inc. continues to engage solely in
the design, development, sourcing and wholesale sale of pet supplies.
3
<PAGE>
5. Returning Corporation Documents. I agree that, at the time of leaving
-------------------------------
the employ of the Corporation, I will deliver to the Corporation (and will not
keep in my possession, recreate or deliver to anyone else) any and all devices,
records, data, notes, reports, proposals, lists, correspondence, specifications,
drawings blueprints, sketches, materials, equipment, other documents or
property, or reproductions of any aforementioned items developed by me pursuant
to my employment with the Corporation or otherwise belonging to the Corporation,
its successors or assigns. In the event of the termination of my employment, I
agree to sign and deliver the "Termination Certification" attached hereto as
Exhibit C.
- ---------
6. Notification of New Employer. In the event that I leave the employ of
----------------------------
the Corporation, I hereby grant consent to notification by the Corporation to my
new employer about my rights and obligations under this Agreement.
7. Solicitation of Employees. I agree that for a period of twelve (12)
-------------------------
months immediately following the termination of my relationship with the
Corporation for any reason, whether with or without cause, I shall not either
directly or indirectly solicit, induce, recruit or encourage any of the
Corporation's employees to leave their employment, or take away such employees,
or attempt to solicit, induce, recruit, encourage or take away employees of the
Corporation, either for myself or for any other person or entity.
8. Conflict of Interest Guidelines. I agree to diligently adhere to the
-------------------------------
Conflict of Interest Guidelines attached as Exhibit D hereto.
---------
9. Representations. I agree to execute any proper oath or verify any
---------------
proper document required to carry out the terms of this Agreement. I represent
that my performance of all the terms of this Agreement will not breach any
agreement to keep in confidence proprietary information acquired by me in
confidence or in trust prior to my employment by the Corporation. I have not
entered into, and I agree I will not enter into, any oral or written agreement
in conflict herewith.
10. Arbitration and Equitable Relief.
--------------------------------
(a) Arbitration. EXCEPT AS PROVIDED IN SECTION 10(b) BELOW, I AGREE
-----------
THAT ANY DISPUTE OR CONTROVERSY ARISING OUT OF, RELATING TO, OR CONCERNING ANY
INTERPRETATION, CONSTRUCTION, PERFORMANCE OR BREACH OF THIS AGREEMENT, SHALL BE
SETTLED BY ARBITRATION TO BE HELD IN LOS ANGELES, CALIFORNIA, IN ACCORDANCE WITH
THE RULES THEN IN EFFECT OF THE AMERICAN ARBITRATION ASSOCIATION. THE ARBITRATOR
MAY GRANT INJUNCTIONS OR OTHER RELIEF IN SUCH DISPUTE OR CONTROVERSY. THE
DECISION OF THE ARBITRATOR SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES
TO THE ARBITRATION. JUDGMENT MAY BE ENTERED ON THE ARBITRATOR'S DECISION IN ANY
COURT HAVING JURISDICTION. THE CORPORATION AND I SHALL EACH PAY ONE-HALF OF THE
COSTS AND EXPENSES
4
<PAGE>
OF SUCH ARBITRATION, AND EACH OF US SHALL SEPARATELY PAY OUR COUNSEL FEES AND
EXPENSES.
THIS ARBITRATION CLAUSE RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING
TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP (EXCEPT AS PROVIDED IN
SECTION 10(b) BELOW), INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING CLAIMS:
i. ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT;
BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD
FAITH AND FAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL
INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION;
NEGLIGENT OR INTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC
ADVANTAGE; AND DEFAMATION;
ii. ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL, STATE OR
MUNICIPAL STATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS
ACT OF 1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT OF 1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR
STANDARDS ACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE
SECTION 201, et seq.;
iii. ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND
REGULATIONS RELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
(b) Equitable Remedies. I AGREE THAT IT WOULD BE IMPOSSIBLE OR
------------------
TO MEASURE AND CALCULATE THE CORPORATION'S DAMAGES FROM ANY BREACH OF THE
COVENANTS SET FORTH IN SECTIONS 2, 3, AND 5 HEREIN. ACCORDINGLY, I AGREE THAT IF
I BREACH ANY OF SUCH SECTIONS, THE CORPORATION WILL HAVE AVAILABLE THE ADDITION
TO ANY OTHER RIGHT OR READILY AVAILABLE, THE RIGHT TO OBTAIN AN INJUNCTION FROM
A COURT OF COMPETENT JURISDICTION RESTRAINING SUCH BREACH OR THREATENED BREACH
AND TO SPECIFIC PERFORMANCE OF ANY SUCH PROVISION OF THIS AGREEMENT. I FURTHER
AGREE THAT NO BOND OR OTHER SECURITY SHALL BE REQUIRED IN OBTAINING SUCH
EQUITABLE RELIEF AND I HEREBY CONSENT TO THE ISSUANCE OF SUCH INJUNCTION AND TO
THE ORDERING OF SPECIFIC PERFORMANCE.
5
<PAGE>
11. General Provisions.
------------------
(a) Governing Law; Consent to Personal Jurisdiction. This Agreement
-----------------------------------------------
the State of California. I hereby expressly consent to the personal jurisdiction
of the state and federal courts located in California for any lawsuit filed
there against me by the Corporation arising from or relating to this Agreement.
(b) Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Corporation and me relating to the subject matter
herein and merges all prior discussions between us. No modification of or
amendment to this Agreement, nor any waiver of any rights under his agreement,
will be effective unless in writing signed by the party to be charged. Any
subsequent change or changes in my duties, salary or compensation will not
affect the validity or scope of this Agreement.
(c) Severability. If one or more of the provisions in this Agreement
------------
are deemed void by law, then the remaining provisions will continue in full
force and effect.
(d) Successors and Assigns. This Agreement will be binding upon my
----------------------
heirs executors, administrators and other legal representatives and will be for
the benefit of the Corporation, its successors, and its assigns.
Date: 3/31/99
-------------------------------
/s/ Kyle Hansen
----------------------------------
Signature
Kyle Hansen
----------------------------------
Name of Employee (typed or printed)
/s/ Linda Bully
- --------------------------------------
Witness
6
<PAGE>
EXHIBIT A
---------
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Identifying Number
Title Date or Brief Description
- --------------------------------------------------------------------------------
X No inventions or improvements
- ---
___ Additional Sheets Attached
Signature of Employee: /s/ Kyle Hansen
------------------
Print Name of Employee: Kyle Hansen
-----------------
Date: March 31, 1999
---------------
<PAGE>
EXHIBIT B
---------
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS;
ASSIGNMENT OF RIGHTS
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
<PAGE>
EXHIBIT C
---------
INTERPET, INC.
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Interpet, Inc., its subsidiaries, affiliates, successors or
assigns (together, the "Corporation").
I further certify that I have complied with all the terms of the
Corporation's Employment Confidential Information and Invention Assignment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I further agree that, in compliance with the Employment, Confidential
Information and Invention Assignment Agreement, I will preserve as confidential
all trade secrets, confidential knowledge, data or other proprietary information
relating to products, processes, know-how, designs, formulas, developmental or
experimental work, computer programs, data bases, other original works of
authorship, customer lists, business plans, financial information or other
subject matter pertaining to any business of the Corporation or any of its
employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I will not hire
any employees of the Corporation and I will not solicit, induce, recruit or
encourage any of the Corporation's employees to leave their employment.
Date:___________________
________________________________________
(Employee's Signature)
________________________________________
(Type/Print Employee's Name)
<PAGE>
EXHIBIT D
---------
INTERPET, INC.
CONFLICT OF INTEREST GUIDELINES
It is the policy of Interpet, Inc. to conduct its affairs in strict
compliance with the letter and spirit of the law and to adhere to the highest
principles of business ethics. Accordingly, all officers, employees and
independent contractors must avoid activities which are in conflict, or give the
appearance of being in conflict, with these principles and with the interests of
the Corporation. The following are potentially compromising situations which
must be avoided. Any exceptions must be reported to the Chief Executive Officer
and written approval for continuation must be obtained.
1 Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information is a violation
of this policy whether or not for personal gain and whether or not harm to the
Corporation is intended. (The Employment, Confidential Information and
Invention Assignment Agreement elaborates on this principle and is a binding
agreement.)
2. Accepting or offering substantial gifts, excessive entertainment,
favors or payments which may be deemed to constitute undue influence or
otherwise be improper or embarrassing to the Corporation.
3. Participating in civic or professional organizations that might
involve divulging confidential information of the Corporation.
4. Initiating or approving personnel actions affecting reward or
punishment of employees or applicants where there is a family relationship or is
or appears to be a personal or social involvement.
5. Initiating or approving any form of personal or social harassment of
employees.
6. Investing or holding outside directorship in suppliers, customers, or
competing companies, including financial speculations, where such investment or
directorship might influence in any manner a decision or course of action of the
Corporation.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to the Corporation.
<PAGE>
9. Improperly using or disclosing to the Corporation any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity with whom obligations of confidentiality exist.
10. Unlawfully discussing prices, costs, customers, sales or markets with
competing companies or their employees.
11. Making any unlawful agreement with distributors with respect to
prices.
12. Improperly using or authorizing the use of any inventions which are
the subject of patent claims of any other person or entity.
13. Engaging in any conduct which is not in the best interest of the
Corporation.
Each officer, employee and independent contractor must take every necessary
action to ensure compliance with these guidelines and to bring problem areas to
the attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
2
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease"), dated March 31, 1999, for reference
purposes only, is made by and between T. Robert and Lynne A. Hansen, Trustees
for the Robert and Lynne Hansen Family Trust dated August 3, 1982 ("Landlord"),
and Interpet, Inc., a Delaware corporation ("Tenant").
1 DEFINITIONS: Any term that is given a special meaning by this Section
-----------
1 or by any other provision of this Lease (including any exhibits attached
hereto) shall have such meaning when used in this Lease or any addendum or
amendment hereto.
1.1 Agreed Interest Rate: "Agreed Interest Rate" means an interest
--------------------
rate of either ten percent (10%) per annum or the maximum applicable rate
permitted by Law, whichever is less.
1.2 Building: "Building" means that certain approximately 10,000
--------
square foot building located on the Premises.
1.3 Commencement Date: "Commencement Date" means April 1, 1999.
-----------------
1.4 Effective Date: "Effective Date" means the date by which the
--------------
last signatory to this Lease whose execution is required to make it binding on
the parties hereto shall have executed this Lease, provided that the executed
Lease has been mutually delivered.
1.5 Hazardous Material: "Hazardous Material" means any material or
------------------
substance that is now or hereafter prohibited or regulated by any Law relating
to health, safety or the environment or that is now or hereafter designated by
any governmental authority to be radioactive, toxic, hazardous or otherwise a
danger to health, reproduction or the environment.
1.6 Law: "Law" means any judicial decision, statute, constitution,
---
ordinance, resolution, order, or other requirement of any municipal, county,
state, federal, or other government agency or authority having jurisdiction over
the parties to this Lease or the Premises or both, in effect either at the
Effective Date of this Lease or any time during the Lease Term.
1.7 Lease: "Lease" means this printed lease and Exhibit A, attached
----- ---------
hereto and made a part hereof, as the same may be amended in accordance with
this Lease from time to time.
1.8 Lease Term: "Lease Term" means that period of time commencing on
----------
the Commencement Date and ending on December 31, 1999, unless extended or sooner
terminated as provided herein.
<PAGE>
1.9 Leasehold Improvements: "Leasehold Improvements" means all
----------------------
improvements, additions, alterations, and fixtures installed in or on the
Premises by Tenant at its expense which are not Trade Fixtures.
1.10 Lender: "Lender" means (i) any beneficiary, mortgagee, secured
------
party, or other holder of any deed of trust, mortgage or other written security
device or agreement affecting the Premises, and the note or other obligations
secured by it, and (ii) the landlord under any underlying ground lease under
which Landlord holds an interest in the Premises.
1.11 Monthly Rent: "Monthly Rent" means rent payable by Tenant
------------
pursuant to Section 3.
1.12 Permitted Use: "Permitted Use" means the use of the Premises for
-------------
general office, sales, administrative, warehouse, shipping, storage, and all
other related legal uses.
1.13 Premises: "Premises" means that certain approximately 10,000
--------
rentable square foot building, the approximately 4,000 square foot yard area and
the related parking and outdoor areas located at 1835 South Lewis Street,
Anaheim, California, and all Tenant Improvements therein to be provided by
Landlord under the terms of this Lease, as more particularly described in
Exhibit A hereto.
- ---------
1.14 Private Restrictions: "Private Restrictions" means all recorded
--------------------
covenants, conditions and restrictions, private agreements, and any other
recorded instruments affecting the use of the Premises, as they may exist from
time to time.
1.15 Real Property Taxes: "Real Property Taxes" means all real
-------------------
property taxes and assessments imposed by any governmental or quasi-governmental
authority, which are levied or assessed against the Premises.
1.16 Trade Fixtures: "Trade Fixtures" means anything affixed to the
--------------
Premises by Tenant at its expense for purposes of trade, manufacture, ornament,
or domestic use (except replacement of similar work or material owned and
installed by Landlord) which can be removed without injury to the Premises.
2 DEMISE, TERM AND OPTIONS TO EXTEND:
----------------------------------
2.1 Demise of Premises: Landlord hereby leases to Tenant, and Tenant
------------------
leases from Landlord, for the Lease Term upon the terms and conditions of this
Lease, the Premises. Landlord warrants that (i) the Premises are not subject to
any Private Restrictions, (ii) the Premises are presently in compliance with all
Laws and Private Restrictions, including, without limitation, the Americans With
Disabilities Act of 1990 and all seismic code requirements, and (iii) Tenant's
conduct of its intended business operations in the Premises will not violate any
Laws or Private Restrictions.
2
<PAGE>
2.2 Possession: Possession of the Premises shall be conveyed to
----------
Tenant on the Commencement Date.
2.3 Options to Extend Lease Term: Landlord grants to Tenant one (1)
----------------------------
option (the "Option") to extend the Lease Term for an additional term of one (1)
year, commencing when the initial Lease Term expires. To exercise the Option,
Tenant must give Landlord notice in writing by United States Certified Mail,
return receipt requested, of its intention to exercise the Option at least
ninety (90) days prior to the expiration of the initial Lease Term; provided,
however, that Tenant may not exercise the Option at any time that Tenant is in
material default under this Lease. If the Option is not so exercised by Tenant,
Landlord shall give Tenant written notice of the Tenant's failure to exercise
the Option and Tenant shall have a grace period within which to exercise the
Option of ten (10) days from Tenant's receipt of Landlord's notice. Tenant
shall be deemed to have waived its Option rights if it fails to provide written
notice of its exercise of the Option to Landlord prior to the expiration of the
grace period. All terms and conditions of this Lease shall continue to apply
during the term of the Option, except that the payment of Monthly Rent during
the Option term shall be determined pursuant to paragraph 3.2 below.
3 RENT:
----
3.1 Monthly Rent: Commencing on the Commencement Date, Tenant shall
------------
pay to Landlord without offset or deduction or type whatsoever, except as
expressly provided herein, Monthly Rent during the Lease Term, equal to Two
Thousand Dollars ($2,000) per month; provided, however, that the rent payment
for April 1999 shall be due and payable by Tenant to Landlord on May 1, 1999.
Tenant acknowledges that Landlord shall have use of approximately 200 square
feet of the Premises for the placement and use of two desks. Landlord
acknowledges that such grant of use of 200 square feet of the Premises may be
revoked at any time by Tenant upon thirty (30) days prior notice; provided,
however, that, in such case, the Monthly Rent during the Lease Term shall equal
Three Thousand Dollars ($3,000) per month.
3.2 Monthly Rent for the Second Option Term: If an Option is
---------------------------------------
exercised, then the Monthly Rent for the Premises shall become the then current
fair market Monthly Rent (such amount is hereinafter referred to as the "Fair
Market Rent") for the Premises as of the commencement date of the Option term,
as determined by the agreement of the parties or, if the parties cannot agree
within thirty (30) days prior to the commencement of the Option term, then by an
appraisal. The Fair Market Rent for the Premises shall not include any part of
value added by improvements made by Tenant at its expense. If it becomes
necessary to determine the Fair Market Rent by appraisal, real estate
appraiser(s), all of whom shall be Members of the Appraisal Institute (MAI) and
who have at least five (5) years experience appraising commercial and industrial
real property located in the vicinity of the Premises, shall be appointed and
shall act in accordance with the following procedures:
3
<PAGE>
3.2.1 If the parties are unable to agree on the Fair Market
Rent within the allowed time, either party may demand an appraisal by giving
written notice to the other party, which demand to be effective must state the
name, address and qualifications of an appraiser selected by the party demanding
an appraisal (the "Notifying Party"). Within ten (10) days following the
Notifying Party's appraisal demand, the other party (the "Non-Notifying Party")
shall either approve the appraiser selected by the Notifying Party or select a
second properly qualified appraiser by giving written notice of the name,
address and qualification of said appraiser to the Notifying Party. If the Non-
Notifying Party fails to select an appraiser within the ten (10) day period, the
appraiser selected by the Notifying Party shall be deemed selected by both
parties and no other appraiser shall be selected. If two appraisers are
selected, they shall select a third appropriately qualified appraiser. If the
two appraisers fail to select a third qualified appraiser, the third appraiser
shall be appointed by the then presiding judge of the county where the Premises
are located upon application by either party.
3.2.2 If only one appraiser is selected, that appraiser shall
notify the parties in simple letter form of its determination of the Fair Market
Rent for the Premises within fifteen (15) days following his/her selection,
which appraisal shall be conclusively determinative and binding on the parties
as the appraised Fair Market Rent. If multiple appraisers are selected, the
appraisers shall meet not later than ten (10) days following the selection of
the last appraiser. At such meeting the appraisers shall attempt to determine
the Fair Market Rent for the Premises as of the commencement date of the Option
term by the agreement of at least two (2) of the appraisers. If two (2) or more
of the appraisers agree on the Fair Market Rent for the Premises at the initial
meeting, such agreement shall be determinative and binding upon the parties
hereto and the agreeing appraisers shall, in simple letter form executed by the
agreeing appraisers, forthwith notify both Landlord and Tenant of the amount set
by such agreement. If multiple appraisers are selected and two (2) appraisers
are unable to agree on the Fair Market Rent for the Premises, all appraisers
shall submit to Landlord and Tenant an independent appraisal of the Fair Market
Rent for the Premises in simple letter form within twenty (20) days following
appointment of the final appraiser. The parties shall then determine the Fair
Market Rent for the Premises by averaging the appraisals; provided that any high
or low appraisal, differing from the middle appraisal by more than ten percent
(10%) of the middle appraisal, shall be disregarded in calculating the average.
3.2.3 If only one appraiser is selected, then each party shall
pay one-half of the fees and expenses of that appraiser. If three appraisers are
selected, each party shall bear the fees and expenses of the appraiser it
selects and one-half of the fees and expenses of the third appraiser. If the
rent during the Option term is determined by appraisal and if Tenant does not,
in its sole discretion, approve the rental amount established by such appraisal,
Tenant may rescind its exercise of the Option by giving Landlord written notice
of such election to rescind within ten (10) days after receipt of all
appraisals. If Tenant rescinds its exercise of the Option, then (i) the Lease
shall terminate on the ninetieth (90th) day after Tenant's notice of rescission
or on the date the Lease would have otherwise terminated absent Tenant's
exercise of the Option, whichever date is later, and (ii) Tenant shall pay all
costs and expenses of the appraisal.
4
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3.3 Payment of Rent: Commencing on the Commencement Date, all
---------------
Monthly Rent required to be paid hereunder shall be paid in advance on the first
day of each calendar month during the Lease Term. All Monthly Rent shall be
paid in lawful money of the United States, to Landlord at its address for
notices as set forth below or at such other place as Landlord may designate from
time to time by written notice to Tenant. Tenant's obligation to pay Monthly
Rent shall be prorated during any partial month of the Lease Term. If Landlord
does not receive a rent payment from Tenant within five (5) days of its due
date, Tenant shall pay to Landlord a late charge of $50.00 per day for each day
that the rent is not paid following the due date. Landlord and Tenant further
agree that the foregoing sentence does not establish a grace period. In the
event that Landlord has given notice to tenant that the Monthly Rent has not
been received in accordance with this paragraph and such Monthly Rent is not
received within 14 days, Landlord may give Tenant a request to pay or quit the
Premises in accordance with the Code of Civil Procedure 1161(a).
4 USE OF PREMISES:
---------------
4.1 Use of Premises: Tenant may use the Premises for any Permitted
---------------
Use. Landlord represents and warrants that electricity, water, janitorial,
heating, ventilating, air conditioning and all other building services at the
levels generally provided for in comparable buildings in the vicinity of the
Premises, will be available to Tenant at all times during the Lease Term.
4.2 Compliance with Laws and Private Restrictions: Tenant shall
---------------------------------------------
observe and comply with all Laws and Private Restrictions applicable to the
Premises. Notwithstanding anything to the contrary set forth in this Lease,
Tenant shall not be required to construct or pay the cost of complying with any
Private Restrictions or Laws requiring construction of improvements in the
Premises which are properly capitalized under general accounting principles,
unless such compliance is necessitated solely because of Tenant's particular and
unique use of the Premises.
4.3 Hazardous Materials:
-------------------
4.3.1 Tenant's Responsibility: Tenant, at its sole cost,
-----------------------
shall comply with all Laws relating to the storage, use, disposal, emission, or
release of any Hazardous Material by Tenant or its agents, employees or
contractors. If Hazardous Materials stored, used, disposed of, emitted, or
released on or about the Premises by Tenant or its agents, employees or
contractors result in contamination or deterioration of water or soil on or
about the Premises, then Tenant shall promptly take any and all action necessary
to clean up such contamination as required by Law. At any time prior to the
expiration of the Lease Term, Tenant shall have the right to conduct appropriate
tests of water and soil and to deliver to Landlord the results of such tests to
demonstrate that no contamination has occurred as a result of Tenant's use of
the Premises. Tenant shall be solely responsible for, and shall defend,
indemnify and hold Landlord and its
5
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shareholders, officers, and directors harmless from and against, all claims,
costs and liabilities, including attorneys' fees and costs, to the extent
arising out of or the disposal or release of Hazardous Materials on or about the
Premises by Tenant or its agents, employees, or contractors in violation of
Laws.
4.3.2 Landlord's Obligation: Except as stated in
---------------------
subparagraph 4.3.1, above, and notwithstanding anything to the contrary in any
other section of this Lease, Tenant shall have no responsibility for and
Landlord shall be solely responsible for, and shall defend, indemnify and hold
Tenant and its shareholders, officers, directors, successors and assigns,
harmless from and against, all claims, costs and liabilities, including
attorneys' fees and costs, arising out of the presence at any time of any
Hazardous Material on or about the Premises during the Lease Term. Upon demand
by Tenant, Landlord shall promptly take any and all action necessary to
investigate and remediate any such Hazardous Material contamination as required
by Law.
4.4 Signage: Tenant may install the maximum building signage allowed
-------
by the City of Anaheim on the Premises and Building, subject to Landlord's
reasonable approval.
5 TRADE FIXTURES AND LEASEHOLD IMPROVEMENTS:
-----------------------------------------
5.1 Leasehold Improvements: Tenant may construct any Leasehold
----------------------
Improvement which does not affect the structural parts or exterior of the
Premises without Landlord's prior approval. Any other Leasehold Improvements
may be made only after obtaining Landlord's consent, which consent shall not be
unreasonably withheld or delayed. Landlord shall be deemed to have consented to
any Leasehold Improvement, if Landlord has not reasonably withheld its consent
to any Leasehold Improvement within fifteen (15) days of Tenant's request for
Landlord's consent to the Leasehold Improvement. All Leasehold Improvements
constructed at Tenant's cost shall remain the property of Tenant during the
Lease Term and may be removed from the Premises at any time. Landlord shall have
no lien or other interest whatsoever in any Leasehold Improvement and within ten
(10) days following Tenant's request, Landlord shall execute documents in
reasonable form to evidence Landlord's waiver of any right, title, lien, or
interest in Tenant's Leasehold Improvements located in the Premises. Tenant
shall restore all damage to the Premises caused by any removal of the Leasehold
Improvements. Within ten (10) days following Landlord's receipt of written
request by Tenant, Landlord shall inform Tenant whether Landlord reserves the
right to have any Leasehold Improvement installed by Tenant removed from the
Premises by Tenant upon termination of this Lease.
5.2 Liens: Tenant shall keep the Premises free from any liens
-----
arising out of any work performed, materials furnished, or obligations incurred
by Tenant, its agents, employees or contractors relating to the Premises. If
any claim of lien is recorded, Tenant shall bond against or discharge the same
within twenty (20) days after Tenant's receipt of written notice that the same
has been recorded against the Premises.
6
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6 REPAIR AND MAINTENANCE:
----------------------
6.1 Tenant's Obligation to Maintain: Except as otherwise provided in
-------------------------------
Section 11 (restoration of damage caused by fire and other perils) and in
paragraph 6.2 (Landlord's maintenance obligations), Tenant shall, at all times
during the Lease Term, keep and maintain the Premises in good order, condition
and repair, ordinary wear and tear excepted.
6.2 Landlord's Obligation to Maintain: Landlord shall perform and
---------------------------------
construct at its sole cost and expense, and Tenant shall have no responsibility
to perform or construct, any repair, maintenance or improvement (i) necessitated
by the acts or omissions of Landlord or its agents, employees or contractors,
(ii) occasioned by fire, acts of God or other casualty or by the exercise of the
power of eminent domain, (iii) for which Landlord has a right of reimbursement
from others, (iv) which could be treated as a "capital expenditure" under
generally accepted accounting principles, (v) to the roof and structural parts
of the Premises (including the walls, floors, ceilings, bearing walls, demising
walls and foundations), and to all utility and other building systems serving
the Premises, including, without limitation, the plumbing, HVAC and electrical
systems, and (vi) and to all areas outside the Building. Landlord shall
promptly and diligently perform and construct all such maintenance, repairs and
improvements.
7 UTILITIES: Tenant shall promptly pay, as the same become due, all
---------
charges for water, gas, electricity, telephone, sewer service, waste pick-up,
and any other utilities, materials or services furnished at the request of or
used by Tenant in the Premises.
8 TAXES:
-----
8.1 Real Property Taxes: Landlord shall pay before delinquency any
-------------------
and all Real Property Taxes imposed against the Premises or Landlord's interest
in the Premises.
8.2 Taxes on Tenant's Property: Tenant shall pay before delinquency
--------------------------
any and all taxes, assessments, license fees, and public charges levied,
assessed, or imposed against the Trade Fixtures or other personal property of
Tenant situated within the Premises.
9 INSURANCE:
---------
9.1 Tenant's Insurance: Tenant shall maintain in full force and
------------------
effect at all times during the Lease Term the policies of insurance described
below. Copies of duly executed certificates for such policies shall be provided
to Landlord upon Landlord's request.
9.1.1 Liability Insurance: A policy or policies of commercial
-------------------
general liability insurance, including property damage, against liability for
personal injury, bodily injury, death, and damage to property occurring in, or
resulting from an occurrence in, the Premises with combined single limit
coverage of not less than $1,000,000, naming Landlord as an additional insured,
and containing a cross liability endorsement.
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9.1.2 Casualty Insurance: A policy or policies of all risk
------------------
property insurance insuring the personal property, inventory, and Trade Fixtures
of Tenant within the Premises.
9.2 Landlord's Insurance: Landlord shall maintain at its sole cost
--------------------
at all times during the Lease Term a policy or policies of all risk property
insurance insuring Landlord against loss from physical damage to the Building
and the Premises with coverage of not less than the full replacement cost
thereof.
9.3 Release and Waiver of Subrogation: Notwithstanding anything to
---------------------------------
the contrary in this Lease, the parties hereto release each other, and their
respective agents, employees, subtenants, and contractors, from any liability
for injury to any person or damage to property that arises out of or incident to
any peril covered by property insurance carried by the parties or out a peril of
the type that would normally be covered by the property insurance required to be
carried under the terms of this Lease, whether due to the negligence of Landlord
or Tenant or their respective agents, employees, subtenants, contractors, or
invitees, or any other cause. Each party shall use diligent efforts to cause
each insurance policy it obtains to provide that the insurer thereunder waives
all right of recovery by way of subrogation as required herein in connection
with any injury or damage covered by the policy. If such insurance policy cannot
be obtained with such waiver of subrogation, or if such waiver of subrogation is
only available at additional cost and the party for whose benefit the waiver is
not obtained does not pay such additional cost, then the party obtaining such
insurance shall promptly notify the other party of that fact.
10 INDEMNITY:
---------
10.1 Indemnification of Landlord: Tenant shall hold harmless,
---------------------------
indemnify and defend Landlord and its employees and agents, with competent
counsel reasonably satisfactory to Landlord, from and against all liability,
losses, damages, costs, expenses, and claims arising by reason of any death,
bodily injury, personal injury or property damage to the extent resulting from
the negligent act or omission of Tenant, its agents, contractors, or employees,
a breach by Tenant of this Lease, or a violation by Tenant of any Law or Private
Restriction.
10.2 Indemnification of Tenant: Landlord shall hold harmless,
-------------------------
indemnify and defend Tenant and its employees and agents, with competent counsel
reasonably satisfactory to Tenant, from and against all liability, penalties,
losses, damages, costs, expenses, and claims arising by reason of any death,
bodily injury, personal injury or property damage to the extent resulting from
the negligent act or omission of Landlord, or its agents contractors, or
employees, a breach by Landlord of this Lease, or a violation by Landlord of any
Law or Private Restriction.
8
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11 DAMAGE & DESTRUCTION:
--------------------
11.1 Landlord's Duty to Restore: If the Premises or Building are
--------------------------
damaged by any peril, Landlord shall restore the same to substantially the same
condition existing immediately prior to such damage, unless the Lease is
terminated by Landlord pursuant to paragraph 11.2 or by Tenant pursuant to
paragraph 11.3.
11.2 Landlord's Right to Terminate: Landlord shall have the option to
-----------------------------
terminate this Lease in the event any of the following occurs, which option may
be exercised only by delivery to Tenant of a written notice of election to
terminate within thirty (30) days after the date of such damage:
11.2.1 The Building is damaged by any peril both (i) not covered
by the type of insurance Landlord is required to carry pursuant to paragraph 9.2
and (ii) not actually covered by valid and collectible insurance actually
carried by Landlord and in force at the time of such damage or destruction, when
the estimated cost to restore the Building exceeds ten percent (10%) of the then
actual replacement cost thereof; or
11.2.2 The Premises are damaged by any peril during the last
three (3) months of the Lease Term and the restoration of the Premises cannot be
substantially completed within sixty (60) days after the date of such damage;
provided, however, that Landlord may not terminate this Lease pursuant to this
subparagraph 11.2.2 if Tenant exercises its Option to extend the Lease Term
within thirty (30) days following the delivery to Tenant of Landlord's written
termination notice.
11.3 Tenant's Right to Abatement and Termination: If all or any
-------------------------------------------
portion of the Premises should become unsuitable for Tenant's use as a
consequence of fire, casualty, cessation of utilities or other services required
to be provided to the Premises by Landlord, or the presence of any Hazardous
Material which does not result from Tenant's use, storage or disposal of such
material, then Tenant shall be entitled to an abatement of all Monthly Rent
payable hereunder to the extent of the interference with Tenant's use of the
Premises occasioned thereby and, if such interference cannot be corrected or the
damage resulting therefrom repaired so that the Premises will be reasonably
suitable for Tenant's intended use within ninety (90) days following the
occurrence of such event, then Tenant also shall be entitled to terminate this
Lease by delivery of written notice of termination to Landlord at any time prior
to cessation of the interfering event or restoration of the Premises.
12 CONDEMNATION:
-------------
12.1 Taking of Premises: If all or any part of the Premises is taken
------------------
by means of (i) any taking by the exercise of the power of eminent domain,
whether by legal proceedings or otherwise, (ii) a voluntary sale or transfer by
Landlord to any condemnor under threat of condemnation or while legal
proceedings for condemnation are pending, or (iii) any taking by
9
<PAGE>
inverse condemnation (a "Condemnation"), and any portion of the Premises cannot
be reconstructed within a reasonable period of time and thereby made reasonably
suitable for Tenant's continued occupancy for the Permitted Use, then Tenant
shall have the option to terminate this Lease. Any such option to terminate by
Tenant must be exercised within a reasonable period of time, to be effective as
of the date that possession of the Premises is taken by the condemnor.
12.2 Restoration Following the Taking: If any part of the Premises is
--------------------------------
taken by Condemnation and this Lease is not terminated, then Landlord shall make
all repairs and alterations that are reasonably necessary to make that which is
not taken a complete architectural unit reasonably suitable for Tenant's
occupancy for the Permitted Use.
12.3 Abatement of Rent: If any portion of the Premises is taken by
-----------------
Condemnation and this Lease is not terminated, then as of the date possession is
taken, the Monthly Rent shall be reduced in the same proportion that the value
of the Premises so taken (less any addition thereto by reason of any
reconstruction) bears to the value of the remainder of the Premises.
12.4 Temporary Taking: If any portion of the Premises is temporarily
----------------
taken by Condemnation and such taking affects Tenant's ability to use the
Premises for the Permitted Use for a period in excess of ninety (90) days, then
Tenant shall have the option to terminate this Lease, effective on the date
possession is taken by the condemnor.
12.5 Division of Condemnation Award: Tenant shall be entitled to
------------------------------
receive any damages awarded by the court in connection with a Condemnation for
(i) the Lease bonus value (the difference between the Lease rent and fair market
value rent), (ii) Leasehold Improvements installed in the Premises at Tenant's
expense, (iii) Tenant's moving costs, (iv) Trade Fixtures, and (v) Tenant's lost
goodwill. The entire balance of the award shall be the property of Landlord.
13 DEFAULT AND REMEDIES:
---------------------
13.1 Events of Tenant's Default: Tenant shall be in default of its
--------------------------
obligations under this Lease if any of the following events occurs:
13.1.1 Tenant fails to pay any Monthly Rent when due and such
failure is not cured within five (5) days after Landlord notifies Tenant in
writing that such nonpayment was not made when due; or
13.1.2 Tenant fails to perform any term, covenant, or condition
of this Lease (except those requiring the payment of money to Landlord) and
Tenant fails to cure such default within thirty (30) days after delivery of
written notice from Landlord specifying the nature of such default where such
default could reasonably be cured within said thirty (30) day period, or fails
to commence such cure within said thirty (30) day period and thereafter
continuously with due diligence prosecute such cure to completion where such
default could not reasonably be cured within said thirty (30) day period; or
10
<PAGE>
13.1.3 Tenant shall have made a general assignment of its assets
for the benefit of its creditors; or
13.1.4 A court shall have made or entered any decree or order
with respect to Tenant, or Tenant shall have submitted to or sought a decree or
order (or a petition or pleading shall have been filed in connection therewith)
which: (i) grants or constitutes (or seeks) an order for relief, appointment of
a trustee, or confirmation of a reorganization plan under the bankruptcy laws of
the United States; (ii) approves as properly filed (or seeks such approval of) a
petition seeking liquidation or reorganization under said bankruptcy laws or any
other debtor's relief law or statute of the United States or any state thereof;
or (iii) otherwise directs (or seeks) the winding up or liquidation of Tenant;
and such petition, decree or order shall have continued in effect for a period
of thirty (30) or more days.
13.2 Landlord's Remedies: In the event of any default by Tenant,
-------------------
Landlord shall have the following remedies:
13.2.1 Landlord may, at Landlord's election, continue this Lease
in full force and effect and may enforce all of its rights and remedies under
this Lease, including, but not limited to, (i) the right to recover rent and any
other sums payable hereunder as they become due, (ii) the right to make payments
required of Tenant or to perform Tenant's obligations and be reimbursed by
Tenant for the cost thereof with interest of the Agreed Interest Rate from the
date the sum is paid by Landlord until Landlord is reimbursed by Tenant, and
(iii) the remedies of injunctive relief and specific performance to compel
Tenant to perform its obligations under the Lease.
13.2.2 Landlord may, at Landlord's election, terminate this
Lease by giving Tenant written notice of termination, in which event this Lease
shall terminate on the date set forth for termination in such notice. Upon such
termination in writing of Tenant's right to possession of the Premises, as
herein provided, this Lease shall terminate and Landlord shall be entitled to
recover damages from Tenant as provided in California Civil Code Section 1951.2
or any other applicable existing or future Law providing for recovery of damages
for such breach, including, without limitation, the following:
13.2.2.1 The worth at the time of award of the unpaid
rent which had been earned at the time of termination; plus
13.2.2.2 The amount by which the rent and any other sums
which would be payable by Tenant hereunder, as reasonably estimated by Landlord,
from the date of termination until the date of the award of damages exceeds the
amount of such rental loss as Tenant proves could have been reasonably avoided
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%); plus
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13.2.2.3 The reasonable cost of recovering the Premises;
plus
13.2.2.4 The reasonable cost of removing Tenant's Trade
Fixtures and Leasehold Improvements.
13.2.3 In no event shall any one or more of the following
actions by Landlord, in the absence of a written election by Landlord to
terminate this Lease, constitute a termination of this Lease:
13.2.3.1 Appointment of a receiver or keeper in order to
protect Landlord's interest hereunder;
13.2.3.2 Consent to any subletting of the Premises or
assignment of this Lease by Tenant, whether pursuant to the provisions hereof or
otherwise.
13.3 Landlord's Default and Tenant's Remedies: Landlord shall not be
----------------------------------------
deemed to be in default of its obligations unless Landlord fails to perform any
covenant, condition, or agreement contained in this Lease and fails to cure the
nonperformance within a reasonable time, but not later than fifteen (15) days
after receiving written notice of the failure; provided, however, that if the
nature of Landlord's failure to perform reasonably requires more than fifteen
(15) days to cure, then Landlord shall not be deemed in default if Landlord
commences to cure such failure within said fifteen (15) day period and
thereafter diligently and in good faith prosecutes such cure to completion. If
Landlord is in default pursuant to this paragraph 13.3, then Tenant shall have
the following remedies:
13.3.1 Tenant may proceed in equity or at law to compel Landlord
to perform its obligations and/or to recover damages proximately caused by such
failure to perform (except to the extent Tenant has waived its right to damages
resulting from injury to person or damage to property as provided herein).
13.3.2 Tenant may cure any default of Landlord at Landlord's
cost. If Tenant at any time by reason of Landlord's default reasonably pays any
sum or does any act that requires the payment of any sum, the sum paid by Tenant
shall be immediately due from Landlord to Tenant at the time the sum is paid,
and shall bear interest at the Agreed Interest Rate from the date the sum is
paid by Tenant until Tenant is reimbursed by Landlord. Any such amount shall be
payable by Landlord to Tenant within ten (10) days following Tenant's written
demand for payment and if not so paid, may be offset against the next
installments of Monthly Rent payable by Tenant to Landlord under this Lease.
13.4 Waiver: One party's consent to or approval of any act by the
------
other party requiring the first party's consent or approval shall not be deemed
to waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The
12
<PAGE>
receipt by Landlord of any Monthly Rent or payment with or without knowledge of
the breach of any other provision hereof shall not be deemed a waiver of any
such breach unless such waiver is in writing and signed by Landlord. No delay or
omission in the exercise of any right or remedy accruing to either party upon
any breach by the other party under this Lease shall impair such right or remedy
or be construed as a waiver of any such breach theretofore or thereafter
occurring. The waiver by either party of any breach of any provision of this
Lease shall not be deemed to be a waiver of any subsequent breach of the same or
any other provisions herein contained.
14 ASSIGNMENT AND SUBLETTING:
-------------------------
14.1 By Tenant: Tenant shall not sublet the Premises or assign or
---------
encumber its interest in this Lease, without Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. Landlord shall be
deemed to have consented to any proposed assignment or subletting if it has not
reasonably withheld its consent to any such proposed assignment or subletting
within fifteen (15) days of Tenant's request for consent. Consent by Landlord
to one or more assignments or encumbrances of this Lease or to one or more
sublettings of the Premises shall not be deemed to be a consent to any
subsequent assignment, encumbrance, or subletting. Notwithstanding the
foregoing, Tenant may assign this Lease or sublet all or a portion of the
Premises without Landlord's consent (i) to a parent, subsidiary, or an entity
controlling, controlled by or under common control with Tenant, (ii) related to
Tenant by merger, consolidation or non-bankruptcy reorganization, or (iii) in
connection with the sale of substantially all of Tenant's assets located in the
Premises.
14.2 By Landlord: Landlord and its successors in interest shall have
-----------
the right to transfer their interest in the Premises. As used herein, the term
"Landlord" shall mean the Landlord originally named herein, but following any
transfer of its interest in the Premises, the term "Landlord" shall thereafter
mean the transferee of such interest.
15 TERMINATION:
-----------
15.1 Surrender of the Premises: Immediately prior to the expiration
-------------------------
or upon the earlier termination of this Lease, Tenant shall remove all Leasehold
Improvements installed in the Premises by Tenant (which Landlord has not agreed
may remain in the Premises), Trade Fixtures and other personal property, repair
all damage caused by the installation and removal of such property, and vacate
and surrender the Premises to Landlord in the same condition as received,
reasonable wear and tear, condemnations, perils and Hazardous Materials not
placed on or about the Premises by Tenant, its agents, employees or contractors
excepted.
15.2 Holding Over: Any holding over after the expiration of the Lease
------------
Term and with the written consent of Landlord shall be construed to be a tenancy
from month to month on the same terms and conditions herein specified insofar as
applicable.
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16 GENERAL PROVISIONS:
------------------
16.1 Landlord's Right to Enter: Landlord or its agents may enter the
-------------------------
Premises at any reasonable time for the purpose of (i) inspecting the same, (ii)
posting notices of nonresponsibility, (iii) supplying any service to be provided
by Landlord to Tenant, (iv) making necessary alterations, additions or repairs,
(v) performing Tenant's obligations when Tenant has failed to do so within
thirty (30) days after written notice from Landlord, and/or (vi) in case of an
emergency. However, Landlord may not so enter the Premises until it has first
given Tenant at least forty-eight (48) hours prior written notice of its
intention to do so (except in case of an emergency) and complies with all of
Tenant's reasonable security measures. Landlord shall not have the right to open
or inspect confidential files or safes, and Landlord shall not disclose to
others any confidential information regarding Tenant's business learned by
Landlord during any such entry into the Premises.
16.2 Estoppel Certificates: Each party agrees, following any request
---------------------
by the other, promptly to execute and deliver an estoppel certificate upon which
the requesting party and any others it designates may rely (i) certifying that
this Lease is unmodified and in full force and effect, or, if modified, stating
the nature of such modification and certifying that this Lease, as so modified,
is in full force and effect, (ii) stating the date to which the Monthly Rent and
other charges are paid in advance, if any, (iii) acknowledging that there are
not, to the certifying party's knowledge, any uncured defaults on the part of
the other party hereunder, or if there are stating their nature, and (iv)
certifying such other information about the Lease as may be reasonably required
by the requesting party.
16.3 Reimbursable Expenditures: Any expenditure by a party permitted
-------------------------
or required under this Lease, for which such party is entitled to demand and
does demand reimbursement from the other party, shall be limited to the actual
cost to the demanding party of the goods and/or services giving rise to such
expenditure, which cost shall not exceed the fair market value of such goods
and/or services; shall be reasonably incurred; and shall be substantiated by
documentary evidence available for inspection and review by the other party or
its representative during normal business hours.
16.4 Notices: Any notice required or desired to be given regarding
-------
this Lease shall be in writing and may be personally served, or in lieu of
personal service may be given by mail. If given by mail, such notice shall be
deemed to have been given (i) on the third business day after mailing if such
notice was deposited in the United States mail, certified and postage prepaid,
addressed to the party to be served at its address set forth below its
signature, and (ii) in all other cases when actually received. Either party may
change its address by giving notice of same in accordance with this paragraph.
16.5 Attorneys' Fees: In the event either party shall bring any
---------------
action or legal proceeding for an alleged breach of any provision of this Lease,
to recover Monthly Rent, to terminate this Lease or to otherwise enforce,
protect or establish any term or covenant of this
14
<PAGE>
Lease or right of either party, the prevailing party shall be entitled to
recover as a part of such action or proceedings, or in a separate action brought
for that purpose, reasonable attorneys' fees and court costs as may be fixed by
the court.
16.6 Authority: Each party represents and warrants that the
---------
individual executing this Lease on behalf of such party is duly authorized to
execute and deliver this Lease on behalf of such party and that this Lease is
binding upon such party in accordance with its terms.
16.7 Miscellaneous: Should any provision of this Lease prove to be
-------------
invalid or illegal, such invalidity or illegality shall in no way affect, impair
or invalidate any other provision hereof, and such remaining provisions shall
remain in full force and effect. This Lease shall be governed by the laws of
the State of California. Time is of the essence with respect to the performance
of every provision of this Lease in which time of performance is a factor. Any
executed copy of this Lease shall be deemed an original for all purposes. This
Lease shall, subject to the provisions regarding assignment, apply to and bind
the respective heirs, successors, executors, administrators and assigns of
Landlord and Tenant. The language in all parts of this Lease shall in all cases
be construed as a whole according to its fair meaning, and not strictly for or
against either Landlord or Tenant. The captions used in this Lease are for
convenience only and shall not be considered in the construction or
interpretation of any provision hereof. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural. The
terms "shall", "will", and "agree" are mandatory. The term "may" is permissive.
When a party is required to do something by this Lease, it shall do so at its
sole cost and expense without right of reimbursement from the other party unless
specific provision is made therefor. Whenever one party's consent or approval
is required to be given as a condition to the other party's right to take any
action pursuant to this Lease, then such consent or approval shall not be
unreasonably withheld or delayed. Landlord shall not become or be deemed a
partner or a joint venturer of Tenant by reason of this Lease. This Lease may
be executed in counterparts, each of which shall constitute an original and all
of which shall constitute one Lease.
16.8 Brokerage Commissions: Each party warrants to the other that it
---------------------
has not had any dealings with any real estate brokers or salesmen (or incurred
any obligations for the payment of real estate brokerage commissions or finder's
feed which would be earned or due and payable by reason of the execution of this
Lease).
16.9 Memorandum of Lease: At Tenant's request, Landlord shall execute
-------------------
in recordable form, a "Memorandum of Lease" referencing the Lease and setting
forth the true and legal description and assessor's parcel number of the
Building in a form reasonably acceptable to Tenant, and which Memorandum of
Lease shall be recorded in the Official Records of the County in which the
Premises are located.
15
<PAGE>
16.10 Subordination: The following provisions shall govern the
-------------
relationship of this Lease and any underlying lease, mortgage or deed of trust
which now or hereafter affects the Premises and any renewal, modification,
consolidation, replacement or extension thereof (collectively, "Security
Instruments"), which have been or may hereafter be executed affecting the
Premises:
16.10.1 This Lease shall not be subject or subordinate to any
existing or future Security Instruments unless the holder of the Security
Instrument in question executes a recognition and nondisturbance agreement which
(i) provides that this Lease shall not be terminated so long as Tenant is not in
default under this Lease and (ii) recognizes all of Tenant's rights hereunder.
16.10.2 Landlord represents and warrants that neither the
Premises nor Building are encumbered by a Security Instrument as of the
Execution.
16.11 Quiet Possession: Tenant shall peacefully have, hold and enjoy
----------------
the Premises, subject to the other terms of this Lease, provided that Tenant
pays the Monthly Rent and performs all of Tenant's covenants and agreements
contained in this Lease. This covenant and the other covenants of Landlord
contained in this Lease shall be binding upon Landlord and its successors only
with respect to breaches occurring during its and their respective ownerships of
Landlord's interest hereunder.
16.12 Entire Agreement: The Lease and the documents referred to herein
----------------
constitute the entire agreement between the parties, and there are no binding
agreements or representations between the parties except as expressed herein. No
subsequent change or addition to this Lease shall be binding unless in writing
and signed by the parties hereto. The foregoing provisions of this paragraph and
any provision of this Lease notwithstanding, this Lease shall not be deemed to
amend, alter, or restrict the enforcement of, any of the covenants, obligations,
representations or warranties under the Purchase Agreement and all such
covenants, obligations, representations or warranties shall remain binding and
fully enforceable.
16
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease with the
intent to be legally bound thereby, to be effective as of the Effective Date of
this Lease.
LANDLORD: TENANT:
T. ROBERT AND LYNNE A. HANSEN, INTERPET, INC.
Trustees for the Robert and Lynne Hansen
Family Trust dated August 3, 1982
By: /s/ T. R. Hansen By: /s/ Tom McGovern
------------------------------------- ------------------------------
T. Robert Hansen
Trustee Its: President
-----------------------------
By:_____________________________________
Lynne A. Hansen
Trustee
Address for Notices: Address for Notices:
4935 Warner Avenue 130 West Union Street
Huntington Beach, CA 92649 Pasadena, CA 91103
Attn: T.R. Hansen Attn: Tom McGovern, Jr.
17
<PAGE>
EXHIBIT "A"
See attached.
<PAGE>
Legal Description
That portion of the Northeast Quarter of the Northwest Quarter of Section 26,
Township 4 South, Range 10 West, in the Rancho San Juan Cajon De Santa Ana, as
shown on a map thereof recorded in Book 51, page 10 of Miscellaneous Maps,
records of said Orange County, described as follows:
Commencing at the Northeast corner of the land described in Parcel 2 in the Deed
to Jack E. Riley and wife recorded September 13, 1956 in Book 3642, page 258,
Official Records, said corner being a point in the East Line of said Northwest
Quarter, Southerly thereon 968.13 feet from the North Quarter corner of said
Section; thence North 1E 16' 48" West, along said East line, 336.50 to the true
point of beginning of the land herein described; thence continuing North 1E 16'
48" West, along said East line 116.50 feet; thence South 88E 43' 12" West
231.77 feet to the Easterly line of the Southern Pacific Railroad Right of Way
thence Southerly along said East line 120.15 feet to a point which bears South
88E 43' 12" West from the true point of beginning; thence North 88E 43' 12" West
from the true point of beginning; thence North 88E 12' East 202.39 feet to the
true point of beginnings.
<PAGE>
COMBINED MINUTES OF ACTION
OF THE SHAREHOLDERS AND DIRECTORS
OF
K&K HANSEN, INC.
A California Corporation
TAKEN WITHOUT A MEETING
BY UNANIMOUS WRITTEN CONSENT
The following action was taken by the shareholders and directors of K & K
Hansen, Inc., a California corporation (the "Corporation"), by written consent
without a meeting as of the date set forth below, pursuant to the Bylaws of the
Corporation, and to paragraph 307(b) and 603(a) of the California Corporations
Code permitting such action to be so taken.
Authorization for Sales of Substantially All Corporate Assets. The
-------------------------------------------------------------
following resolution authorizing the sale of substantially all the Corporations
assets is hereby consented to and adopted:
WHEREAS, there has been submitted to and considered an Agreement for Sales
of Assets (the "Asset Purchase Agreement"), dated 3/31/99, providing for
the sale by this Corporation of substantially all of its assets to
Interpet, Inc. ("Purchaser"), in consideration of the payment by Purchaser
to this Corporation of due consideration as set forth in the Asset Purchase
Agreement and the assumption by the Purchaser of the Accounts Payable of
this Corporation as set forth in the Asset Purchase Agreement, pursuant to
and in accordance with the terms and provisions of the Asset Purchase
Agreement.
NOW, THEREFORE, BE IT RESOLVED, that the sale of substantially all of the
assets and the assumption of the Accounts Payable of this Corporation to
Purchaser substantially in accordance with the terms of the Asset Purchase
Agreement is approved and that the form, terms, and provisions of the Asset
Purchase Agreement be and they are approved.
RESOLVED, FURTHER, that, subject to the foregoing, the President of this
Corporation be and is authorized to execute, deliver, and cause the
performance of the Asset Purchase Agreement on behalf of this Corporation,
in substantially the form presented and approved, but with such changes in
it as the Officer executing it shall determine to be appropriate, his
determination to be conclusively evidenced by his execution of the Asset
Purchase Agreement.
RESOLVED, FURTHER, that the officers of this Corporation are authorized to
take all other action to execute and deliver all other documents and to
effect all
<PAGE>
such other filings or registrations the officers acting shall determine are
necessary or proper to effect the sale authorized by these resolutions,
their determination to be conclusively evidenced by their action.
The undersigned, constituting the total shareholders and directors of the
Corporation, do hereby consent to the foregoing action and adoption of the
foregoing resolutions as March 31, 1999.
/s/ Kyle R. Hansen
- --------------------------------------
Kyle R. Hansen, President
Shareholder and Director
/s/ Kurt R. Hansen
- --------------------------------------
Kurt R. Hansen
Shareholder
/s/ Jennifer J. Hansen
- --------------------------------------
Jennifer J. Hansen, Secretary
Director
<PAGE>
Schedule 1.1
------------
Excluded Assets
All Accounts Receivable outstanding as of the date hereof, which had a value as
of December 31, 1998 of $3,100
Prepaid California Franchise Tax Board Fee in the amount of $800
All Accounting System Computer Software of Seller
<PAGE>
Schedule 1.2
------------
Assumed Liabilities
All Trade Account Payables outstanding as of the date hereof, which had a value
as of December 31, 1998 of $140,528.03
<PAGE>
Schedule 2.6
------------
Liens and Encumbrances
None.
<PAGE>
Schedule 2.7(b)
--------------
Intellectual Property Rights
None.
<PAGE>
Schedule 2.10
-------------
Litigation
None.
<PAGE>
K&K Hansen, Inc. (Mason Distributing)
Summary of Significant Accounting Policies
- --------------------------------------------------------------------------------
Inventories
Inventories are valued at average cost. Inventory costs include freight and
product cost.
Revenue recognition
Revenues from product sales are recognized upon shipment of the products to
customers.
Property and equipment
Depreciation and amortization of property and equipment are provided using tax
basis accounting over the following useful lives:
Automobiles 5 years
Furniture and office equipment 5 years
Computers, machinery and equipment 5-7 years
<PAGE>
Legal Description
That portion of the Northeast Quarter of the Northwest Quarter of the Northwest
Quarter of Section 26, Township 4 South, Range 10 West, in the Rancho San Juan
Cajon De Santa Ana, as shown on a map thereof recorded in Book 51, page 10 of
Miscellaneous Maps, records of said Orange County, described as follows:
Commencing at the Northeast corner of the land described in Parcel 2 in the Deed
to Jack E. Riley and wife recorded September 13, 1956 in Book 3642, page 258,
Official Records, said corner being a point in the East Line of said Northwest
Quarter, Southerly thereon 968.13 feet from the North Quarter corner of said
Section; thence North 1E 16' 48" West, along said East line, 336.50 feet to the
true point of beginning of the land herein described; thence continuing North 1E
16' 48" West, along said East line 116.50 feet; thence South 88E 43' 12" West
231.77 feet to the Easterly line of the Southern Pacific Railroad. Right of Way
thence Southerly along said East line 120.15 feet to a point which bears South
88E 43' 12" West from the true point of beginning; thence North 88E 43' 12" West
from the true point of beginning; thence North 88E 12' East 202.39 feet to the
true point of beginning.
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
PETSMART.COM, INC.
AND
DIGITAL COMMUNITIES, INC. dba ACMEPET.COM
AND
DIGITAL COMMUNITIES, LLC
AND
BRUCE KIRSCHENBAUM
SAM ZAPPAS
MARY CHADSEY
AUGUST 11, 1999
<PAGE>
EXHIBITS
Exhibit A Measurement Date Adjustments
Exhibit B Terms of Series D Stock
Exhibit C Escrow Agreement
Exhibit D Noncompetition Agreement
1
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered
---------
into as of August 11, 1999, by and among PETsMART.com, Inc., a Delaware
corporation ("PETsMART"), Digital Communities, Inc., a Delaware corporation, dba
Acmepet.com ("Acme") , Digital Communities, LLC, a Delaware limited liability
company ("LLC") and Bruce Kirschenbaum ("Kirschenbaum"), Sam Zappas ("Zappas")
and Mary Chadsey ("Chadsey" who along with Kirschenbaum and Zappas shall be
referred to herein as the "Principals").
RECITALS
--------
The parties hereto intend that, subject to the terms and conditions
hereinafter set forth, PETsMART will acquire Acme in accordance with the terms
of this Agreement by way of a merger of Acme with and into PETsMART, as a result
of which (i) all of the outstanding shares of common stock of Acme ("Acme
----
Stock") will automatically be converted into the right to receive cash and
shares of Series D Preferred Stock of PETsMART ("Series D Stock"), (ii) all
--------------
outstanding employee options to acquire Acme Stock (if any) will be terminated,
and (iii) all outstanding warrants or other rights to acquire shares of capital
stock of Acme (if any) will be terminated. The business of Acme is conducted
through LLC, which is wholly-owned by Acme.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto, intending to be legally bound,
do hereby agree as follows:
ARTICLE 1
PLAN OF REORGANIZATION
1.1 Board of Directors' and Shareholders' Approval. The respective
----------------------------------------------
boards of directors of PETsMART and Acme have duly adopted and approved this
Agreement, and this Agreement shall be submitted to the shareholders of Acme and
PETsMART for approval in accordance with the applicable provisions of the
Delaware General Corporations Law (the "DGCL").
1.2 The Merger. Subject to the terms and conditions of this
----------
Agreement Acme shall be merged with and into PETsMART (the "Merger"), with
------
PETsMART as the surviving corporation. At the Effective Time (as hereinafter
defined), the separate existence of Acme shall cease and PETsMART, as the
surviving corporation in the Merger, shall continue its corporate existence. As
a result of the Merger, at the Effective Time, all of the issued and outstanding
shares of Acme Stock (other than (a) shares as to which dissenters' rights are
perfected under the DGCL, (b) any Acme Stock owned by Acme and (c) any Acme
Stock owned by PETsMART) shall automatically be converted into the right to
receive (subject to the adjustments and other provisions set forth in this
Agreement) in the aggregate the following (which shall be referred to herein as
the "Merger Consideration"): (i) $5,400,000 of shares of Series D Stock at the
same price per share paid by investors in the Series D Financing (as defined
1
<PAGE>
below), (ii) $2,000,000 less a $100,000 deposit previously made (the "First Cash
Payment") on the Closing Date (as defined below) and (iii) $2,000,000 (the
"Second Cash Payment") on the date 90 days after the Closing Date.
(a) PETsMART shall pay, or issue and deliver, the Merger Consideration
to each holder of Acme Stock on the Closing Date (the "Shareholders") (other
------------
than PETsMART or Acme) prorata based on their ownership of Acme Stock.
(b) Any Acme Stock owned by PETsMART or by Acme shall be canceled in
the Merger, and no payment shall be made nor other consideration paid with
respect thereto.
(c) The First Cash Payment will be reduced by the Schiering Payment
Amount (as defined below) and an amount (the "Holdback Amount") equal to 150% of
the Estimated Liabilities. The Estimated Liabilities shall be the equal to the
sum of (i) the estimated liabilities of Acme as of the Closing Date set forth on
an estimated balance sheet of Acme as of the Closing Date which shall be
delivered to PETsMART at least three business days prior to the Closing Date and
which shall include an estimate of (A) all legal, accounting and other fees
related to the transactions contemplated by this Agreement, (B) an estimate of
the Acme Transition Fees (as defined below), (C) notes payable to former
Shareholders of Acme in connection with the repurchase by Acme of their shares
of capital stock of Acme, and (D) an estimate of the Taxes that are the
responsibility of the Stockholders pursuant to Section 4.2(c) hereof and (ii) an
estimate of Acme's other obligations and commitments contractual or otherwise
(the "Other Liabilities") (including an estimate of the amounts necessary for
Acme to terminate such other obligations and commitments) which estimate shall
be mutually agreed to by PETsMART and Acme on or prior to the Closing Date.
Notwithstanding the above, the Estimated Liabilities shall not include (and
there will be no reduction to the First Cash Payment for) (i) up to $30,000 in
legal and accounting fees of Acme related to the transactions contemplated by
this Agreement and (ii) site advertising and sponsorship commitments and other
commitments or obligations listed on Schedule 1.2 hereto (collectively the
------------
"Permitted Liabilities") which Schedule shall be mutually agreed to by PETsMART
and Acme on or prior to the Closing Date. Within 20 days after the Closing
Date, the Principals shall deliver a balance sheet (the "Closing Balance Sheet")
of Acme as of the close of business on the Closing Date. PETsMART will have 20
days to review and comment on the Closing Balance Sheet. If the Holdback Amount
is greater than liabilities of Acme set forth on the Closing Balance Sheet plus
the amount of the Other Liabilities incurred through such time (based on actual
expenditures and a reserve for future estimated expenditures) PETsMART will
promptly distribute such excess amount to the Shareholders prorata based on
their ownership of Acme Stock. If Holdback Amount is less than the liabilities
of Acme set forth on the Closing Balance Sheet plus the amount of the Other
Liabilities (based on actual expenditures and a reserve for future estimated
expenditures) PETsMART may reduce the amount of the Second Cash Payment by such
shortfall. In the event the parties are unable to reach an agreement as to the
matters set forth herein, such dispute shall be settled in accordance with
Section 2.5 of the Escrow Agreement.
- -----------
(d) The number of shares of Series D Stock to be received by the
Shareholders will be decreased in the manner set forth on Exhibit A hereto based
---------
on any
2
<PAGE>
decrease in the number of Unique Visitors to the Acmepet.com Internet site for a
period specified on Exhibit A from the number of Unique Visitors for the month
---------
of March 1999. Any downward adjustment pursuant to this Section 1.2(d) shall be
--------------
deemed to be an adjustment to the aggregate amount of Merger Consideration.
1.3 The Closing. The closing (the "Closing") of the Merger shall
----------- -------
take place at the principal executive offices of PETsMART or at such other place
or in such other manner as the parties may agree (assuming the satisfaction or
satisfactory waiver of all conditions set forth in Article 5 of this Agreement)
simultaneously with the Effective Time and within two business days after the
conditions thereto have been satisfied or waived. The date on which the Closing
occurs is referred to herein as the "Closing Date." The Merger shall become
------------
effective immediately upon the filing of the appropriate certificate of merger
and related instruments with the office of the Secretary of State for the State
of Delaware (the "Effective Time").
--------------
1.4 Series D Financing. PETsMART is contemplating a private
------------------
placement of shares of Series D Stock with aggregate gross proceeds of at least
$20 million (the "Series D Financing"). The Shareholders shall be entitled to
rights which are no less favorable than those rights generally granted to other
purchasers of Series D Stock (and be subject to the obligations which the other
purchasers of Series D Stock are generally subject to) with respect to all
matters, including, without limitation, registration rights, conversion rights
and antidilutive rights (except that the Shareholders shall not be granted
preemptive or maintenance rights unless such rights are granted to all
purchasers of Series D Stock in the Series D Financing and the Shareholders
shall have no obligation to purchase additional shares of capital stock of
PETsMART). PETsMART and the Shareholders will execute and deliver all
agreements and instruments reasonably necessary to effectuate the foregoing. In
the event that the Series D Financing does not close on or before September 30,
1999, the Shareholders will be entitled to receive shares of Series D Stock of
PETsMART with the rights, preferences and privileges substantially as set forth
on Exhibit B hereto and all references in this Agreement to Series D Stock shall
---------
mean such shares of Series D Stock.
1.5 Exemption from Registration. The shares of Series D Stock to be
---------------------------
issued in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
----------
Act"), and exempt from registration or qualification under the applicable state
securities laws.
1.6 Surrender and Exchange of Outstanding Certificates; Status of
-------------------------------------------------------------
Outstanding Certificates; Fractional Shares. The conversion of shares of Acme
- -------------------------------------------
Stock into cash or shares of Series D Stock as provided for by this Agreement
shall occur automatically at the Effective Time without further action by the
holders thereof. Until surrendered, each certificate that prior to the
Effective Time represented shares of Acme Stock will be deemed to evidence
(subject to dissenters' rights, if applicable) the right to receive that number
of shares of Series D Stock and cash into which such Acme Stock has been
converted. Fractions of shares of Series D Stock shall not be issued in the
Merger and such fractional interests shall not entitle the owners thereof to
vote, to receive dividends or to exercise any other right of a stockholder with
respect to such fractional interests. In lieu of any such fractional interests,
each Shareholder who would otherwise have been entitled to a fraction of a share
of Series D Stock will be paid cash
3
<PAGE>
(rounded to the nearest cent, 0.5 cents to be rounded to 1 cent) upon such
surrender in an amount equal to such fraction times the price per share of
Series D Stock issued in the Series D Financing.
1.7 Dissenters' Rights. Shareholders who have complied with all
------------------
requirements for perfecting the dissenters' rights as set forth in the DGCL
shall be entitled to their rights under such laws. Acme shall give PETsMART
prompt written notice of any assertions of dissenters' rights or withdrawals of
assertions of dissenters' rights, and any other instrument in respect thereof
received by Acme and the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal.
1.8 Certificate of Incorporation; Bylaws; Directors and Officers of
---------------------------------------------------------------
the Surviving Corporation.
- -------------------------
(a) The certificate of incorporation and bylaws of PETsMART, as
in effect on the Effective Date, shall be (until amended or repealed as provided
by law) the certificate of incorporation and bylaws of the surviving
corporation, respectively.
(b) The directors and officers of PETsMART immediately prior to
the Effective Time shall be the directors and officers of the surviving
corporation until their successors are elected or appointed and qualified.
1.9 Escrow. On the Closing Date, the Second Cash Payment shall be
------
delivered by PETsMART on behalf of the Shareholders into escrow and disbursed
pursuant to the terms of an escrow agreement (the "Escrow Agreement")
substantially in the form attached as Exhibit C. In addition, on the Closing
---------
Date One Million Eight Hundred Eighty Thousand Dollars ($1,880,000) of the
shares of Series D Stock to be issued in the Merger (the "Escrow Consideration")
--------------------
shall be delivered by PETsMART on behalf of the Shareholders into escrow (pro-
rata based on the number of shares of Acme Stock owned by each Shareholder) and
shall be held in escrow to satisfy (i) the indemnification obligations of the
Principals and Shareholders pursuant to this Agreement and (ii) the purchase
price adjustment described in Section 1.2(d) of this Agreement, and disbursed
--------------
pursuant to the terms of the Escrow Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES REGARDING ACME
Acme and the Principals jointly and severally represent and warrant to
PETsMART as follows:
2.1 Organization and Standing.
-------------------------
(a) Acme is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all requisite
corporate power and authority to own, operate and lease its properties and carry
on its business as now conducted, and is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the failure
to so qualify would have a Material Adverse Effect ("Material Adverse Effect")
-----------------------
4
<PAGE>
which shall mean any fact, event or condition, or the absence of any fact, event
or condition, as the context requires, which, individually or in the aggregate,
would have a material adverse effect on the business properties, prospects or
financial condition of Acme and LLC taken as a whole. LLC is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware, has all requisite power and authority to own
its business as now conducted, and is duly qualified to do business in each
jurisdiction in which the failure to so qualify would have a Material Adverse
Effect.
(b) Acme has delivered to PETsMART complete and accurate copies
of its certificate of incorporation ("Articles of Incorporation") and bylaws
-------------------------
("Bylaws") and minutes of all of its directors' and stockholders' meetings and
------
all organizational and charter documents of LLC. Acme stock books provided to
PETsMART are complete and accurate as of the date hereof.
2.2 Capitalization.
--------------
(a) The authorized capital stock of Acme consists of one million
1,000,000 shares of common stock. Schedule 2.2 hereto accurately sets forth the
------------
outstanding shares of capital stock of Acme as well as the ownership thereof.
Except as set forth on Schedule 2.2 hereto, there are no outstanding shares of
------------
capital stock of Acme and there are no options, warrants or other securities
convertible into shares of capital stock of Acme nor any other rights,
agreements or arrangements with respect to the issuance of capital stock of Acme
or securities convertible into or exchangeable for capital stock of Acme. Acme
owns all of the interests of LLC, and except as set forth on Schedule 2.2 there
------------
are no options, warrants or other securities convertible into any interest in
LLC nor any other rights, agreements or arrangements with respect to the
issuance of an interest in LLC or securities convertible into or exchangeable
for an interest in LLC.
(b) (i) All of the issued and outstanding shares of Acme Stock
have been duly authorized and validly issued, are fully paid and non assessable,
and were issued in full compliance with all applicable federal and state
securities laws and were not issued in violation of any preemptive rights; and
(ii) none of the issued or other outstanding shares of Acme Stock is subject to
repurchase.
(c) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, co-sale right,
right of participation, right of first offer, option or other restriction on
transfer applicable to any shares of Acme Stock other than pursuant to
agreements which will terminate at or prior to the Effective Time.
2.3 Subsidiaries. Except for the ownership of Acme by LLC, neither
------------
Acme nor LLC own, directly or indirectly, an interest in any corporation,
partnership, limited liability company, trust or other entity.
2.4 Authority, Approval and Enforceability.
--------------------------------------
(a) Subject to obtaining any required approvals of the holders of
Acme Stock, each of Acme and LLC has all requisite corporate power and authority
to execute, deliver
5
<PAGE>
and perform its obligations under this Agreement and all corporate action on its
part necessary for such execution, delivery and performance has been duly taken.
(b) Except as set forth on Schedule 2.4 hereto, the execution and
------------
delivery by Acme and LLC of this Agreement does not, and the performance and
consummation of the transactions contemplated by this Agreement will not, result
in any conflict with, breach or violation of or default, termination or
forfeiture under (or upon the failure to give notice or the lapse of time, or
both, result in any conflict with, breach or violation of or default,
termination or forfeiture under) any terms or provisions of (i) its Certificate
of Incorporation or Bylaws or other charter or organizational document, (ii) any
statute, rule, regulation, or any judicial, governmental, regulatory or
administrative decree, order or judgment applicable to Acme or LLC, or (iii) any
agreement, lease or other instrument to which either is a party or by which
either or any of their assets may be bound.
(c) Except as set forth on Schedule 2.4 hereto, no consent,
------------
approval, authorization, order, registration, qualification or filing of or with
any court or any regulatory authority or any other governmental or
administrative body is required on the part of Acme or LLC for the consummation
by it of the transactions contemplated by this Agreement, except the filing of
the certificate of merger and related instruments with the Secretary of State of
the State of Delaware.
(d) Upon due execution and delivery by Acme and LLC, this
Agreement will be its legal, valid and binding obligation, enforceable against
each in accordance with the terms hereof, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally.
2.5 Financial Statements and Other Financial Information.
----------------------------------------------------
(a) Acme has delivered to PETsMART complete copies of its
consolidated balance sheet as of June 30, 1999 (the "Acme Balance Sheet") and
------------------
the related statements of income (loss) for the period then ended (the "Acme
Financials"). The Acme Financials were prepared based on the books and records
of Acme in accordance with GAAP (except as set forth on Schedule 2.5) consistent
------------
with past practice and present fairly its financial position as of such date and
the results of its operations and cash flows for the period then ended.
(b) Other than as set forth on Schedule 2.5, Acme has no assets
------------
other than its interest in LLC. Schedule 2.5 sets forth a list of all domain
------------
names of Acme and LLC (including those domain names that will be transferred or
distributed out of Acme and LLC prior to the Closing). Other than as set forth
in Schedule 2.5 hereto, neither Acme nor LLC has any claim, liability or
------------
obligation of any nature, whether absolute, accrued, contingent or otherwise,
and whether due or to become due, other than the liabilities and obligations
reflected on the Acme Balance Sheet, except for liabilities and obligations
incurred in the ordinary course of business since the date of the Acme Balance
Sheet and contractual obligations disclosed in the footnotes to the Acme Balance
Sheet.
6
<PAGE>
2.6 Material Adverse Change. Since the date of the Acme Balance
-----------------------
Sheet, there has not been any material adverse change in the assets,
liabilities, business, financial condition or operating results of Acme.
2.7 Properties. Except as set forth on Schedule 2.7, or LLC has good
---------- ------------
title to, valid leasehold interests in, or other right to use all of the assets
used in its operations, free and clear of any mortgages, pledges, security
interests, encumbrances, material restrictions or adverse claims. All of LLC's
tangible assets are in good operating condition, normal wear and tear excepted,
and are adequate and suitable for the purposes for which they are presently
being used. LLC does not own any real property.
2.8 Insurance. Schedule 2.8 hereto sets forth a list of the
--------- ------------
insurance policies held by Acme or LLC. Acme and LLC are in compliance with
each of such policies such that none of the coverage provided under such
policies has been invalidated or will be impacted by the Merger.
2.9 Material Agreements.
-------------------
(a) Schedule 2.9 hereto sets forth a list of the oral
------------
and written agreements to which Acme or LLC is a party or to which either is
subject to and presently in effect.
(b) To the knowledge of Acme and LLC, no other party to any such
contract, agreement or arrangement intends to cancel, withdraw, modify or amend
such agreement or arrangement.
(c) Neither Acme nor LLC is in violation of or conflict with its
Certificate of Incorporation or Bylaws or other organizational or charter
documents. In addition, each of Acme and LLC (as is applicable) has performed
all material obligations required to be performed by it on or prior to the date
hereof under each contract, obligation, commitment, agreement, undertaking,
arrangement or lease referred to in this Section 2.9, except for such failures
-----------
to perform, defaults, breaches, or violations under such instruments or
obligations that would not have a Material Adverse Effect.
(d) Acme has provided to PETsMART true and correct copies of all
written agreements included on Schedule 2.9 and accurate descriptions of any
------------
oral agreements listed on Schedule 2.9.
------------
2.10 Intellectual Property Rights. As used herein, the term "Business
---------------------------- --------
Intangible Property" means all material computer software, inventions, trade
- -------------------
secrets, technology, customer lists and other intangible property used in the
business or operations of LLC other than intangible property which is readily
commercially available as of the date of this Agreement. As used herein, the
term "Intellectual Property" means the Business Intangible Property and all
---------------------
other material intellectual property or proprietary rights (other than such
which is readily commercially available as of the date of this Agreement),
including all patents, copyrights, mask rights, trademarks, trade names and
service marks necessary or required for and/or incident to the development,
operation, and sale of all products and services sold or offered and/or used in
the
7
<PAGE>
business or operations of LLC as now conducted; including, but not limited to,
all designs, drawings, notes, specifications, plans, techniques, models, data,
samples, prototypes, data, documentation, schematics, diagrams, formulae,
processes, computer programs, designs and structures of computer programs,
programming techniques, source code, object code and other information.
Schedule 2.10 hereto lists all patents, copyrights, mask rights, trademarks,
- -------------
trade names and service marks, and all registrations of or applications for
registration, licenses and rights with respect to any of the foregoing, owned by
Acme or LLC or registered in the name of Acme or LLC and the expiration date, if
any, thereof (collectively, the "Registrations/Applications"). The
--------------------------
Registrations/Applications have not been abandoned or canceled, and any and all
documents, filings and applicable fees and costs related to the maintenance,
renewal, continued use and eligibility for respective intellectual property
protection have been timely and fully paid, presented, delivered and/or filed
with the appropriate administrative body or agency. Neither Acme nor LLC has
received notice that any of such Registrations/Applications are deficient or not
in full compliance with the foregoing so as to give rise to a claim that the
respective intellectual property protection is not in full force and effect, or
to deprive Acme or LLC of the full right, title and interest therein and
thereto. Neither Acme nor LLC has received any notice from any administrative
body or agency or third party regarding the contestability of or opposition to
any of the Registrations/Applications. The Intellectual Property includes all
of the material intellectual property, intangible property and/or proprietary
rights necessary to, or important in, the conduct and/or operation of LLC's
business operations as currently conducted (other than intellectual property,
intangible property and/or proprietary rights which is or are readily
commercially available as of the date of this Agreement). Except as set forth
on Schedule 2.10, there is no Intellectual Property as to which LLC has any
-------------
obligation or is under any liability whatsoever to pay any royalties, fees or
otherwise which are unpaid as of, or which may become due after, the Closing
Date. As of the Closing Date, LLC is or will be the sole and exclusive owner of
all right, title and interest in and to the Intellectual Property and the
Registrations/Applications. Except as set forth on Schedule 2.10, as of the
-------------
date of the Closing, there is no Intellectual Property created by any party
other than parties who were employees of LLC at the time at which such parties
participated in the creation; and, to the best knowledge of Acme and LLC, no
employee of LLC brought any confidential information to LLC, which was used by
such employee or LLC, for which employee owed a duty to keep confidential and
not to use imposed by any former employer or third party. As of the date of the
Closing, all of LLC's right, title and interest in and to the Intellectual
Property is freely transferable, and is free and clear of any liens,
liabilities, obligations, pledges, security interests, liens, contractual
commitments, conditional sales contracts, mortgages, claims, defenses, setoffs,
equities, charges, restrictions or encumbrances of any kind or nature, and of
any options, distribution rights and restrictions except to the extent set forth
on Schedule 2.10 hereto. Neither Acme nor LLC has granted any licenses,
-------------
privileges or rights to use the Intellectual Property to third parties other
than pursuant to the license agreements listed on Schedule 2.9 or Schedule 2.10
----------- -------------
hereto, except for non-exclusive licenses routinely granted by LLC in the
ordinary course of business. Except as set forth on Schedule 2.10, there are no
-------------
pending or, to the best knowledge of Acme and LLC, threatened claims, actions,
suits, proceedings, judgments, decrees or orders (whether or not purportedly on
behalf of Acme or LLC) affecting or relating to the Intellectual Property, LLC's
right, title and interest therein or the validity, use, transfer or potential
transfer of LLC's right, title and interest therein, or alleging that the
Intellectual Property conflict with, violate or infringe the proprietary or
contractual rights of others, and, to the best knowledge of
8
<PAGE>
Acme and LLC, there are no existing grounds on which any such claim might be
made or such action, suit or proceeding might be commenced.
LLC has taken reasonable security measures to protect the secrecy,
confidentiality and value of all of its Intellectual Property. Each of LLC's
employees and other persons who, either alone or in concert with others,
developed, invented, discovered, derived, programmed or designed any of the
Intellectual Property, or who has knowledge of or access to information about
any of the Intellectual Property, has entered into, or prior to the Closing Date
will enter into, a written agreement with LLC providing that such Intellectual
Property and other information are proprietary to LLC and are not to be divulged
or misused and transferring to LLC, without any further consideration being
given therefor, all of such employee's or other person's right, title and
interest in and to such Intellectual Property including any copyrights therein.
Continually since its formation LLC has obtained, or prior to the
Closing Date, will have obtained, from each of its employees written agreements
under which each such employee is obligated to disclose and transfer to LLC,
without the receipt by such employee of any value therefor, (other than normal
salary and severance payments), any inventions, development, and discoveries
which during the period of his or her employment with LLC he or she makes or
conceives of, either solely or jointly with others, that relate to any subject
matter with which his or her work for LLC may be concerned, or relate to or are
connected with the business, products, services or projects of LLC or involve
the use of LLC's time, material or facilities. A form of such written agreement
has been provided to PETsMART.
2.11 Employee Benefit Plans.
----------------------
(a) Except as set forth on Schedule 2.11, neither Acme nor LLC
-------------
maintains and neither is neither a party to any compensation or employee benefit
plans, programs or contracts (the "Compensation and Benefit Programs") for
employees or former employees or their dependents. The Compensation and Benefit
Programs have been maintained in all material respects, in compliance with all
applicable laws, and there are no material liabilities associated with the
Compensation and Benefit Programs (statutory, contractual or otherwise) which
have not been fully funded by Acme or LLC. Neither Acme nor LLC, nor any ERISA
Affiliate has sponsored, maintained or contributed to, or has had any obligation
to constitute, any pension plan regulated under Title IV of ERISA within the
last six years. No Compensation or Benefit Program provides benefits described
in Section 3(1) of ERISA to any former employees or retirees of Acme or LLC or
------------
any ERISA Affiliate except as required under Part 6 Title I of ERISA. "ERISA"
means the Employee Retirement Income Security Act of 1974, as amended. "ERISA
Affiliate" of Acme or LLC means any other person (other than PETsMART) that,
together with Acme or LLC as of the relevant measuring date under ERISA, was or
is required to be treated as a single employer under Section 414 of the Code.
(b) Except as set forth on Schedule 2.11, no individual shall
-------------
accrue or receive additional benefits, accelerated rights or payments or
benefits under any Compensation or Benefit Program or become entitled to
severance, termination allowance or similar payments as a result of the Merger.
9
<PAGE>
(c) Neither Acme nor LLC has any employees other than as set
forth on Schedule 2.11, all of whom will be terminated at or prior to the
-------------
Closing.
2.12 Compliance with Laws. To their knowledge, Acme and LLC have
--------------------
complied in all material respects with all foreign, federal, state, local and
county laws, ordinances, regulations, judgments, orders, decrees or rules of any
court, arbitrator or governmental, regulatory or administrative agency or entity
applicable to its business. Acme and LLC have all valid and current permits,
licenses, orders, authorizations, registrations, approvals and other analogous
instruments (and each is in full force and effect) and Acme and LLC have made
all filings and registrations and the like necessary or required by law to
conduct its business, except where the failure to maintain such permits and
other instruments or to make such filings and registrations would not have a
Material Adverse Effect. Neither Acme nor LLC has received any governmental
notice of any violation by Acme or LLC of any such laws, rules, regulation or
orders. Neither Acme nor LLC is in material default or material noncompliance
under any such permits, consents, or similar instruments.
2.13 Absence of Litigation. Except as set forth on Schedule 2.13,
--------------------- -------------
neither Acme nor LLC is a party to any litigation, claim, arbitration,
investigation or other proceeding, nor is there any such litigation, claim,
arbitration, investigation or other proceeding threatened against Acme or LLC.
Neither Acme nor LLC nor any of their officers or directors is bound by any
judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person that relates to LLC or its business.
2.14 No Brokers. Except as provided on Schedule 2.14, neither Acme
---------- -------------
nor LLC is obligated for the payment of fees or expenses of any broker or finder
in connection with the origin, negotiation or execution of this Agreement or in
connection with any transaction contemplated hereby.
2.15 Taxes. Within the times and in the manner prescribed by law
-----
(including legal extension periods), Acme and LLC have properly prepared and
filed, or have had properly prepared and filed on their behalf, all Tax Returns
(as defined below) required by law to have been filed by Acme and LLC and have
paid all Taxes (as defined below) due and payable (whether or not shown on any
Tax Return) required to have been paid by Acme or LLC. All such Tax Returns are
true, correct and complete and accurately set forth all items to the extent
required to be reflected or included in such Tax Returns, including items
relevant to future tax liabilities of Acme, LLC or PETsMART (as successor to
Acme) such as tax basis and tax loss carryforwards. All amounts that are
required to have been collected or withheld by Acme or LLC have been duly
collected or withheld, and all such amounts that are required to have been
remitted to any tax authority have been duly remitted. Neither Acme nor LLC (i)
has filed a consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code (as
defined below) apply to any disposition of any asset owned by it, (ii) is a
party to or bound by any closing agreement, offer in compromise or any other
agreement with any Tax authority which would be binding with respect to, or
affected by events occurring in, any taxable period ending after the date of the
Acme Balance Sheet , (iii) has any present or contingent liabilities for Taxes,
other than Taxes reflected on the Acme
10
<PAGE>
Balance Sheet or incurred in the ordinary course of business since the date of
the Acme Balance Sheet, (iv) has engaged in a trade or business, or has had a
permanent establishment (within the meaning of an applicable tax treaty), within
a country other than the United States, (v) is a party to a contract that could
give rise to an "excess parachute payment" within the meaning of Section 280G of
the Code, or (vi) is or has at any time been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code. There
are no (1) proposed or actual assessments, audits, examinations or disputes as
to Taxes of any nature relating to Acme or LLC that have not been finally
resolved with all amounts due with respect thereto fully paid, (2) adjustments
under Section 481 of the Code or any similar adjustments that are required to be
taken into account by Acme or LLC (or PETsMART as successor) in any period
ending after the Closing Date by reason of a change in method of accounting in
any taxable period ending on or before the Closing Date (other than any change
required pursuant to Section 381(c)(4) of the Code and the regulations
thereunder as a result of the Merger), or (3) waivers or extensions of the
statute of limitations with respect to Taxes for which Acme or LLC could be held
liable which have continuing effect. Neither Acme nor LLC has taken any action
not in accordance with past practice that would have the effect of deferring a
measure of Tax (including but not limited to income, sales, gross receipts or
payroll) from a period (or portion thereof) ending on or prior to the Closing
Date to a period (or portion thereof) beginning after the Closing Date. Acme has
at all times during its existence been a "small business corporation" within the
meaning of Section 1361(b) of the Code and has had in effect at all times during
its existence a valid election under Section 1362(a) of the Code. LLC has at all
times during its existence been a disregarded entity for Federal income tax
purposes, and for purposes of the income tax laws of each jurisdiction in which
Acme has filed income tax returns. Neither Acme nor LLC has any liability for
payment of Taxes of another individual or entity (i) as a result of transferee
liability, (ii) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period, (iii) as a result of any tax sharing,
tax indemnity or tax allocation agreement or any other express or implied
agreement to indemnify any other individual or entity or (iv) otherwise through
operation of law. Neither Acme, LLC nor any Shareholder has taken any action or
agreed to take any action or has knowledge of any existing facts or
circumstances that would cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368 of the Code.
For purposes of this Agreement:
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Taxes" means all federal, state, local, foreign and other net income,
-----
gross income, gross receipts, sales, use, ad valorem, value added, intangible,
unitary, capital gain, transfer, franchise, profits, license, lease, service,
service use, withholding, backup withholding, payroll, employment, estimated,
excise, severance, environmental, stamp, occupation, premium, property,
prohibited transactions, windfall or excess profits, customs, duties or other
taxes, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts with respect
thereto; and the term "Tax" means any one of the foregoing Taxes.
---
11
<PAGE>
"Tax Returns" means all returns, declarations, reports, statements and
-----------
other documents required to be filed with a governmental authority in respect of
Taxes; and the term "Tax Return" means any one of the foregoing Tax Returns.
----------
2.16 Related Party Transactions. Except as set forth on Schedule
-------------------------- --------
2.16, no employee, officer or director of Acme or LLC or member of his or her
immediate family is indebted to Acme or LLC, nor is Acme or LLC indebted (or
committed to make loans or extend or guarantee credit) to any of them. Except
as set forth on Schedule 2.16, none of such persons has any direct or indirect
-------------
ownership interest in any firm or corporation with which Acme or LLC is
affiliated or with which Acme or LLC has a business relationship, or any firm or
corporation that competes with LLC, except that the employees, officers or
directors of Acme or LLC and members of their immediate families may own stock
in publicly traded companies that may compete with LLC. No member of the
immediate family of any officer or director of Acme or LLC is directly
interested in any material contract with Acme or LLC.
2.17 Bank Accounts and Powers of Attorney. Set forth in Schedule 2.17
------------------------------------ -------------
is an accurate and complete list showing (a) the name of each bank in which Acme
or LLC has an account, credit line or safe deposit box and the name of all
persons authorized to draw thereon or to have access thereto, and (b) the names
of all persons, if any, holding powers of attorney from Acme or LLC.
2.18 Site Performance. Accrue Software, Inc. ("Accrue") has certified
----------------
to Acme based on accurate logs provided by Acme that Acme's site performance for
March 1999 was as follows:
Unique Visitors - 313,000
Page Views - 8.2 Million
Pages of content - 7,000
Valid e-mail addresses - 30,000
The methodology used by Accrue to measure such performance is set
forth on Exhibit A.
---------
2.19 Disclosure; Accuracy of Documents and Information. No
-------------------------------------------------
representation or warranty made by Acme or the Principals in this Agreement,
including the Schedules hereof, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The copies of all instruments, agreements, other documents
delivered by Acme to PETsMART or their counsel pursuant to this Agreement shall
be complete and correct in all material respects as of the date of delivery
thereof.
ARTICLE 2A
REPRESENTATIONS AND WARRANTIES REGARDING
THE PRINCIPALS
12
<PAGE>
Each of the Principals severally and not jointly represents and
warrants to PETsMART as follows:
2A.1 Authority, Approval and Enforceability.
--------------------------------------
(a) Such Principal has the full power and authority to execute,
deliver and perform his obligations under this Agreement and the Escrow
Agreement, and all action on his part necessary for such execution, delivery and
performance has been duly taken.
(b) The execution and delivery by such Principal of this
Agreement does not, and the performance and consummation of the transactions
contemplated by this Agreement and the Escrow Agreement will not, result in any
conflict with, breach or violation of or default, termination or forfeiture
under (or upon the failure to give notice or the lapse of time, or both, result
in any conflict with, material breach or violation of or default, termination or
forfeiture under) any statute, rule, regulation, judicial, governmental,
regulatory or administrative decree, order or judgment applicable to such
Principal, or any material agreement or other instrument to which he is a party
or to which he or any of his assets is subject. No consent, approval or action
of, filing with or notice to any governmental or regulatory authority or other
person is necessary or required under any of the terms, conditions or provisions
of any law or order of any governmental or regulatory authority or any contract
to which such Principal is a party or his assets or properties are bound for the
execution and delivery of this Agreement or the Escrow Agreement by the
Principal, the performance by such Principal of his obligations hereunder or the
consummation of the transactions contemplated hereby.
(c) Upon due execution and delivery by such Principal, this
Agreement and the Escrow Agreement will be his legal, valid and binding
obligation, enforceable against him in accordance with the respective terms
hereof and thereof, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and subject to the availability of equitable
remedies.
(d) Such Principal is the record and beneficial owner of the
shares of Acme Stock reflected as owned by him on Schedule 2.2, free and clear
------------
of any and all liens, security interests, encumbrances or claims.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
PETSMART
PETsMART represents and warrants to Acme as follows:
3.1 Organization and Standing. PETsMART is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate power and authority to own, operate and
lease its properties and carry on its business as now conducted, and is duly
qualified to do business and is in good standing as a
13
<PAGE>
foreign corporation in each jurisdiction in which the failure to so qualify
would have a Material Adverse Effect. Whenever used herein, "Material Adverse
----------------
Effect" shall mean and be defined as any fact, event or condition, or the
- ------
absence of any fact, event or condition, as the context requires, which,
individually or in the aggregate, would have a material adverse effect on the
business, properties, prospects or financial condition of PETsMART.
3.2 Authority, Approval and Enforceability.
--------------------------------------
(a) Subject to obtaining any required approvals of the
stockholders of PETsMART, PETsMART has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Escrow Agreement (as hereinafter defined, collectively, the "PETsMART
Agreements"), and all corporate action on its part necessary for such execution,
delivery and performance has been duly taken.
(b) The execution and delivery by PETsMART of the PETsMART
Agreements do not, and the performance and consummation of the transactions
contemplated by the PETsMART Agreements will not, result in any conflict with,
breach or violation of or default, termination or forfeiture under (or upon the
failure to give notice or the lapse of time, or both, result in any conflict
with, breach or violation of or default, termination or forfeiture under) any
terms or provisions of (i) its Certificate of Incorporation or Bylaws, (ii) any
statute, rule, regulation or any judicial, governmental, regulatory or
administrative decree, order or judgment, or (iii) any material agreement, lease
or other instrument to which it is a party or to which it or any of its assets
may be bound.
(c) No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental or administrative body is required on the part of PETsMART
for the consummation by PETsMART of the transactions contemplated by this
Agreement, except any approvals or filings required under federal securities
laws and state "blue sky" laws (which will be obtained or made in accordance
with such laws by PETsMART on a timely basis) and the filing of the certificate
of merger and related instruments with the Secretary of State of the State of
Delaware.
(d) Upon due execution and delivery by the parties hereto and
thereto, the PETsMART Agreements will be the legal, valid and binding obligation
of PETsMART enforceable against PETsMART, in accordance with the respective
terms hereof and thereof, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally.
3.3 Outstanding Stock. The number of outstanding shares of capital
-----------------
stock of PETsMART is set forth on Schedule 3.3. Except as set forth on Schedule
------------ --------
3.3, there are not outstanding options, warrants or other securities to acquire
- ---
or convert into any shares of any class of stock of PETsMART. All of the issued
and outstanding shares of capital stock of PETsMART are duly authorized, validly
issued, fully paid and non-assessable and were not issued in violation of any
preemptive rights.
3.4 Series D Stock. The shares of Series D Stock to be issued to the
--------------
Shareholders as contemplated hereunder are duly authorized, and when issued
pursuant to the
14
<PAGE>
terms of this Agreement, will be validly issued, fully paid, non-assessable and
not subject to any preemptive rights and the shares of Common Stock of PETsMART
issuable upon conversion of such shares of Series D Stock, when issued pursuant
to the terms thereof, will be validly issued, fully paid, non-assessable and
issued free of any preemptive rights. PETsMART will reserve a sufficient number
of shares of its Common Stock for issuance upon conversion of shares of Series D
Stock.
3.5 No Brokers. PETsMART is not obligated for the payment of fees or
----------
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or in connection with any transaction contemplated
hereby or thereby.
3.6 Litigation. PETsMART is not a party to any litigation, claim,
----------
arbitration, investigation or other proceeding, nor is there any such
litigation, claim, arbitration, investigation or other proceeding threatened
against PETsMART. Neither PETsMART nor any of its officers or directors is
bound by any judgment, decree, injunction, ruling or order of any court,
governmental, regulatory or administrative department, commission, agency or
instrumentality, arbitrator or any other person that relates to PETsMART or its
business.
3.7 Compliance With Laws. PETsMART has complied in all material
--------------------
respects with all foreign, federal, state, local and county laws, ordinances,
regulations, judgments, orders, decrees or rules of any court, arbitrator or
governmental, regulatory or administrative agency or entity applicable to its
business. PETsMART has all valid and current permits, licenses, orders,
authorizations, registrations, approvals and other analogous instruments (and
each is in full force and effect) and PETsMART has made all filings and
registrations and the like necessary or required by law to conduct its business,
except where the failure to maintain such permits and other instruments or to
make such filings and registrations would not have a Material Adverse Effect.
PETsMART has not received any governmental notice of any violation by PETsMART
of any such laws, rules, regulation or orders. PETsMART is not in default or
material noncompliance under any such permits, consents, or similar instruments.
3.8 Charter Documents. PETsMART has delivered to Acme true, correct
-----------------
and complete copies of (a) the certificate of incorporation of PETsMART, as the
same has been amended and/or restated from time to time, and (b) the bylaws of
PETsMART, as the same have been amended and/or restated from time to time.
3.9 Proprietary Rights. PETsMART has title and ownership of, or full
------------------
right to use, all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and, to PETsMART's knowledge, without any conflict
with or infringement of the rights of others. PETsMART has not received any
communications alleging that PETsMART has violated or, by conducting its
business as currently conducted, would violate any of the patents, trademarks,
service marks, trade names, copyrights or trade proprietary rights of any other
person or entity. To the knowledge of PETsMART, none of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of PETsMART or that would conflict
15
<PAGE>
with PETsMART's business as currently conducted. Neither the execution and
delivery of this Agreement nor the carrying on of PETsMART's business by the
employees of PETsMART, nor the conduct of PETsMART's business as currently
conducted, will, to PETsMART's knowledge, conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. PETsMART does not believe it is or will be necessary to utilize any
inventions of any of its employees (or people it currently intends to hire) made
prior to their employment by PETsMART.
3.10 Balance Sheet. PETsMART has delivered to Acme its balance sheet
-------------
as of June 30, 1999 (the "PETsMART Balance Sheet") which was prepared based on
the books and records of PETsMART in accordance with GAAP (except for footnotes)
consistent with past practice and presents fairly its financial position as of
such date.
3.11 Disclosure; Accuracy of Documents and Information. No
-------------------------------------------------
representation or warranty made by PETsMART in this Agreement, including the
Schedules hereof, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
copies of all instruments, agreements, other documents delivered by PETsMART to
Acme or their counsel pursuant to this Agreement shall be complete and correct
in all material respects as of the date of delivery thereof.
3.12 Tax Status of Merger.
---------------------
(a) PETsMART has not taken any action, or agreed to take any
action, and has no knowledge of any existing facts or circumstances that would
cause the Merger to fail to qualify as a reorganization under Section
368(a)(1)(A) of the Code.
(b) Neither PETsMART nor, to the knowledge of PETsMART, any
related person (within the meaning of Treas. Reg. (S)1.368-1(e)(3)) has any plan
or intention to reacquire any of PETsMART's stock issued in the Merger, other
than pursuant to this Agreement or any conversion or redemption rights inherent
in such stock.
(c) Provided that the business conducted by LLC immediately prior
to the Merger is a significant "historic business," and the assets owned by LLC
immediately prior to the Merger constitute substantially all the "historic
business assets," of Acme for purposes of applying Treas. Reg. (S) 1.368-1(d) to
the Merger, PETsMART presently intends to continue at least one significant
historic business line of Acme or to use at least a significant portion of
Acme's historic business assets in a business, in each case within the meaning
of Treas. Reg. (S) 1.368-1(d).
16
<PAGE>
ARTICLE 4
COVENANTS
4.1 Maintenance of Business. Except as otherwise contemplated by
-----------------------
this Agreement, during the period from the date hereof to the Closing Date, each
of Acme and LLC agrees to carry on its business in the ordinary course and in
substantially in the same manner as it has prior to the date of this Agreement
and agrees not to enter into any material agreements, make any distributions
(other than a distribution or transfer of assets listed on Schedule 2.5 hereto
------------
subject to, the assumption of any related liabilities and obligations by
transferee pursuant to an instrument reasonably acceptable to PETsMART) or take
any other significant actions outside the ordinary course of business without
the prior written consent of PETsMART, which consent shall not be unreasonably
withheld. Each of Acme and LLC will use its best efforts to preserve intact its
business and business relationships.
4.2 Tax Treatment.
-------------
(a) Returns to be Filed by Shareholders. Within the times and in
-----------------------------------
the manner prescribed by law, the Shareholders shall properly and accurately
prepare (or cause to be prepared) and file, at their own expense to the extent
such expense is not reflected as an Other Liability pursuant to Section 1.2(c)
hereof, all Tax Returns of Acme and LLC for a taxable year beginning before the
Closing Date other than any Straddle Return (as defined below) (each a
Shareholder Return" and collectively the "Shareholder Returns"). The
- ------------------- --------------------
Shareholder Returns shall be prepared in a manner consistent with prior practice
of Acme and LLC, provided that the Shareholder Returns shall in all events be
prepared in accordance with applicable law. No later than 15 days prior to
filing any Shareholder Return that is to be filed after the Closing Date (or, if
the Shareholder Return is due prior to such time, prior to filing and as soon as
possible following the Closing Date), the Shareholders shall provide PETsMART a
copy of such Shareholder Return and PETsMART shall be given an opportunity to
review and comment on such Shareholder Return. PETsMART shall provide the
Shareholders with such authorization as may be required in order to permit
Shareholder Returns to be properly filed.
(b) Other Returns. Within the times and in the manner prescribed
-------------
by law, PETsMART shall properly and accurately prepare (or cause to be prepared)
all Tax Returns ("Straddle Returns") of or with respect to Acme and LLC for
taxable periods including but not ending on the Closing Date (a "Straddle
--------
Period"). The Straddle Returns shall be prepared in a manner consistent with
- -------
prior practice of Acme and LLC, provided that the Straddle Returns shall in all
events be prepared in accordance with applicable law. No later than 15 days
prior to filing any Straddle Return, PETsMART shall provide Shareholders'
Representative a copy of such Straddle Return and Shareholder Representative
shall be given an opportunity to review and comment on such Straddle Return.
(c) Payment of Taxes. The Shareholders shall bear the expense of
----------------
(i) all Taxes of or with respect to Acme and LLC that are due with respect to
periods covered by the Shareholder Returns and (ii) the Taxes that are due with
respect to Straddle Returns to the extent attributable to the portion of the
Straddle Period (the "Pre-Closing Straddle Period") ending at
---------------------------
17
<PAGE>
the close of business on the Closing Date, including but not limited to Taxes of
Acme or LLC arising from the Merger or the other transactions contemplated by
this Agreement. Taxes reported on a Shareholder Return or on a Straddle Period
Return that are paid after the Closing Date and on or before the Cash
Distribution Date (as defined in Section 2.1 of the Escrow Agreement) and with
respect to which a Holdback Amount has been established pursuant to Section
1.2(c) of this Agreement as of the Cash Distribution Date, shall be paid by
PETsMART on behalf of Acme or LLC (as the case may be) at the direction of the
Shareholders' Representative to the extent the Holdback Amount with respect to
such Taxes exceed amounts previously paid by PETsMART with respect to such
Taxes, and any excess shall be paid directly by the Shareholders. Taxes reported
with respect to a Shareholder Return or the Pre-Closing Straddle Period of a
Straddle Return, if the due date for filing any such return is after the Cash
Distribution Date, shall be paid by Shareholders within five (5) days following
request therefor from PETsMART to the extent that such Taxes exceed the Withheld
Amount (as defined in the Escrow Agreement) with respect to such Taxes.
Notwithstanding the foregoing, Shareholders shall be entitled to cause Acme or
LLC to pay prior to the Closing Date any Tax incurred by either of them to the
extent that such Tax was incurred by Acme or LLC in the ordinary course of
business of Acme or LLC, and payment of such Tax by Acme or LLC is consistent
with the historic practice of Acme and LLC. Taxes for any Straddle Period shall
be attributable to the Pre-Closing Straddle Period (and borne by the
Shareholders as provided above) to the extent that such Taxes would have been
incurred by Acme and LLC during the Straddle Period if Acme and LLC had sold all
of their assets to PETsMART as of the close of business on the Closing Date.
This Section 4.2(c) shall not limit PETsMART's rights to indemnification under
--------------
Section 6.2, except to the extent that payments provided for herein satisfy a
liability that would otherwise be indemnifiable, or the immediately preceding
sentence specifies the amount of a liability attributable to a Pre-Closing
Straddle Period.
(d) Tax Elections and Amended Tax Returns. Neither Acme nor LLC
-------------------------------------
shall make any material election with respect to Taxes without the prior written
consent of PETsMART, not to be unreasonably withheld. Except in connection with
an audit resolved pursuant to Section 4.2(g) and Article VI of this Agreement
(including consistent correlative adjustments to Tax Returns for non-audited Tax
Periods), no party may amend a Tax Return filed by either party with respect
Acme or LLC for a taxable period beginning prior to the Closing Date without the
consent of the other parties, not to be unreasonably withheld.
(e) Tax Treatment of Merger.
-----------------------
(i) The parties intend to treat the Merger as a
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code. Unless
required by law, the parties hereto will not take any tax reporting position
inconsistent with the characterization of the Merger as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. Notwithstanding the foregoing
or anything to the contrary in this Agreement (including, but not limited to,
Article 6), no Shareholder shall have a claim for damages or other amounts from
PETsMART and its Affiliated Parties (as defined in Section 6.2) in connection
-----------
with the Merger failing for any reason, other than a breach of representations
made under Section 3.12 or the covenants in this paragraph (e), to qualify as a
------------
"reorganization" within the meaning of Section 368 of the Code.
18
<PAGE>
(ii) In preparing the Shareholder Returns pursuant to
Section 4.2(a), the parties agree that, for federal and state income tax
- --------------
purposes, the Shareholders shall treat the Closing Date as the last day of
Acme's 1999 taxable year, and that the final income tax returns of Acme shall
include the operations of Acme and LLC through the close of business on the
Closing Date.
(f) Resolution of Disputes Regarding Tax Computations. In the
-------------------------------------------------
event that there is a disagreement among the parties as to the computations of
Tax liabilities to be shown in Tax Returns or a disagreement otherwise affecting
payments required to be made among the parties pursuant to or under this
Agreement relating to Taxes, the parties shall attempt to resolve their
differences. If they cannot reach complete agreement within fifteen (15) days,
each party shall select a Tax expert from their outside accounting firm or law
firm knowledgeable in the area of the dispute, and such experts shall attempt to
resolve the differences. Each party shall be responsible for the costs and fees
of its expert. If the experts are unable to reach an agreement, the matter shall
be submitted to binding arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The fees and expenses
of the party that substantially prevails in such arbitration shall be paid by
the other party, unless the arbitrator decides otherwise.
(g) Audits and Contests.
-------------------
(i) In General. Any party who receives any notice of a
----------
pending or threatened Tax audit, assessment, or adjustment against or with
respect to Acme, LLC or Shareholders which may give rise to liability of the
parties hereto to a tax authority or under this Agreement, shall promptly notify
the other parties hereto. Failure to provide timely notice of such pending or
threatened action shall not release any party who failed to receive such notice
from liability for claims under this Agreement to the party failing to give
timely notice except to the extent that such failure prejudiced the defense of
such pending or threatened action and increased the amount of the loss on which
such claim was based.
(ii) Periods Covered by Shareholder Returns. Shareholders
--------------------------------------
shall have the right to represent Acme and LLC's interests in any Tax audit or
administrative or judicial proceeding and to employ counsel of their choice, but
reasonably satisfactory to PETsMART, at their expense, but such control shall
only extend to the portion of such audit or other proceeding as it pertains
solely to periods and Taxes covered by a Shareholder Return. Shareholders agree
to consult with PETsMART and to keep PETsMART informed on a regular basis
regarding the status of any such audit or proceeding. PETsMART shall have the
right to participate in such proceeding at its own expense, and shall be
entitled to control the disposition of any issue involved in such proceeding
which does not affect a potential indemnity obligation of the Shareholders under
Section 6.2 hereof.
(iii) Other Periods. For audits and proceedings other than
-------------
those described in clause (ii), PETsMART shall have the right to represent any
PETsMART interest in any Tax audit or administrative or judicial proceeding
relating to Taxes of Acme or LLC, and to employ counsel of its choice at its
expense. PETsMART agrees to consult with Shareholders and to keep Shareholders
informed on a regular basis regarding the status of any such audit or proceeding
to the extent that such audit or proceeding could affect a liability of the
Shareholders,
19
<PAGE>
provided that both PETsMART and Shareholders shall be entitled to represent
their own interests in light of their responsibilities (including indemnity
obligations) for the related Taxes, at their own expense, in any such audit or
administrative or judicial proceedings involving a Straddle Period.
(iv) General Indemnity Procedures. Except as provided in
----------------------------
this Section 4.2(g), Article VI, including the provisions therein addressing
settlement authority, shall govern the manner in which Tax audit or
administrative or judicial proceedings are resolved.
(h) Other Matters.
-------------
(i) Cooperation and Access to Information. Shareholders
-------------------------------------
and PETsMART shall cooperate as and to the extent reasonably requested by any
other party hereto, in connection with (A) the filing of Tax Returns pursuant to
this section and any audit, litigation or other proceeding with respect to
Taxes, and (B) complying with Section 6043 of the Code and all Treasury
Department Regulations promulgated thereunder. Such cooperation shall include
the retention and (upon another party's request) the provision of records and
information which are reasonably relevant to any such Tax Return, audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.
(ii) Retention of Books and Records. Shareholders and
------------------------------
PETsMART agree (A) to retain all books and records with respect to Tax matters
pertinent to Acme and LLC relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations of the
respective taxable periods, and (B) to give any other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, PETsMART or Shareholders, as the
case may be, shall allow the other party to take possession of such books and
records.
(iii) Treatment of Indemnity Payment as Contribution to
-------------------------------------------------
Capital (or Purchase Price Adjustment). In the case of any claim for indemnity
- --------------------------------------
under this Agreement based on Taxes determined to be payable by Acme or LLC or a
successor thereto, the indemnity obligation under Article 6 shall be interpreted
as running directly from Shareholders to Acme, and if cannot be so
characterized, shall be considered to be a purchase price adjustment under this
Agreement.
4.3 Exclusivity. Each of Acme and LLC agrees that (a) it will
-----------
suspend all existing discussions with any third party with respect to any
proposal involving a sale, merger or restructuring of Acme or LLC or a sale of
any material portion of Acme's or LLC's assets or capital stock (any such
proposal, other than a proposal from PETsMART or its affiliates, an "Acquisition
-----------
Proposal"), and (b) it will not, and it will cause each of their employees,
- --------
counsel, accountants, agents and other representatives ("Representatives") not
---------------
to, directly or indirectly, solicit, entertain, or enter into any agreement or
understanding with, or engage in any discussions or negotiations with, or
furnish any information with respect to Acme or LLC to, any person or entity
with respect to any Acquisition Proposal. Each of Acme and LLC represents to
PETsMART that neither it nor any of its respective affiliates is bound by any
agreement with respect to an Acquisition Proposal. Should Acme or LLC receive
any communication from a
20
<PAGE>
third party related to an actual or potential Acquisition Proposal, it shall
immediately notify PETsMART.
4.4 Best Efforts. Each party will use its reasonable best efforts to
------------
cause all conditions to the Closing to be satisfied as soon as practicable.
Without limiting any party's rights or remedies for any breach of any
representations or warranty made hereunder, each party shall use its reasonable
best efforts to obtain any consents necessary or desirable in connection with
the consummation of the transactions contemplated by this Agreement.
4.5 Access to Information. Each of Acme and PETsMART shall continue
---------------------
to have access to the facilities, employees, and records; provided, however, all
confidential information obtained by PETsMART or Acme from the other will be
kept confidential in accordance with the terms of the Mutual Non-Disclosure
Agreement previously entered into between PETsMART and Acme (the
"Confidentiality Agreement").
- --------------------------
4.6 Stock Options; Warrants. All options and warrants listed on
-----------------------
Schedule 2.2 shall be terminated (or exercised) at or prior to the Closing.
4.7 Shareholder Consent. Each of the Principals agree to vote all
-------------------
shares of Acme Stock owned by them in favor of the Merger and the transactions
contemplated hereby.
4.8 Noncompetition Agreements. Each of the Principals shall enter
-------------------------
into three year noncompetition agreements (the "Noncompetition Agreements") with
PETsMART in the form of Exhibit C hereto.
---------
4.9 Expenses. PETsMART shall pay up to $30,000 of Acme's legal or
--------
other professional fees solely related to preparation and review of documents
related to the transaction contemplated by this Agreement.
4.10 Releases. On the Closing Date, each of the Principals shall
--------
release Acme and LLC and its directors, officers, agents, and employees and
discharge them from any and all obligations and claims which have arisen or
might arise out of facts or actions existing or taken on or prior to the Closing
Date. In the event that PETsMART is entitled to any claim for indemnification
under this Agreement against a Principal or other Shareholders, the Principals
and other Shareholders shall not have the right to seek indemnity or
contribution with respect to any such claim from, or have any similar right with
respect to, Acme or LLC.
4.11 Schiering Payment Amount. Acme has an obligation to pay to
------------------------
Jeffrey Schiering, Alphawave, Inc., and Christopher Durfy a certain amount (the
"Schiering Payment Amount") estimated at approximately $400,000 under a
Royalties Contract and Noncompete Agreement dated as of September 7, 1997. On
the Closing Date, PETsMART shall pay the Schiering Payment Amount to Schiering
on behalf of Acme.
21
<PAGE>
ARTICLE 5
CONDITIONS TO MERGER
5.1 Conditions to Obligations of PETsMART and Acme. The respective
----------------------------------------------
obligations of PETsMART and Acme to consummate the transactions contemplated
hereby are subject to satisfaction (or waiver) of the following conditions:
(a) Each of PETsMART and Acme shall have obtained all consents
and approvals of its stockholders required to consummate the transactions
contemplated by this Agreement.
(b) Consummation of the transactions contemplated by this
Agreement shall not violate any order, decree or judgment of any court or
governmental entity.
(c) The Escrow Agreement shall be executed and delivered by the
parties thereto.
(d) The filing of the appropriate certificate of merger and
related instruments with the Office of the Secretary of State for the State of
Delaware.
(e) The closing of the Series D Financing (which shall only be a
condition to closing through September 30, 1999.)
5.2 Conditions to Obligations of PETsMART. The obligations of
-------------------------------------
PETsMART to consummate the transactions contemplated hereby are subject to
satisfaction (or waiver) of the following conditions:
(a) The representations and warranties of Acme and the Principals
made herein shall be true and correct in all material respects as of the Closing
Date and Acme and the Principals shall have performed in all material respects
all obligations and agreements undertaken to be performed by them at or prior to
the Closing.
(b) All consents and approvals of third parties required to
consummate the transactions contemplated by this Agreement shall have been
obtained.
(c) Each of the Shareholders shall have delivered to PETsMART an
Investment Intent Certificate (containing certain representations regarding
securities laws matters including the Shareholder's representation that he is an
accredited investor as defined in Rule 501 of Regulation D).
(d) PETsMART shall be reasonably satisfied that the issuance of
the shares of Series D Stock in the Merger will qualify for an exemption under
applicable federal and state securities laws.
(e) The Noncompetition Agreements shall be executed and delivered
by the parties thereto.
22
<PAGE>
(f) PETsMART shall have completed its due diligence investigation
of Acme and shall not have discovered any fact, event or condition, or the
absence of any fact, event or condition which would have a Material Adverse
Effect.
(g) PETsMART shall be satisfied that Shareholders owning in the
aggregate, no more than 5% of the outstanding shares of Acme Stock shall
exercise dissenters' rights in connection with the Merger.
(h) Schiering and the other recipients of the Schiering Payment
shall deliver to PETsMART a release with respect to any future claims against
Acme and LLC (including any claims for additional payments under the Schiering
Agreement and including a release of any liens on an ownership interest of each
of Acme or LLC or Acme's or LLC's assets) in a manner reasonably satisfactory to
PETsMART.
(i) PETsMART shall have received evidence from the Internal
Revenue Service's acceptance of Acme's election to be treated as a subchapter-S
corporation.
5.3 Conditions to Obligations of Acme and the Shareholders. The
------------------------------------------------------
obligations of Acme and the Shareholders to consummate the transactions
contemplated hereby are subject to satisfaction (or waiver) of the following
conditions:
(a) The representations and warranties of PETsMART made herein
shall be true and correct in all material respects as of the Closing Date and
PETsMART shall have performed in all material respects all obligations and
agreements undertaken to be performed by them at or prior to the Closing.
(b) PETsMART shall not have suffered any event after the date
hereof that would have a Material Adverse Effect.
ARTICLE 6
INDEMNITY
6.1 Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Agreements.
----------
All representations, warranties, covenants and agreements of PETsMART, Acme and
the Principals in this Agreement shall survive the execution, delivery, and
performance of this Agreement in accordance with this paragraph. All
representations and warranties of each party set forth in this Agreement shall
be deemed to have been made again by such party at and as of the Closing Date.
PETsMART shall, on behalf of the Shareholders, deliver the Escrow Consideration
into escrow as provided in the Escrow Agreement. The Escrow Consideration shall
be released from escrow one year from the Closing Date (except to the extent
that claims have been submitted or notice of a claim has been provided during
such one year period in a manner set forth in the Escrow Agreement) in
accordance with the terms of the Escrow Agreement. The representations and
warranties of PETsMART, Acme and the Principals set forth in this Agreement
shall terminate (absent fraud or willful misrepresentation) on the date two
years from the Closing Date (except to the extent that claims have been
submitted or notice
23
<PAGE>
of the claim has been provided during such two year period), except for Sections
--------
2.2, 2.14 and 3.5, which shall not terminate, and Sections 2.15 and 3.12, which
- ----------------- ----------------------
shall terminate six months after the expiration of the statutes of limitations
applicable to the matters covered thereby.
6.2 Indemnification of PETsMART.
---------------------------
(a) Each of the Shareholders (the "Indemnifying Shareholders"),
jointly and severally, agrees to indemnify, defend and hold harmless PETsMART
and its affiliates, successors, assigns, agents and representatives
(collectively, the "Affiliated Parties") from and against any and all claims,
demands, losses, costs, expenses, obligations, liabilities, damages, remedies
and penalties, including interest, penalties and reasonable attorneys' fees and
expenses (collectively, "Losses") that any of them shall incur or suffer to the
extent they arise from or are attributable to by reason of or in connection with
(i) any breach or inaccuracy of the representations and warranties contained in
Article 2 of this Agreement, (ii) the breach or nonfulfillment of any covenant
or agreement of Acme or the Principals contained in this Agreement including a
breach of any obligations of the Principals under Section 4.2 hereof and (iii)
-----------
any liabilities or obligations or claims or litigation of Acme arising or
accruing prior to the Closing Date or based on facts, acts or circumstances or
events or conditions which occurred prior to the Closing Date and any Other
Liabilities, except for the Permitted Liabilities and for those liabilities or
obligations which PETsMART has reduced the First Payment or Second Payment
pursuant to Section 1.2 hereof (up to the extent of such reduction) and (iv)
-----------
subject to Section 6.6(e) hereof, any claim that the use by Acme or the
contemplated use by PETsMART of the Acmepet name (or any derivation thereof)
infringes any rights of a third party.
(i) No claim, demand, suit or cause of action shall be
brought under this Section 6.2(a)(i) unless and until the aggregate amount of
-----------------
claims under Section 6.2(a)(i) exceeds $50,000, in which event PETsMART and the
-----------------
Affiliated Parties shall be entitled to indemnification for all claims under
this Section 6.2(a)(i) in excess of such $50,000.
-----------------
(ii) The liability of the Shareholders other than the
Principals under this Section 6.2(a) shall be limited to the return to PETsMART
--------------
of Escrow Consideration.
(iii) The liability of the Principals under this Section
-------
6.2(a) shall be full recourse and shall not be limited to the return of Escrow
- ------
Consideration, subject to Section 6.2(d).
--------------
(b) Each of the Principals, severally and not jointly, agrees to
indemnify, defend and hold harmless PETsMART and the Affiliated Parties against
and in respect of any Losses that any of them shall incur or suffer to the
extent they arise from or are attributable to by reason of or in connection with
any breach or inaccuracy of such Principal's representations or warranties
contained in Article 2A of this Agreement or such individual's breach of a
covenant set forth in this Agreement.
(i) PETsMART's and the Affiliated Parties' recourse against
the Escrow Consideration in respect of a claim against any Principal under this
Section 6.2(b) shall be limited to the return to PETsMART of Escrow
- --------------
Consideration allocable to such Principal.
24
<PAGE>
(ii) The liability of the Principals under Section 6.2(b)
--------------
shall be full recourse and shall not be limited to the return of Escrow
Consideration, subject to Section 6.2(d).
--------------
(c) No disclosure by Acme or the Principals other than as set
forth in this Agreement or the schedules hereto nor any investigation made by or
on behalf of PETsMART with respect to Acme or the Principals shall be deemed to
affect PETsMART's reliance on the representations and warranties made by Acme or
the Principals contained in this Agreement and shall not constitute a waiver of
PETsMART's rights to indemnity as herein provided for the breach or inaccuracy
of any of Acme's or the Principals' representations or warranties under this
Agreement.
(d) Notwithstanding anything else in this Section 6.2 to the
-----------
contrary (and other than as set forth in subsection (e) below), the aggregate
liability of the Principals under Sections 6.2(a) and 6.2(b) shall not exceed
--------------------------
the amount received by such Principals (including such Principal's ratable share
of the Escrow Consideration), reduced by any amount payable with respect to
matters covered by subsection (e) below. The indemnity obligations set forth in
this Section 6.2 shall be the exclusive remedy (other than for injunctive
-----------
relief) of PETsMART with respect to a breach or inaccuracy of the
representations and warranties or covenants of the Principals, other than with
respect to liability arising out of, involving or relating to intentional fraud
or willful misrepresentation or willful breach. The indemnity obligations of the
Shareholders under Section 6.2(a)(iv) shall terminate two (2) years from the
------------------
date hereof (except to the extent claims have been submitted or notice of a
claim has been provided during such two year period).
(e) Notwithstanding anything to the contrary in this Section 6.2
-----------
(including but not limited to the deductibles and limits set forth herein), the
Principals each jointly and severally agree to indemnify, defend and hold
harmless PETsMART and Affiliated Parties from and against (i) any failure by the
Shareholders to pay in full or otherwise fulfill the obligations of the
Shareholders set forth in Section 4.2 hereof, and (ii) any obligation arising
-----------
from a breach of a representation in Section 2.15 hereof.
------------
6.3 Indemnification of the Shareholders.
-----------------------------------
(a) PETsMART agrees to indemnify, defend and hold harmless the
Shareholders (and their respective successors and assigns) from and against and
in respect of, any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, remedies and penalties, including interest,
penalties and reasonable attorneys' fees and expenses (collectively,
"Shareholders Losses") that any of the Shareholders shall incur or suffer and
which arise from or are attributable to by reason of or in connection with (i)
any breach or inaccuracy of PETsMART's representations or warranties contained
in this Agreement, or (ii) the breach or nonfulfillment by PETsMART of any
covenant or agreement contained in this Agreement.
(b) No claims, demand, suit or cause of action shall be brought
under Section 6.3(a)(i) unless and until the aggregate amount of claims under
-----------------
Section 6.3(a)(i) exceeds $50,000, in which event the Shareholders shall be
- -----------------
entitled to indemnification from PETsMART for all claims under Section 6.3(a)(i)
-----------------
in excess of such $50,000. PETsMART shall have no
25
<PAGE>
obligations under this Section 6.3 for an amount in excess of the amount
-----------
received or to be received by the Principals in connection with the Merger. The
indemnity obligations set forth in this Section 6.3 shall be the exclusive
-----------
remedy (other than for injunctive or equitable relief) of the Shareholders with
respect to a breach or inaccuracy of the representations and warranties or
covenants of PETsMART, other than with respect to liability arising out of,
involving or relating to intentional fraud or willful misrepresentation or
willful breach.
(c) No disclosure by PETsMART other than as set forth in this
Agreement or the schedules hereto nor any investigation made by or on behalf of
the Principals with respect to PETsMART shall be deemed to affect the
Principals' reliance on the representations and warranties made by PETsMART
contained in this Agreement and shall not constitute a waiver of the Principals'
rights to indemnity as herein provided for the breach or inaccuracy of any of
PETsMART's representations or warranties under this Agreement.
6.4 Procedure for Indemnification of PETsMART and the Surviving
-----------------------------------------------------------
Corporation with Respect to Non-Third Party Claims. Prior to termination of the
- --------------------------------------------------
escrow for the Escrow Consideration, PETsMART and the Affiliated Parties shall
not be entitled to seek recourse against a Shareholder in satisfaction of a
claim under Section 6.2 without first seeking recourse against the Escrow
-----------
Consideration allocable to such Shareholder in the escrow, unless (i) the amount
of such claim against such Shareholder, when taken together with all other
claims against such Shareholder by all of the indemnified parties, exceeds the
amount of the Escrow Consideration allocable to such Shareholder in escrow at
the time such claim is initiated, in which event the indemnified party may seek
direct recourse against such Shareholder in respect of such claim. If PETsMART
shall have any claim against the Shareholders pursuant to this Article 6 for
which it seeks recourse against the Escrow Consideration (but excluding claims
resulting from the assertion of liability by third parties), PETsMART shall
promptly give written notice thereof to the Escrow Agent (as defined in the
Escrow Agreement) and the Shareholders' Representative, including in such notice
a brief description of the facts upon which such claim is based and the amount
thereof. If the Shareholders' Representative objects to the allowance of any
such claims, it shall give written notice to PETsMART and the Escrow Agent
within twenty days following receipt of PETsMART's notice of claim, advising
PETsMART and the Escrow Agent that it does not consent to the delivery of any or
some of the Escrow Consideration out of escrow for application to such claims.
If no such written notice is timely provided by the Shareholders' Representative
to PETsMART and the Escrow Agent and received by the Escrow Agent within twenty
days following the Shareholders' Representative's receipt of PETsMART's notice
of claim, the Escrow Agent shall, within five business days after the expiration
of the prior notice period, deliver out of escrow the lesser of: (a) the portion
of the Escrow Consideration most nearly equal in value to the amount of the
claim or claims thus to be satisfied, or (b) all of the Escrow Consideration.
If the Shareholders' Representative notifies PETsMART and the Escrow Agent
receives written notice within the foregoing twenty day period that the
Shareholders' Representative objects to such application of the Escrow
Consideration after a claim has been made, the Escrow Agent shall hold the
Escrow Consideration in an amount most nearly equal in value to the amount of
the claim or claims then made in escrow until the rights of the Shareholders and
PETsMART with respect thereto have been agreed upon between the Shareholders'
Representative and PETsMART in accordance with the Escrow Agreement and the
Escrow Agent receives written notice accordingly or the Escrow Agent is directed
by a court or arbitration panel. If any distribution referred to in this
Section 6.4 involves less than all of the
- -----------
26
<PAGE>
Escrow Consideration, it shall be allocated pro rata against the Escrow
Consideration therein based on the Escrow Consideration beneficially owned by
each Shareholder (unless the claim made is based on an inaccuracy or breach of a
representation or warranty contained in Article 2A of this Agreement, in which
case the allocation of the distribution of the Escrow Consideration shall be
determined in accordance with Section 6.2(b)). If PETsMART has any claim against
---------------
any Shareholder or Shareholders pursuant to this Article 6 (but excluding claims
resulting from the assertion of liability by third parties) outside of the
Escrow or over and above the amount of the Escrow Consideration, PETsMART shall
promptly give written notice thereof to such Shareholder or Shareholders,
including in such notice a brief description of the facts upon which such claim
is based and the amount thereof. If such Shareholder or Shareholders, within
twenty days after receipt of PETsMART's notice of claim, do not give written
notice to PETsMART announcing their intent to contest such assertion of PETsMART
such assertion shall be deemed accepted and the amount of claim shall be deemed
a valid claim and such Shareholder or Shareholders shall, within five days after
expiration of the prior notice period deliver to PETsMART the amount of the
claim. In the event, however, that such Shareholder or Shareholders contest the
assertion of a claim by giving such written notice to PETsMART within said
period, then the parties shall act in good faith to reach agreement regarding
such claim. In the event the parties are unable to reach an agreement regarding
such claim, such claim shall be settled in accordance with Section 2.5 of the
-----------
Escrow Agreement.
6.5 Procedure for Indemnification of the Shareholders with Respect to
-----------------------------------------------------------------
Non-Third Party Claims. If any Shareholder has any claim against PETsMART
- ----------------------
pursuant to this Article 6 (but excluding claims resulting from the assertion of
liability by third parties), the Shareholder shall promptly give written notice
thereof to PETsMART, including in such notice a brief description of the facts
upon which such claim is based and the amount thereof. If PETsMART, within
twenty days after receipt of the Shareholders' notice of claim, does not give
written notice to the Shareholders announcing its intent to contest such
assertion of the Shareholder such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim and PETsMART shall, within five
days after expiration of the prior notice period, deliver to the Shareholders
the amount of the claim, which, if such claim is brought on behalf of all
Shareholders, shall be allocated as specified in writing by the Shareholders'
Representative (and PETsMART will have no liability to any Shareholder for
allocating the same based on written instructions of the Shareholders'
Representative.). In the event, however, that PETsMART contests the assertion
of a claim by giving such written notice to the Shareholders within said period,
then the parties shall act in good faith to reach agreement regarding such
claim. In the event the parties are unable to reach an agreement regarding such
claim, such claim shall be settled in accordance with Section 2.5 of the Escrow
-----------
Agreement.
6.6 Procedure for Indemnification with Respect to Third-Party Claims.
----------------------------------------------------------------
(a) If an indemnified party determines to seek indemnification
under Section 4.2 or this Article 6 with respect to a claim resulting from the
-----------
assertion of liability by third parties, such indemnified party shall promptly
give notice to the indemnifying parties of facts upon which any such claim is
based; the notice shall set forth such material information with respect thereto
as is then reasonably available to such indemnified party. In case any such
liability is asserted against the indemnified party, and the indemnified party
notifies the indemnifying parties thereof, the indemnifying parties will be
entitled, if such indemnifying
27
<PAGE>
parties so elect by written notice delivered to the indemnified party within
fifteen days after receiving the indemnified party's notice, to assume the
defense thereof with counsel reasonably satisfactory to the indemnified party.
Notwithstanding the foregoing, (i) the indemnified party shall also have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless it is
determined that there is a conflict of interest between or among the indemnified
party and any indemnifying party with respect to such claim, in which case the
fees and expenses of such counsel will be borne by such indemnifying parties and
(ii) the rights of an indemnified party to be indemnified hereunder in respect
of claims resulting from the assertion of liability by third parties shall not
be adversely affected by its failure to give notice pursuant to the foregoing
unless, and, if so, only to the extent that, such indemnifying parties are
materially prejudiced thereby. With respect to any assertion of liability by a
third party that results in an indemnifiable claim, the parties hereto shall
make available to each other all relevant information in their possession
material to any such assertion and shall undertake such further cooperation as
is reasonably required to defend against such third-party claim.
(b) In the event that such indemnifying parties, within fifteen
days after receipt of the aforesaid notice of a claim, fail to assume the
defense of an indemnified party against such claim, the indemnified party shall
have the right to undertake the defense, compromise, or settlement of such
action on behalf of and for the account, expense, and risk of such indemnifying
parties.
(c) Notwithstanding anything in this Article 6 to the contrary,
---------
if there is a reasonable probability that a claim may materially adversely
affect an indemnified party, the indemnified party shall have the right to
participate (at the indemnified party's expense) in such defense, compromise, or
settlement and such indemnifying parties shall not, without the indemnified
party's written consent (which consent shall not be unreasonably withheld),
settle or compromise any such claim or consent to entry of any judgment in
respect thereof. If the indemnifying parties notify the indemnified party that
they wish to accept a bona fide written offer to settle or compromise from any
such claimant or plaintiff (which offer includes a release of the indemnified
party from all liability in respect of such claim), and the indemnified party
does not consent to such settlement or compromise, the indemnifying parties
shall not be liable under this Section 6.6 for the amount by which any Losses
-----------
from any subsequent settlement, compromise or judgment with respect to such
claim exceeds such bona fide written offer (or for any legal fees and other
related fees incurred after such time), provided, however, that, if one or more
of the Shareholders is the indemnifying party and PETsMART or any of the
Affiliated Parties is the indemnified party, the provisions of this sentence
shall not apply unless, at the time the indemnifying parties give notice of
their desire to accept a bona fide written offer, all such indemnifying parties
(i) acknowledge in writing to PETsMART that PETsMART and the Affiliated Parties
are entitled unconditionally to indemnification under this Agreement by the
Shareholders for such settlement or compromise and (ii) provide to PETsMART
evidence reasonably satisfactory to PETsMART that such parties have the
financial ability to satisfy any liability resulting from such settlement or
compromise.
(d) In the event PETsMART is an "indemnified party" with respect
to a third party claim for which it seeks recourse against the Escrow
Consideration and a settlement or judgment is reached with respect to such
claim, such indemnified party shall promptly give
28
<PAGE>
written notice thereof to the Shareholders' Representative and the Escrow Agent,
including in such notice a brief description of the settlement or judgment and
the amount thereof. If the Shareholders' Representative objects to the allowance
of any such claims, it shall give written notice to such indemnified party and
the Escrow Agent within twenty days following receipt of such notice of claim,
advising such indemnified party and the Escrow Agent that it does not consent to
the delivery of any or a portion of the Escrow Consideration out of escrow to
such indemnified party for application to such claims. If no such written notice
is timely provided by the Shareholders' Representative to such indemnified party
and received by the Escrow Agent within twenty days following the Shareholders'
Representative's receipt of PETsMART's notice of claim, the Escrow Agent shall,
within five (5) business days after the expiration of the prior twenty day
notice period, deliver out of escrow the lesser of: (a) that portion of the
Escrow Consideration most nearly equal in value to the amount of the claim or
claims thus to be satisfied, or (b) all of the Escrow Consideration. If the
Shareholders' Representative notifies such indemnified party and the Escrow
Agent receives such written notice within the foregoing twenty day period that
the Shareholders' Representative objects to such application of the Escrow
Consideration, the Escrow Agent shall hold the Escrow Consideration in escrow
until the rights of the Shareholders and such indemnified party with respect
thereto have been agreed upon between the Shareholders' Representative and such
indemnified party or until such rights are finally determined in accordance with
the Escrow Agreement and the Escrow Agent receives written notice accordingly.
If any distribution referred to in this Section 6.6 involves less than all of
-----------
the Escrow Consideration, it shall be allocated pro rata against the Escrow
Consideration therein based on the Escrow Consideration beneficially owned by
each Shareholder (unless the claim made is based on an inaccuracy or breach of a
representation or warranty contained in Article 2A of this Agreement, in which
case the allocation distribution of the Escrow Consideration shall be determined
in accordance with Section 6.2(b)).
--------------
(e) Notwithstanding anything to the contrary in this Article 6
except for Section 6.2(a)(ii) and Section 6.2(b)(i), (i) the first One Hundred
Thousand Dollars ($100,000) of any and all attorney's fees arising out of the
defense of any claim, demand, suit or cause of action alleging that the use by
Acme or the contemplated use by PETsMART of the Acmepet name (or any derivation
thereof) infringes any rights of a third party shall be borne by the
Shareholders, and thereafter, the remainder of all such fees shall be borne
equally by the Shareholders, on the one hand, and PETsMART, on the other hand,
and (ii) such claim, demand, suit or cause of action shall be defended by
counsel who is mutually and reasonably acceptable to the Shareholders, on the
one hand, and PETsMART, on the other hand.
ARTICLE 7
TERMINATION
7.1 Termination by Mutual Consent. At any time prior to the
-----------------------------
Closing, this Agreement may be terminated by written consent of PETsMART and
Acme, notwithstanding approval of the Merger by the Shareholders. In addition,
this Agreement shall automatically terminate (a) if the Closing does not occur
on or before September 30, 1999 unless PETsMART and Acme agree in writing to
extend the term of this Agreement, or (b) if satisfaction of any condition to
closing the transactions contemplated hereby become impossible (other than a
failure of a party to comply with its obligations hereunder).
29
<PAGE>
7.2 Effect of Termination. In the event of termination as provided
---------------------
above, the obligations of the parties hereunder shall terminate, and there shall
be no liability or obligation on the part of any party hereto; provided, that
(a) Sections 7.2, 8.1, 8.2, 8.3, 8.4, 8.6 and 8.8 of this Agreement and the
---------------------------------------------
Confidentiality Agreement shall survive such termination and continue in full
force and effect and (b) nothing herein will relieve any party from liability
for any willful breach of this Agreement prior to such termination; provided,
however, that if PETsMART fails to consummate the Merger in breach of this
Agreement it shall promptly pay to Acme a fee of $400,000 (which shall be the
sole remedy of Acme, LLC, and the Shareholders for such a breach).
ARTICLE 8
MISCELLANEOUS
8.1 Notices. Any notice given hereunder shall be in writing and
-------
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by facsimile with confirmation of receipt) or the third day
after mailing by certified or registered mail, postage prepaid, as follows:
If to PETsMART:
PETsMART.com
130 West Union Street
Pasadena, CA 91103
Attention: Tom McGovern, Jr.
Facsimile: (626) 535-2701
with a copy to:
Strategic Law Partners, LLP
333 S. Grand Avenue, Suite 3950
Los Angeles, CA 90071
Attention: Bradley D. Schwartz, Esq.
Facsimile: (213) 621-0982
(a) If to Acme:
Digital Communities, Inc., dba Acmepet.com
1419 Aldenham Lane
Reston, VA 20190
Attention: Bruce Kirshenbaum
Facsimile: (703) 742-3678
with a copy to:
30
<PAGE>
Tucker Flyer
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attention: Arthur E. Cirulnick
Facsimile: (202) 429-3231
if to the Shareholders' Representative:
Bruce Kirschenbaum
1419 Aldenham Lane
Reston, VA 20190
Facsimile: (703) 742-3678
with a copy to:
Tucker Flyer
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attention: Arthur E. Cirulnick
Facsimile: (202) 429-3231
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above.
8.2 Entire Agreement; Modifications; Waiver. This Agreement and the
---------------------------------------
exhibits and schedules hereto and the documents referred to herein and the
Confidentiality Agreement between the parties hereto constitute the final,
exclusive and complete understanding of the parties with respect to the subject
matter hereof and supersede any and all prior agreements, understandings and
discussions with respect thereto, including, without limitation the Letter of
Intent, dated June 18, 1999 ("Letter of Intent"). No variation or modification
----------------
of this Agreement and no waiver of any provision or condition hereof, or
granting of any consent contemplated hereby, shall be valid unless in writing
and signed by the party against whom enforcement of any such variation,
modification, waiver or consent is sought. The rights and remedies available to
PETsMART and Acme pursuant to this Agreement and all exhibits hereunder shall be
cumulative.
8.3 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
8.4 Public Announcements. Except as may be required by applicable
--------------------
law, none of the parties hereto shall make any disclosure or announcement to any
third party pertaining to the subject matter hereof without the prior written
consent of PETsMART and Acme.
31
<PAGE>
8.5 Successors and Assigns. No party may, without the prior express
----------------------
written consent of each other party, assign this Agreement in whole or in part.
This Agreement shall be binding upon and inure solely to the benefit of each
party hereto and its successors and permitted assigns and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person, any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
8.6 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, without regard to its
conflict of law or choice of law provisions.
8.7 Further Assurances. At the request of any of the parties hereto,
------------------
and without further consideration, the other parties agree to execute such
documents and instruments and to do such further acts as may be necessary or
desirable to effectuate the Merger.
8.8 Attorneys' Fees. In the event of any suit or other proceeding to
---------------
construe or enforce any provision of this Agreement or any other agreement to be
entered into pursuant hereto, or otherwise in connection with this Agreement,
the prevailing party's or parties' reasonable attorneys' fees and costs (in
addition to all other amounts and relief to which such party or parties may be
entitled) shall be paid by the other party or parties.
8.9 Appointment of Shareholders' Representative. By approval of this
-------------------------------------------
Agreement (by written consent or at a duly authorized Shareholders' meeting)
each Shareholder shall be deemed to have irrevocably appointed Bruce
Kirschenbaum, the "Shareholders' Representative") to represent the interests of
the Shareholders and the Shareholders in connection with the Escrow Agreement
and to act as the attorney in fact of the Shareholders and the Shareholders to
contest, settle, compromise or otherwise dispose of any claim made by PETsMART
in respect of this Agreement, and to take all steps, including engaging counsel
to represent the Shareholders, reasonably necessary or desirable in connection
therewith. No further documentation shall be required to evidence such
appointment, and such power of attorney shall be coupled with an interest,
thereby confirming such appointment as irrevocable. The Shareholders'
Representative shall be empowered to act with respect to all matters arising
under this Agreement and the Escrow Agreement after the Closing Date. The
Shareholders' Representative shall not be liable to the Shareholders by reason
of any error of judgment or for any act done or step taken or omitted by them in
good faith or for any mistake of fact or law for anything which he may do or
refrain from doing in connection herewith unless caused by or arising out of his
own gross negligence or willful misconduct. The Shareholders' Representative
shall be entitled to treat as genuine any letter, paper, facsimile, telex, or
other document reasonably believed by him to be genuine.
8.10 Transition Closing Services.
---------------------------
(i) For the period commencing on the date of this Agreement and ending
on the earlier of (1) ninety (90) days following the Closing Date and (2)
November 12, 1999 (the "Transition Period") the Principals, and other necessary
staff and consultants as may be possible
32
<PAGE>
to retain, will provide support to PETsMART in the transfer of Acme (and other
sites and domains of Acme) to PETsMART's ownership, control and management in
order to provide for an efficient, orderly, and effective transfer and
maintenance of the character, quality, audience and reputation of Acme. Such
assistance shall include, but not be limited to:
(a) Managing, and assisting PETsMART in managing, relationships with
consultants and volunteers (monitors) so that the site continues to operate in
its current manner including scheduled chats, Bulletin Boards and the like.
(b) Managing, and assisting PETsMART in managing, relationships
with advertisers/sponsors of Acme.
(c) Providing daily updates, information, and content, including the
weekly newsletter, either by inputting directly to the site and/or providing to
PETsMART staff.
Providing graphical design services for maintaining Acme and Acmepetcards.com
(ii) Transfer and Set Up of Files. For a period of thirty (30) days
----------------------------
after the date of this Agreement, the Principals and staff/consultants will work
with PETsMART staff/consultants to do the following:
(a) Compress Acme and Acmepetcards.com sites on Acme servers.
(b) Transfer such compressed archived files to PETsMART designated
servers.
(c) Unarchive the compressed Acmpet.com and Acmepetcards.com web
sites on PETsMART servers.
(d) During this period the Principals and staff/consultants will
continue to maintain the sites in the normal course of business and write and
transmit Acmepet's weekly newsletter.
(iii) Testing of Acme site(s) on PETsMART servers. For a period of
-------------------------------------------
up to twenty-one (21) days from the date of the unarchiving of the transferred
files (the "Test Period"), the Principals and staff/consultants will work with
PETsMART staff/consultants to do the following:
(a) Test the Acme site(s) on PETsMART servers.
(b) During this period the Principals and necessary staff/consultants
will continue to maintain, update, and operate the Acme and Acmepetcards.com web
sites on Acme servers.
(c) During this period the Principals and staff/consultants will,
upon request from PETsMART, update and help maintain and operate the Acme and
33
<PAGE>
Acmepetcards.com sites located on PETsMART servers in order that such sites
reflect or mirror the same information and updates as on the "public" Acme and
Acmepetcards.com sites.
(d) During this period the Principals and staff/consultants will
continue to maintain the sites in the normal course of business and write and
transmit Acmepet's weekly newsletter.
(iv) Domain(s) Ownership Change. At the end of the Test Period, both
--------------------------
parties shall immediately notify www.networksolutions.com to transfer the
------------------------
ownership and server designations from Acme to PETsMART. During this period the
Principals and staff/consultants will continue to maintain the sites in the
normal course of business and write and transmit Acmepet's weekly newsletter.
(a) In order to maintain a seamless transition of the bulletin
boards, main page, and all other pages that may have been updated or changed
during the Test Period, those new pages will be copied over to the PETsMART
server on the official "launch" day of the PETsMART owned Acme and
Acmepetcards.com web sites.
(v) Additional Transition Assistance. After the Acme and
--------------------------------
Acmepetcards.com sites have been reassigned to PETsMART Servers, the Principals,
and those staff/consultants who can be retained, as may be determined and
requested by PETsMART, will assist in the maintenance and operations of Acme and
Acmepetcards.com for the balance of the Transition Period. Such assistance
shall include:
(a) Relationships with consultants and volunteers(monitors) who
are continued in a relationship with PETsMART.
(b) Relationships with advertisers/sponsors of Acme.
(c) Providing daily updates, information, and content either by
inputting directly to the site or providing to PETsMART staff.
(d) Providing graphical design services for maintaining Acme and
Acmepetcards.com.
(vi) Payments for Transition Services. The following payments will be
--------------------------------
paid to the Principals and staff/consultants during the Transition Period.
(a) During the first forty-five (45) days of the Transition Period,
all required costs of providing such transition services shall be borne by the
Principals, including retention of Shareholders/staff/consultants, as well as
hosting of sites on Acme servers and shall be referred to herein as the Acme
Transition Fees. To the extent such costs have been deducted from the First
Cash Payment, PETsMART shall promptly reimburse the Principals for such costs
upon submission of appropriate documentation by the Shareholders'
Representative.
34
<PAGE>
(b) For the balance of the Transition Period, those staff/consultants
and services required by PETsMART shall be reimbursed to the Principals by
PETsMART at the current rates and costs promptly upon submission of appropriate
documentation by the Shareholders' Representative.
(c) Any reasonable out of pocket costs of the Shareholders and others
incurred during the balance of the Transition Period shall be reimbursed by
PETsMART (other than travel and lodging expenses which shall be reimbursed for
the full Transition Period) within 15 days after submission of appropriate
documentation.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date set forth above.
PETSMART.COM, INC.
By: /s/ Tom McGovern
-----------------------------
Name:
Title:
DIGITAL COMMUNITIES, INC.
By: /s/ Bruce Kirschenbaum
-----------------------------
Name:
Title: President
--------------------------
DIGITAL COMMUNITIES, LLC.
By: /s/ Bruce Kirschenbaum
-----------------------------
Name:
Title:
PRINCIPALS
/s/ Bruce Kirschenbaum
---------------------------------
Bruce Kirschenbaum
35
<PAGE>
/s/ Sam Zappas
--------------------------------
Sam Zappas
/s/ Mary Chadsey
-----------------
Mary Chadsey
36
<PAGE>
EXHIBIT 2.3
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
PETsMART.COM, INC.,
PETJUNGLE, INC.
AND THE STOCKHOLDER NAMED HEREIN
Dated as of May 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE MERGER............................................................. 1
1.1 The Merger........................................................... 1
1.2 Effective Time; Closing.............................................. 2
1.3 Effect of the Merger................................................. 2
1.4 Certificate of Incorporation; Bylaws................................. 2
1.5 Directors and Officers............................................... 2
1.6 Effect on Capital Stock.............................................. 2
1.7 Surrender of Certificates............................................ 3
1.8 No Further Ownership Rights in Target Common Stock................... 4
1.9 Dissenting Shares.................................................... 4
1.10 Tax Consequences..................................................... 4
1.11 Taking of Necessary Action; Further Action........................... 4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET............................. 5
2.1 Organization of Target............................................... 5
2.2 Target Capital Structure............................................. 5
2.3 Obligations With Respect to Capital Stock............................ 6
2.4 Authority............................................................ 6
2.5 Compliance; Permits; Restrictions.................................... 7
2.6 Litigation........................................................... 7
2.7 Board Approval....................................................... 8
2.8 Section 203 of the Delaware General Corporation Law Not Applicable... 8
2.9 Sophistication of Target Stockholders................................ 8
2.10 Financial Statements................................................. 8
2.11 Material Contracts and Commitments................................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT............................. 8
3.1 Organization of Parent............................................... 9
3.2 Parent Capital Structure............................................. 9
3.3 Obligations With Respect to Capital Stock............................ 9
3.4 Authority............................................................ 10
3.5 Compliance; Permits; Restrictions.................................... 11
3.6 Litigation........................................................... 11
3.7 Valid Issuance....................................................... 11
3.8 Board Approval....................................................... 11
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................... 11
4.1 Conduct of Business by Target........................................ 11
4.2 Conduct of Business by Parent........................................ 12
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
4.3 Reasonable Efforts; Notification..................................... 12
4.4 Third Party Consents................................................. 13
ARTICLE V........................................................................ 13
5.1 Indemnification by Stockholder....................................... 13
5.2 Escrow Arrangements.................................................. 13
5.3 Maximum Payments; Remedy............................................. 18
ARTICLE VI CONDITIONS TO THE MERGER.............................................. 18
6.1 Conditions to Obligations of Each Party to Effect the Merger......... 18
6.2 Additional Conditions to Obligations of Target....................... 18
6.3 Additional Conditions to the Obligations of Parent................... 19
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................... 19
7.1 Termination.......................................................... 19
7.2 Notice of Termination; Effect of Termination......................... 20
7.3 Fees and Expenses.................................................... 20
7.4 Amendment............................................................ 20
7.5 Extension; Waiver.................................................... 20
ARTICLE VIII GENERAL PROVISIONS.................................................. 21
8.1 Non-Survival of Representations and Warranties....................... 21
8.2 Notices.............................................................. 21
8.3 Interpretation; Knowledge............................................ 22
8.4 Counterparts......................................................... 22
8.5 Entire Agreement; Third Party Beneficiaries.......................... 23
8.6 Severability......................................................... 23
8.7 Other Remedies; Specific Performance................................. 23
8.8 Governing Law........................................................ 23
8.9 Rules of Construction................................................ 23
8.10 Assignment........................................................... 23
8.11 Waiver of Jury Trial; Waiver of Conflicts............................ 24
</TABLE>
-ii-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
May 12, 1999, among PETsMART.com, Inc., a Delaware corporation ("Parent"),
PetJungle, Inc., a Delaware corporation ("Target") and idealab! Holdings, L.L.C.
(the "Stockholder").
RECITALS
--------
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("Delaware Law"), Parent
and Target intend to enter into a business combination transaction.
B. The Boards of Directors of Target and Parent (i) have determined that
the Merger (as defined in Section 1.1) is consistent with and in furtherance of
their respective long-term business strategies and fair to, advisable for and in
the best interests of, their respective stockholders, (ii) have approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
and (iii) have, in the case of Target, subject to the provisions of this
Agreement, determined to recommend that the stockholders of Target adopt and
approve this Agreement and approve the Merger and, in the case of Parent,
subject to the provisions of this Agreement, determined to recommend that the
stockholders of Parent approve the issuance of shares of Parent Common Stock (as
defined in Section 1.6(a)) pursuant to the Merger.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
----------
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Target shall be merged with and into
Parent (the "Merger"), the separate corporate existence of Target shall cease
and Parent shall continue as the surviving corporation. Parent as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
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1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
-----------------------
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "Certificate of
Merger") (the time of such filing (or such later time as may be agreed in
writing by Target and Parent and specified in the Certificate of Merger) being
the "Effective Time") as soon as practicable on or after the Closing Date (as
herein defined). The closing of the Merger (the "Closing") shall take place at
the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, or
virtually, at a time and date to be specified by the parties, which shall be no
later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VI, or at such other time, date and location as
the parties hereto agree in writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
--------------------
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and franchises
of Target shall vest in the Surviving Corporation, and all debts, liabilities
and duties of Target shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
------------------------------------
(a) At the Effective Time, the Certificate of Incorporation of
Parent, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation.
(b) The Bylaws of the Parent, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The directors of Parent immediately prior to
----------------------
the Effective Time shall be the directors of the Surviving Corporation until
their respective successors are duly elected or appointed and qualified
(together with such additional directors as may be elected by the Target
effective as of or after the Effective Time). The officers of the Surviving
Corporation shall be the officers of the Parent immediately prior to the
Effective Time until their respective successors are duly appointed.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Target, Target or the holders of
any of the following securities:
(a) Conversion of Target Common Stock. Each share of Common Stock,
---------------------------------
$0.001 par value per share, of Target (the "Target Common Stock") issued and
outstanding immediately prior to the Effective Time, other than (i) Dissenting
Shares (as defined in Section 1.9 below) or (ii) any shares of Target Common
Stock to be canceled pursuant to Section 1.6(b), will be canceled and
extinguished and automatically converted (subject to Section 1.6(e)) into the
right to receive 0.027259 (the "Exchange Ratio") shares of Common Stock of
Parent (the "Parent Common Stock").
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<PAGE>
(b) Cancellation of Parent-Owned Stock. Each share of Target Common
----------------------------------
Stock held by Target, Parent or any direct or indirect wholly owned subsidiary
of Target or of Parent immediately prior to the Effective Time shall be canceled
and extinguished without any conversion thereof.
(c) Stock Options; Employee Stock Purchase Plans. At the Effective
--------------------------------------------
Time, there are no outstanding options to purchase Target Common Stock under
Target's 1999 Stock Option Plan.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Target Common Stock), reorganization,
recapitalization, reclassification or other like change with respect to Parent
Common Stock or Target Common Stock occurring on or after the date hereof and
prior to the Effective Time.
(e) Fractional Shares. No fraction of a share of Parent Common Stock
-----------------
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Target Common Stock who would otherwise be entitled to a fraction of a
share of Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock that otherwise would be received by such holder) shall receive from
Parent an amount of cash (rounded to the nearest whole cent) equal to the
product of such fraction multiplied by the fair market value of one share of
Parent Common Stock, as determined by the Board of Directors of Parent.
1.7 Surrender of Certificates.
-------------------------
(a) Exchange Procedures. Following the Effective Time, the
-------------------
certificates formerly representing shares of Target Common Stock (the
"Certificates") will not be automatically canceled, and each Certificate will
represent a number of shares of Parent Common Stock equal to the number of
shares of Target Common Stock represented by such Certificate multiplied by the
Exchange Ratio. Unless surrendered as provided below, outstanding Certificates
will be deemed from and after the Effective Time, for all corporate purposes, to
evidence only the ownership of the number of full shares of Parent Common Stock
into which such shares of Target Common Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6(f). If so requested by a former holder of
Target Common Stock, upon exchange and against delivery of a Certificate or
Certificates, Parent shall provide to such holder a certificate or certificates
representing shares of Parent Common Stock issued to such holder in the Merger
pursuant to Section 1.6 hereof (or in the case of a lost, stolen or destroyed
Certificate, upon delivery of an affidavit of that fact (and bond, if required
by Parent).
(b) Transfers of Ownership. If certificates representing shares of
----------------------
Parent Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Parent Common Stock in any name other
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<PAGE>
than that of the registered holder of the Certificates surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(c) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.7, neither Parent, the Surviving Corporation nor any party hereto
shall be liable to a holder of shares of Parent Common Stock or Target Common
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Target Common Stock. All shares of
--------------------------------------------------
Parent Common Stock represented by the Certificates or issued upon surrender of
the Certificates in accordance with the terms hereof (including any cash paid in
respect thereof pursuant to Section 1.6(e)) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Target Common
Stock.
1.9 Dissenting Shares.
-----------------
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Target Common Stock held by a holder who has demanded and
perfected appraisal rights for such shares in accordance with Delaware Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights ("Dissenting Shares") shall not be exchanged for
or represent a right to receive Parent Common Stock pursuant to Section 1.6, but
the holder thereof shall only be entitled to such rights as are granted by
Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder
of shares of Target Common Stock who demands appraisal of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
exchanged for only Parent Common Stock and cash in lieu of fractional shares as
provided in Section 1.6, without interest thereon.
(c) Target shall give Parent (i) prompt notice of any written demands
for appraisal of any shares of Target Common Stock, withdrawals of such demands,
and any other instruments served pursuant to Delaware Law and received by Target
and (ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal under Delaware Law. Target shall not, except
with the prior written consent of Parent, voluntarily make any payment with
respect to any demands for appraisal of Target Common Stock or offer to settle
or settle any such demands.
1.10 Tax Consequences. It is intended by the parties hereto that the Merger
----------------
shall constitute a reorganization within the meaning of Section 368 of the Code,
and each of the parties hereto will use its commercially reasonable efforts to
cause the Merger to be treated as such a reorganization.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges,
-4-
<PAGE>
powers and franchises of Target, the officers and directors of Target will take
all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Parent, subject to the exceptions
specifically disclosed in writing in the disclosure letter supplied by Target to
Parent dated as of the date hereof and certified by a duly authorized officer of
Target (the "Target Schedules"), as follows:
2.1 Organization of Target.
----------------------
(a) Target (i) is a corporation duly organized, validly existing and
in good standing under the laws of Delaware; (ii) has the corporate or other
power and authority to own, lease and operate its assets and property and to
carry on its business as now being conducted; and (iii), except as would not be
material to Target, is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary.
(b) Target has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of Target, each as
amended to date, and each such instrument is in full force and effect. Neither
Target nor any of its material subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent governing
instruments.
2.2 Target Capital Structure. The authorized capital stock of Target
------------------------
consists of 50,000,000 shares of Common Stock, $0.001 par value per share, of
which there were 24,126,600 shares issued and outstanding as of the date hereof
(excluding shares held in treasury of which there are none), and 25,000,000
shares of Preferred Stock, $0.001 par value per share, of which no shares are
issued or outstanding as of the date hereof. All outstanding shares of Target
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Target or any agreement or document to which Target
is a party or by which it is bound. As of the date hereof, the Target had
reserved an aggregate of 3,000,000 shares of Target Common Stock for issuance
pursuant to the Target's 1999 Stock Option Plan. As of the date hereof, there
were no options outstanding to purchase shares of Target Common Stock pursuant
to the Target's 1999 Stock Option Plan. All shares of Target Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable. A list of all holders
of Target Common Stock or rights to acquire Target Common Stock, together with
their holdings, is set forth in the Target Schedules. The Target Schedules also
list each person who holds options to acquire shares of Target Common Stock of
which the exercisability will be accelerated in any way by the transactions
contemplated by this Agreement as well as the number of shares subject to such
options and the extent of such acceleration.
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<PAGE>
2.3 Obligations With Respect to Capital Stock. Except as set forth in
-----------------------------------------
Section 2.2, there are no equity securities, partnership interests or similar
ownership interests of any class of Target, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 2.2, there are no options, warrants,
equity securities, partnership interests or similar ownership interests, calls,
rights (including preemptive rights), commitments or agreements of any character
to which Target is a party or by which it is bound obligating Target to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests of
Target or obligating Target to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, call, right, commitment or
agreement. Stockholders of Target will be entitled to dissenters rights under
applicable state law in connection with the Merger.
2.4 Authority.
---------
(a) Target has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby,
subject only to the approval of the Merger and the approval and adoption of this
Agreement by the stockholders of Target. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Target, subject
only to the approval and adoption of this Agreement and the approval of the
Merger by Target's stockholders and the filing of the Certificate of Merger
pursuant to Delaware Law. A vote of the holders of a majority of the outstanding
shares of the Target Common Stock is sufficient for Target's stockholders to
approve and adopt this Agreement and approve the Merger. This Agreement has been
duly executed and delivered by Target and, assuming the due authorization,
execution and delivery by Parent, constitutes a valid and binding obligation of
Target, enforceable against Target in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws and general
principles of equity. The execution and delivery of this Agreement by Target do
not, and the performance of this Agreement by Target will not, (i) conflict with
or violate the Certificate of Incorporation or Bylaws of Target, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of the
Merger by Target's stockholders and compliance with the requirements set forth
in Section 2.4(b) below, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Target, or (iii) result in any material
breach of or constitute a material default (or an event that with notice or
lapse of time or both would become a material default) under, or materially
impair Target's material rights or alter the material rights or material
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a material lien or encumbrance on any of the material properties or
assets of Target pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Target is a party or by which Target is bound. The Target
Schedules list all consents, waivers and approvals under any of Target's
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby, which,
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<PAGE>
if individually or in the aggregate not obtained, would result in a material
loss of benefits to Target or Parent as a result of the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("Governmental Entity"), is required to be obtained or made by Target in
connection with the execution and delivery of this Agreement or the consummation
of the Merger, except for (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal, foreign and state securities (or related)
laws, and the securities or antitrust laws of any foreign country, and (iv) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not be material to Target or have a material adverse
effect on the ability of Target to consummate the Merger.
2.5 Compliance; Permits; Restrictions.
---------------------------------
(a) The Target is not, in any material respect, in conflict with, or
in default or in violation of (i) any law, rule, regulation, order, judgment or
decree applicable to Target or by which Target is bound or affected by, or (ii)
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Target is
a party or by which Target is bound, except for conflicts, violations and
defaults that (individually or in the aggregate) would not cause Target to lose
any material benefit or incur any material liability. No investigation or review
by any Governmental Entity is pending or, to Target's knowledge, has been
threatened in a writing delivered to Target against Target, nor, to Target's
knowledge, has any Governmental Entity indicated an intention to conduct an
investigation of Target. There is no material agreement, judgment, injunction,
order or decree binding upon Target which has or could reasonably be expected to
have the effect of prohibiting or materially impairing any business practice of
Target, any acquisition of material property by Target or the conduct of
business by Target as currently conducted.
(b) Target holds, to the extent legally required, all permits,
licenses, variances, exemptions, orders and approvals from governmental
authorities that are material to and required for the operation of the business
of Target as currently conducted (collectively, the "Target Permits"). Target is
in compliance in all material respects with the terms of the Target Permits,
except where the failure to obtain any Target Permits or to be in compliance
with the terms of the Target Permits would not be material to Target.
2.6 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending, and to Target's knowledge, no person has threatened in
a writing delivered to Target to commence any action, suit, proceeding, claim,
arbitration or investigation against Target which would be likely to be material
to Target. No Governmental Entity has at any time challenged or questioned in a
writing delivered to Target the legal right of Target to design, manufacture,
offer or sell any of its products in the present manner or style thereof.
-7-
<PAGE>
2.7 Board Approval. The Board of Directors of Target has, as of the date
--------------
of this Agreement, determined (i) that the Merger is fair to, advisable for, and
in the best interests of Target and its stockholders, and, (ii) subject to the
terms and conditions set forth in this Agreement, to recommend that the
stockholders of Target approve and adopt this Agreement and approve the Merger.
2.8 Section 203 of the Delaware General Corporation Law Not Applicable.
------------------------------------------------------------------
The Board of Directors of Target has taken all actions so that the restrictions
contained in Section 203 of the Delaware General Corporation Law applicable to a
"business combination" (as defined in such Section 203) will not apply to the
execution, delivery or performance of this Agreement or to the consummation of
the Merger or the other transactions contemplated by this Agreement.
2.9 Sophistication of Target Stockholders. Each stockholder of the Target
-------------------------------------
is able to fend for himself or itself, can bear the economic risk of his or its
investment and has such knowledge and experience in financial or business
matters that he or it is capable of evaluating the merits of acquiring shares of
Parent Common Stock in the Merger. Parent shall be entitled to rely on this
representation of Target for purposes of compliance with federal and state
securities laws.
2.10 Financial Statements. The financial statements of the Target, as
--------------------
delivered to the Parent, or its counsel, have been prepared in good faith in
accordance with the books and records of the Target and fairly present the
financial position of the Target as of such dates and the financial results of
the Target for such periods.
2.11 Material Contracts and Commitments. Set forth in the Target Schedules
----------------------------------
is a list of all agreements, contracts, arrangements, understanding,
indebtedness, liabilities and other obligations to which the Target is a party
by which the Target is bound that are material to the conduct and operations of
its business and properties or that provide for payments to or by the Target in
excess of $5,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Target, subject to the exceptions
specifically disclosed in writing in the disclosure letter supplied by Parent to
Target dated as of the date hereof and certified by a duly authorized officer of
Parent (the "Parent Schedules"), as follows:
3.1 Organization of Parent.
----------------------
(a) Parent (i) is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware; (ii) has the corporate
or other power and authority to own, lease and operate its assets and property
and to carry on its business as now being conducted; and (iii) except as would
not be material to Parent, is duly qualified or licensed to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary.
-8-
<PAGE>
(b) Parent has delivered or made available to Target a true and
correct copy of the Certificate of Incorporation and Bylaws of Parent, as
amended to date, and each such instrument is in full force and effect. Parent is
not in violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent governing instruments.
3.2 Parent Capital Structure. The authorized capital stock of Parent
------------------------
consists of 50,000,000 shares of Common Stock, of which there are 7,200,000
shares issued and outstanding as of the date hereof; 3,300,000 shares of Series
A Preferred Stock, of which 3,000,000 are issued and outstanding as of the date
hereof; 1,800,000 shares of Series B Preferred Stock, of which all are issued
and outstanding as of the date hereof and 2,805,770 shares of Series C Preferred
Stock, 2,400,000 shares of which are issued and outstanding as of the date
hereof. As of the date hereof, there are warrants to issue 300,000 shares of
Series A Preferred Stock and warrants to issue 405,668 Shares of Series C
Preferred Stock. All outstanding shares of Parent Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
Parent or any agreement or document to which Parent is a party or by which it is
bound. As of the date hereof, Parent had reserved an aggregate of 1,191,469
shares of Parent Common Stock for issuance pursuant to Parent's 1999 Stock Plan.
As of the date hereof, there were no options outstanding to purchase shares of
Parent Common Stock pursuant to such plan. All shares of Parent Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
pursuant to which they are issuable, would be duly authorized, validly issued,
fully paid and nonassessable. A list of all holders of Parent Common Stock or
rights to acquire Parent Common Stock, together with their holdings, is set
forth in the Parent Schedules.
3.3 Obligations With Respect to Capital Stock. Except as set forth in
-----------------------------------------
Section 3.2, there are no equity securities, partnership interests or similar
ownership interests of any class of Parent, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 3.2, there are no options, warrants,
equity securities, partnership interests or similar ownership interests, calls,
rights (including preemptive rights), commitments or agreements of any character
to which Parent is a party or by which it is bound obligating Parent to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition of, any
shares of capital stock, partnership interests or similar ownership interests of
Target or obligating Target to grant, extend, accelerate the vesting of or enter
into any such option, warrant, equity security, call, right, commitment or
agreement.
3.4 Authority.
---------
(a) Parent has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby,
subject only to the approval of the issuance of Parent Common Stock pursuant to
the Merger by Parent's stockholders. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent, subject
only to the approval of the issuance of Parent Common Stock pursuant to the
Merger by Parent's stockholders and the filing of the
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Certificate of Merger pursuant to Delaware Law. Approval by the stockholders of
Parent of the issuance of Parent Common Stock pursuant to the Merger may be
obtained by the vote of a majority of the total votes cast regarding such
proposal at a duly called and noticed meeting of Parent's stockholders at which
a quorum is present. This Agreement has been duly executed and delivered by
Parent and, assuming the due authorization, execution and delivery by Target,
constitutes the valid and binding obligation of Parent, enforceable against
Parent in accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by Parent does not, and the performance
of this Agreement by Parent will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of Parent, (ii) subject to compliance
with the requirements set forth in Section 3.4(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
Parent or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become a
material default) under, or materially impair Parent's material rights or alter
the material rights or material obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a material lien or encumbrance on any of the material
properties or assets of Parent pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent is a party or by which Parent or any of
its respective properties are bound. The Parent Schedules list all consents,
waivers and approvals under any of Parent's agreements, contracts, licenses or
leases required to be obtained in connection with the consummation of the
transactions contemplated hereby, which, if individually or in the aggregate not
obtained, would result in a material loss of benefits to Parent as a result of
the Merger.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required to be obtained or
made by Parent in connection with the execution and delivery of this Agreement
or the consummation of the Merger, except for (i) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware, (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal, foreign and state
securities (or related) laws and the securities laws of any foreign country, and
(iii) such other consents, authorizations, filings, approvals and registrations
which if not obtained or made would not be material to Parent or have a material
adverse effect on the ability of Parent or consummate the Merger.
3.5 Compliance; Permits; Restrictions.
---------------------------------
(a) Parent is not, in any material respect, in conflict with, or in
default or in violation of (i) any law, rule, regulation, order, judgment or
decree applicable to Parent or by which Parent is bound or affected, or (ii) any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent is a party
or by which Parent is bound, except for conflicts, violations and defaults that
(individually or in the aggregate) would not cause Parent to lose any material
benefit or incur any material liability. No investigation or review by any
Governmental Entity is pending or, to Parent's knowledge, has been threatened in
a writing delivered to Parent against Parent, nor, to Parent's knowledge, has
any Governmental Entity indicated an intention to conduct an investigation of
Parent. There is no material agreement, judgment, injunction, order or
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decree binding upon Parent which has or could reasonably be expected to have the
effect of prohibiting or materially impairing any business practice of Parent,
any acquisition of material property by Parent or the conduct of business by
Parent as currently conducted.
(b) Parent holds, to the extent legally required, all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities that
are material to and required for the operation of the business of Parent as
currently conducted (collectively, the "Parent Permits"). Parent is in
compliance in all material respects with the terms of the Parent Permits, except
where the failure to be in compliance with the terms of the Parent Permits would
not be material to Parent.
3.6 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending, and to Parent's knowledge, no person has threatened in
a writing delivered to Parent to commence any action, suit, proceeding, claim,
arbitration or investigation against Parent which would be likely to be material
to Parent. No Governmental Entity has at any time challenged or questioned in a
writing delivered to Parent the legal right of Parent to design, manufacture,
offer or sell any of its products in the present manner or style thereof.
3.7 Valid Issuance. The Parent Common Stock to be issued in the Merger,
--------------
when issued in accordance with the provisions of this Agreement will be validly
issued, fully paid and nonassessable;
3.8 Board Approval. The Board of Directors of Parent has, as of the date
--------------
of this Agreement, determined (i) that the Merger is fair to, advisable for and
in the best interests of Parent and its stockholders, and, (ii) subject to the
terms and conditions set forth in this Agreement, to recommend that the
stockholders of Parent approve the issuance of shares of Parent Common Stock
pursuant to the Merger.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Target. During the period from the date of this
-----------------------------
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Target shall, except to the extent
that Parent shall otherwise consent in writing, carry on its business, in all
material respects, in the usual, regular and ordinary course, in substantially
the same manner as heretofore conducted and in compliance in all material
respects with all applicable laws and regulations, pay its debts and taxes when
due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present officers
and employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings. In addition, Target will promptly notify Parent of any material event
involving its business or operations. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Target shall not issue, deliver,
sell, pledge or otherwise encumber any shares of capital stock or any securities
convertible into capital stock, or
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<PAGE>
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible in to capital stock, or enter into
agreements or commitments of any character obligating it to do any of the
foregoing, other than the issuance, delivery and/or sale of shares of Target
Common Stock pursuant to the exercise of options therefor outstanding as of the
date of this Agreement.
4.2 Conduct of Business by Parent. During the period from the date of this
-----------------------------
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent shall, except to the extent
that Target shall otherwise consent in writing, carry on its business, in all
material respects, in the usual, regular and ordinary course, in substantially
the same manner as heretofore conducted and in compliance in all material
respects with all applicable laws and regulations, pay its debts and taxes when
due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its present
business organization, (ii) keep available the services of its present officers
and employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings. In addition, Parent will promptly notify Target of any material event
involving its business or operation.
4.3 Reasonable Efforts; Notification. Upon the terms and subject to the
--------------------------------
conditions set forth in this Agreement, each of the parties agrees to use
reasonable efforts to take, or cause to be taken, such actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
such things as are necessary, proper or advisable to consummate and make
effective, as expeditiously as reasonably practicable, the Merger and the other
transactions contemplated by this Agreement, including using reasonable efforts
to accomplish the following: (i) the taking of such reasonable acts as are
necessary to cause the conditions precedent set forth in Article VI to be
satisfied, (ii) the obtaining of all necessary actions or nonactions, waivers,
consents, approvals, orders and authorizations from Governmental Entities and
the making of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any) and
the taking of such reasonable steps as may be necessary to avoid any suit,
claim, action, investigation or proceeding by any Governmental Entity, (iii) the
obtaining of all necessary consents, approvals or waivers from third parties,
(iv) the defending of any suits, claims, actions, investigations or proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (v) the execution or delivery of any
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement. In connection with and
without limiting the foregoing, Target and its Board of Directors shall, if any
state takeover statute or similar statute or regulation is or becomes applicable
to the Merger, this Agreement or any of the transactions contemplated by this
Agreement, use reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger, this Agreement
and the transactions contemplated hereby.
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4.4 Third Party Consents. As soon as reasonably practicable following the
--------------------
date hereof, Parent and Target will each use its commercially reasonable efforts
to obtain any material consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification by Stockholder. Stockholder agrees to indemnify and
------------------------------
hold Parent and its officers, directors and affiliates harmless against all
liabilities, costs and expenses (hereinafter individually a "Loss" and
collectively "Losses") incurred by Parent, its officers, directors, or
affiliates, as a result of (i) any inaccuracy or breach of a representation or
warranty of Target contained in Article II herein and (ii) any failure by Target
to perform or comply with any covenant contained herein. Upon receipt by
Securityholder Agent at any time on or before the last day of the Escrow Period
(as defined below) of a certificate signed by the Parent (as defined in Section
5.2(g)) (A) stating that Parent has paid or properly accrued or reasonably
anticipates that it will have to pay or accrue Losses, and (B) specifying in
reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid or properly accrued, or the basis for
such anticipated liability, and the nature of the misrepresentations, breach of
warranty or covenant to which such items is related, Stockholder shall deliver
to the Parent shares of Parent Common Stock in an amount equal to such losses;
provided that, (i) Stockholder shall have thirty (30) days to object in a
written statement to the claim made in the certificate, in which event the
parties shall resolve the conflict pursuant to Section 5.2(f) hereof and (ii)
Shareholder's liability under this Article V shall not exceed the Escrow Amount.
5.2 Escrow Arrangements.
-------------------
(a) Escrow Fund. As security for the indemnity provided for in
-----------
Article V hereof and by virtue of this Agreement, the Stockholder will be deemed
to have received and deposited with the Escrow Agent (as defined below) 269,146
shares of Parent Common Stock (the "Escrow Amount") without any act of the
Shareholder. As soon as practicable after the Effective Time, the Escrow Amount,
without any act of Shareholder, will be deposited with the Assistant Secretary
of Parent as Escrow Agent (the "Escrow Agent"), such deposit to constitute an
escrow fund (the "Escrow Fund") to be governed by the terms set forth herein.
Parent may not receive any shares from the Escrow Fund unless and until
Officer's Certificates (as defined in paragraph (d)(i) below) identifying
Losses, in excess of $10,000 (the "Threshold Amount") have been delivered to the
Escrow Agent as provided in paragraph (d) below, in which case Parent shall be
entitled to recover all Losses in excess of the Threshold Amount.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
P.S.T., on the date that is ninety (90) days after the Effective Time (the
"Escrow Period"); provided that the Escrow Period shall not terminate with
respect to such remaining
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<PAGE>
portion of the Escrow Fund (or some portion thereof) that in the reasonable
judgment of Parent, subject to the objection of the Securityholder Agent (as
defined below) and the subsequent arbitration of the matter in the manner
provided in Section 5.2(f) hereof, is necessary to satisfy any then pending
unsatisfied claims specified in any Officer's Certificate delivered to the
Escrow Agent prior to the termination of the Escrow Period. At the termination
of the Escrow Period, the Escrow Agent shall deliver to the Stockholder the
portion of the Escrow Fund not required to satisfy such claims. Shares released
from the Escrow Fund to satisfy Losses shall be valued solely for the purpose of
this Agreement at $1.67 per share. As soon as all outstanding claims have been
resolved, the Escrow Agent shall deliver to the Stockholder any remaining
portion of the Escrow Fund not used to satisfy such claims. Deliveries of Escrow
Amounts to the Stockholder pursuant to this Section 5.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period and until such later time as all deliveries of the Escrow
Amount out of the Escrow Fund have been made, shall treat such fund as a trust
fund in accordance with the terms of this Agreement and not as the property of
Parent and shall hold and dispose of the Escrow Fund only in accordance with the
terms hereof.
(ii) The Stockholder shall have voting rights and the right to
distributions of cash dividends with respect to the shares of Parent Common
Stock contributed to the Escrow Fund by the Stockholder (and on any voting
securities added to the Escrow Fund in respect of such shares of Parent Common
Stock). As the record holder of such shares, the Escrow Agent shall vote such
shares in accordance with the instructions of the Stockholder having the
beneficial interest therein and shall promptly deliver copies of all proxy
solicitation materials to such Shareholders. Parent shall show the Parent Common
Stock contributed to the Escrow Fund as issued and outstanding on its balance
sheet.
(d) Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at any time
-----------------------
on or before the last day of the Escrow Period of a certificate signed by any
officer of Parent (an "Officer's Certificate"): (A) stating that Parent has paid
or properly accrued Losses, and (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, and the nature of the misrepresentations,
breach of warranty or covenant to which such items is related, the Escrow Agent
shall, subject to the provisions of Section 5.2(e), deliver to Parent out of the
Escrow Fund as promptly as practicable, shares of Parent Common Stock held in
the Escrow Fund in an amount equal to such Losses.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery to Parent of any Escrow
Amounts pursuant to Section 5.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of Parent Common Stock from
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<PAGE>
the Escrow Fund in accordance with Section 5.2(d) hereof, provided that no such
payment or delivery may be made if the Securityholder Agent shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent prior to the expiration
of such thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Securityholder Agent shall so object in writing to any
claim or claims made in any Officer's Certificate, the Securityholder Agent and
Parent shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the Securityholder Agent and
Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and distribute
shares of Parent Common Stock from the Escrow Fund in accordance with the terms
thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Securityholder Agent may demand arbitration of the matter
unless the amount of the damage or loss is at issue in pending litigation with a
third party, in which event arbitration shall not be commenced until such amount
is ascertained or both parties agree to arbitration; and in either such event
the matter shall be settled by arbitration conducted by one arbitrator mutually
agreeable to Parent and the Securityholder Agent. In the event that within
forty-five (45) days after submission of any dispute to arbitration, Parent and
the Securityholder Agent cannot mutually agree on one arbitrator, Parent and the
Securityholder Agent shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator. The arbitrator or arbitrators, as
the case may be, shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator or majority of the
three arbitrators, as the case may be, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator or a
majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the extent as a court of competent law
or equity, should the arbitrator or a majority of the three arbitrators, as the
case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 5.2(e) hereof, the
Escrow Agent shall be entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Fund in accordance therewith. Such
decision shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses
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<PAGE>
of each party, the fees of each arbitrator and the administrative fee of the
American Arbitration Association.
(g) Securityholder Agent of the Shareholder; Power of Attorney.
----------------------------------------------------------
(i) In the event that the Merger is approved, effective upon such vote,
and without further act of Shareholder, Robert Kavner shall be appointed as
agent and attorney-in-fact (the "Securityholder Agent") for Shareholder, for and
on behalf of the Shareholder, to give and receive notices and communications, to
authorize delivery to Parent of shares of Parent Common Stock from the Escrow
Fund in satisfaction of claims by Parent, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
Securityholder Agent for the accomplishment of the foregoing. Such agency may be
changed by the Stockholder from time to time upon not less than thirty (30) days
prior written notice to Parent. No bond shall be required of the Securityholder
Agent, and the Securityholder Agent shall not receive compensation for his
services. Notices or communications to or from the Securityholder Agent shall
constitute notice to or from the Shareholder.
(ii) The Securityholder Agent shall not be liable for any act done or
omitted hereunder as Securityholder Agent while acting in good faith and in the
exercise of reasonable judgment. The Stockholder on whose behalf the Escrow
Amount was contributed to the Escrow Fund shall severally indemnify the
Securityholder Agent and hold the Securityholder Agent harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Securityholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Securityholder Agent.
(h) Actions of the Securityholder Agent. A decision, act, consent or
-----------------------------------
instruction of the Securityholder Agent shall constitute a decision of the
Stockholder for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
the Shareholder, and the Escrow Agent and Parent may rely upon any such
decision, act, consent or instruction of the Securityholder Agent as being the
decision, act, consent or instruction of each and every Shareholder. The Escrow
Agent and Parent are hereby relieved from any liability to any person for any
acts done by them in accordance with such decision, act, consent or instruction
of the Securityholder Agent.
(i) Third-Party Claims. In the event Parent becomes aware of a third-party
------------------
claim which Parent reasonably believes may result in a demand against the Escrow
Fund, Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent shall be entitled on behalf of the Stockholder at its
expense, to participate in any defense of such claim. Parent shall have the
right in its sole discretion to conduct the defense of and settle any such
claim; provided, however, that except with the prior written consent of the
Securityholder Agent, no settlement of any such claim with third-party claimants
shall be determinative of the amount of any claim against the Escrow Fund. In
the event that
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<PAGE>
the Securityholder Agent has consented in writing to any such settlement, the
Securityholder Agent shall have no power or authority to object under any
provision of this Article V to the amount of any claim by Parent against the
Escrow Fund consistent with such settlement.
(j) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Securityholder Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties.
(ii) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder provided that the Escrow Agent acted in good
faith and in the exercise of reasonable judgment.
(iii) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(iv) In performing any duties under the Agreement, the Escrow Agent
shall not be liable to any party for damages, losses, or expenses, except for
negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him in good faith in accordance with the
advice of counsel.
5.3 Maximum Payments; Remedy. If the Merger closes, the Escrow Fund shall
------------------------
be the sole and exclusive remedy of Parent for breaches of the representations
and warranties or breaches of covenants of Target contained in this Agreement;
provided, however, that nothing contained herein shall prevent the Parent from
seeking equitable remedies.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
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(a) Target Stockholder Approval. This Agreement shall have been
---------------------------
approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of Target.
(b) Parent Stockholder Approval. The issuance of shares of Parent
---------------------------
Common Stock pursuant to the Merger shall have been duly approved by the
requisite vote under applicable law by the stockholders of Parent.
(c) No Order. No Governmental Entity shall have enacted, issued,
--------
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
6.2 Additional Conditions to Obligations of Target. The obligation of
----------------------------------------------
Target to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Target:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Parent contained in this Agreement (i) shall have been true and
correct in all material respects as of the date of this Agreement and (ii) shall
be true and correct in all material respects on and as of the Closing Date
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct in all material respects as of such
particular date), with the same force and effect as if made on and as of the
Closing Date.
(b) Agreements and Covenants. Parent shall have performed or complied
------------------------
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date.
(c) Material Adverse Effect. No Material Adverse Effect with respect
-----------------------
to Parent shall have occurred since the date of this Agreement or be reasonably
likely to occur.
6.3 Additional Conditions to the Obligations of Parent. The obligations of
--------------------------------------------------
Parent to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Target contained in this Agreement (i) shall have been true and
correct in all material respects as of the date of this Agreement and (ii) shall
be true and correct in all material respects on and as of the Closing Date
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such particular date), with
the same force and effect as if made on and as of the Closing Date.
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<PAGE>
(b) Agreements and Covenants. Target shall have performed or complied
------------------------
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date.
(c) Material Adverse Effect. No Material Adverse Effect with respect
-----------------------
to Target shall have occurred since the date of this Agreement or be reasonably
likely to occur.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time, whether before or after the requisite approvals of the
stockholders of Target or Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Target;
(b) by either Target or Parent if the Merger shall not have been
consummated by May 31, 1999 for any reason; provided, however, that the right to
-------- -------
terminate this Agreement under this Section 7.1(b) shall not be available to any
party whose action or failure to act has been a principal cause of or resulted
in the failure of the Merger to occur on or before such date and such action or
failure to act constitutes a breach of this Agreement;
(c) by either Target or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(d) by either Target or Parent if the required approvals of the
stockholders of Target contemplated by this Agreement shall not have been
obtained (provided that the right to terminate this Agreement under this Section
--------
7.1(d) shall not be available to Target where the failure to obtain Target
stockholder approval shall have been caused by the action or failure to act of
Target and such action or failure to act constitutes a breach by Target of this
Agreement);
(e) by either Target or Parent if the required approval of the
stockholders of Parent contemplated by this Agreement shall not have been
obtained (provided that the right to terminate this Agreement under this Section
--------
7.1(e) shall not be available to Parent where the failure to obtain Parent
stockholder approval shall have been caused by the action or failure to act of
Parent and such action or failure to act constitutes a material breach by Parent
of this Agreement);
(f) by Target, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.1(a) or Section 6.1(b)
would
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<PAGE>
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue.
(g) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of Target set forth in this Agreement, or if
any representation or warranty of Target shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue.
7.2 Notice of Termination; Effect of Termination. Any termination of this
--------------------------------------------
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8, each of which shall survive the
termination of this Agreement, and (ii) nothing herein shall relieve any party
from liability for any willful breach of this Agreement.
7.3 Fees and Expenses. All fees and expenses incurred in connection with
-----------------
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses whether or not the Merger is consummated.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
---------
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Target.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
-----------------
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
----------------------------------------------
and warranties of Target and Parent contained in this Agreement shall terminate
six (6) months after the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt
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<PAGE>
confirmed) to the parties at the following addresses or telecopy numbers (or at
such other address or telecopy numbers for a party as shall be specified by like
notice):
(a) if to Parent, to:
PETsMART.com, Inc.
130 W. Union Street
Pasadena, California 91103
Attention: President
Telephone No.: (626) 535-2735
Telecopy No.: (626) 535-2701
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Marty Korman, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
(b) if to Target, to:
PetJungle, Inc.
130 W. Union Street
Pasadena, California 91103
Attention: President
Telephone No.: (626) 535-2732
Telecopy No.: (626) 535-2701
(c) if to Securityholder Agent to:
Robert Kavner
130 W. Union Street
Pasadena, California 91103
Telephone No.: (626) 585-6900
Telecopy No.: (626) 535-2701
(d) if to Escrow Agent
Assistant Secretary, PETsMART.com, Inc.
130 W. Union Street
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<PAGE>
Pasadena, California 91103
Telephone No.: (626) 535-2735
Telecopy No.: (626) 535-2701
8.3 Interpretation; Knowledge.
-------------------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
(b) For purposes of this Agreement the term "knowledge" means with
respect to a party hereto, with respect to any matter in question, that any of
the executive officers, of such party, has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event or effect
that is materially adverse to the business or financial condition of such entity
taken as a whole, except for those changes, events and effects that (i) are
directly and primarily caused by conditions affecting the United States economy
as a whole or affecting the industry in which such entity competes as a whole,
which conditions do not affect such entity in a disproportionate manner, or (ii)
are directly and primarily related to or result from announcement or pendency of
the Merger.
8.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
-------------------------------------------
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Target Schedules and the
Parent Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) are not intended to confer upon any other person
any rights or remedies hereunder.
8.6 Severability. In the event that any provision of this Agreement or the
------------
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision
-22-
<PAGE>
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
------------------------------------
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the jurisdiction of any state
or federal court within the Northern District of California, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California, as is appropriate, for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
----------
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 Waiver of Jury Trial; Waiver of Conflicts. Each of Parent, Target and
-----------------------------------------
Stockholder hereby irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this agreement or the actions of Parent, Target or
Stockholder in the negotiation, administration, performance and enforcement
hereof. Each of Parent, Target and Stockholder hereby acknowledges that Wilson
Sonsini Goodrich & Rosati is counsel to Parent with respect to this agreement
and the transactions contemplated hereby, and irrevocably waives any conflict of
interest in connection with such representation.
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
PETsMART.COM, INC.
/s/ Tom McGovern
--------------------------------------------
Tom McGovern, President
PETJUNGLE, INC.
/s/ Tom McGovern
--------------------------------------------
Tom McGovern, President
IDEALAB! HOLDINGS, L.L.C.
/s/ Bill Gross
--------------------------------------------
Bill Gross, President
SECURITYHOLDER AGENT
/s/ Robert Kavner
--------------------------------------------
Robert Kavner
ESCROW AGENT
/s/ Celeste Wood
--------------------------------------------
Celeste K. Wood, Assistant Secretary of
PETsMART.com, Inc.
-24-
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PETsMART.COM, INC.
PETsMART.com, Inc. (the "corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"), hereby certifies as follows:
1. The present name of the corporation is PETsMART.com, Inc., which is
the name under which the corporation was originally incorporated, and the date
of filing of the original Certificate of Incorporation of the corporation with
the Secretary of State of the State of Delaware was May 6, 1999.
2. Pursuant to Sections 242 and 245 of the General Corporation Law, this
Amended and Restated Certificate of Incorporation restates and integrates and
further amends the provisions of the Certificate of Incorporation of the
corporation.
3. The Certificate of Incorporation of the corporation, as amended and
restated herein, at the effective time of this Amended and Restated Certificate
of Incorporation, shall read in its entirety as follows:
"AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PETsMART.COM, INC.
ONE. That the name of the corporation is: PETsMART.com, Inc.
TWO. The address of the corporation's registered office in the State
of Delaware is 9 East Loockerman Street, P.O. Box 899, City of Dover, County of
Kent, Delaware 19901. The name of its registered agent at such address is
National Registered Agents, Inc.
THREE. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law.
FOUR. The corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares of Common Stock that the corporation is authorized to issue is
70,000,000, with a par value of $0.001 per share. The total number of shares of
Preferred Stock that the corporation is authorized to issue is 19,769,648 with a
par value of $0.001 per share, 3,300,000 of which are designated "Series A
Preferred Stock," 1,800,000 of which are designated "Series B Preferred
1
<PAGE>
Stock," 2,805,770 of which are designated "Series C Preferred Stock" and
11,863,878 of which are designated "Series D Preferred Stock."
The corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance upon conversion of the Preferred Stock shall not be sufficient to
permit conversion of the Preferred Stock.
The relative rights, preferences, privileges and restrictions granted to or
imposed upon the respective classes and series of the shares of capital stock or
the holders thereof are as set forth below:
Section 1. Dividends. The holders of the Preferred Stock shall be
--------- ---------
entitled to receive, out of any funds legally available therefor, noncumulative
dividends in an amount equal to 8% of the Original Issue Price per share of such
series of Preferred Stock per annum, when and if declared by the corporation's
Board of Directors (the "Board of Directors"). No dividend shall be paid on the
Common Stock in any year, other than dividends payable solely in capital stock,
until all dividends for such year have been declared and paid on the Preferred
Stock, and no dividends on the Common Stock shall be paid unless the amount of
such dividend on the Common Stock is also paid on the Preferred Stock on an as-
converted to Common Stock basis. The original issue price (the "Original Issue
Price") (i) per share of Series A Preferred Stock is $1.67, (ii) per share of
Series B Preferred Stock is $1.67, (iii) per share of Series C Preferred Stock
is $1.67 and (iv) per share of Series D Preferred Stock is $4.67.
Section 2. Liquidation Preference.
--------- ----------------------
(a) In the event of any liquidation, dissolution or winding up of the
corporation, prior and in preference to any distribution of any of the assets or
funds of the corporation to the holders of the Common Stock by reason of their
ownership of such stock, (i) the holders of Series A Preferred Stock shall be
entitled to receive for each outstanding share of Series A Preferred Stock then
held by them an amount equal to $2.67 plus declared but unpaid dividends on such
share (as adjusted for any recapitalizations, stock combinations, stock
dividends, stock splits and the like), (ii) the holders of Series B Preferred
Stock shall be entitled to receive for each outstanding share of Series B
Preferred Stock then held by them an amount equal to $1.67 plus declared but
unpaid dividends on such share (as adjusted for any recapitalizations, stock
combinations, stock dividends, stock splits and the like), (iii) the holders of
Series C Preferred Stock shall be entitled to receive for each outstanding share
of Series C Preferred Stock then held by them an amount equal to $2.06 plus
declared but unpaid dividends on such share (as adjusted for any
recapitalizations, stock combinations, stock dividends, stock splits and the
like) and (iv) the holders of Series D Preferred Stock shall be entitled to
receive for each outstanding share of Series D Preferred Stock then held by them
an amount equal to $4.67 plus declared but unpaid dividends on such share (as
adjusted for any recapitalizations, stock combinations, stock dividends, stock
splits and the like). The Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock and the Series D Preferred Stock shall rank
on parity as to the receipt of the respective preferential amounts for each such
series upon the occurrence of such
2
<PAGE>
event. If, upon the occurrence of a liquidation, dissolution or winding up, the
assets and funds of the corporation legally available for distribution to
stockholders by reason of their ownership of stock of the corporation shall be
insufficient to permit the payment to such holders of Preferred Stock of the
full aforementioned preferential amount, then the entire assets and funds of the
corporation legally available for distribution to stockholders by reason of
their ownership of stock of the corporation shall be distributed ratably among
the holders of Preferred Stock in proportion to the preferential amount each
such holder would have been entitled to receive if the corporation had
sufficient funds to permit payment in full of the aforementioned preferential
amount.
(b) Upon a liquidation, dissolution or winding up of the corporation,
and after payment to the holders of Preferred Stock of the amounts to which they
are entitled pursuant to Section 2(a), any remaining assets and funds legally
available for distribution hereunder shall be distributed solely to the holders
of Common Stock in a manner such that the remaining amount distributed to each
holder of Common Stock shall equal the amount obtained by multiplying the entire
remaining assets of the Corporation legally available for distribution hereunder
by a fraction, the numerator of which shall be the number of shares of Common
Stock then held by such holder, and the denominator of which shall be the total
number of shares of Common Stock then outstanding.
(c) For the purposes of this Section 2, a liquidation, dissolution or
winding up of the corporation shall be deemed to include the corporation's sale
of all or substantially all of its assets or the acquisition of this corporation
by another entity by means of merger or consolidation resulting in the exchange
of the outstanding shares of this corporation for securities or consideration
issued, or caused to be issued, by the acquiring corporation or its subsidiary,
unless the stockholders of this corporation hold at least 50% of the voting
power of the surviving corporation in such a transaction.
(d) If any of the assets of this corporation are to be distributed
under this Section 2, or for any other purpose, in a form other than cash, then
the Board of Directors shall be empowered to, and shall promptly determine the
value of the assets to be distributed to the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Common Stock. This corporation shall, upon receipt of such
determination, give prompt written notice of the determination to each holder of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Common Stock.
Section 3. Conversion.
--------- ----------
The holders of Preferred Stock shall have conversion rights as follows:
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the corporation or any transfer agent
for such Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the applicable Original
Issue Price of such share of Preferred Stock by the Conversion Price (the
"Conversion Price") at
3
<PAGE>
the time in effect for a share of such series of Preferred Stock. The Conversion
Price (i) per share of Series A Preferred Stock initially shall be $0.367399987,
(ii) per share of the Series B Preferred Stock initially shall be $1.67, (iii)
per share of Series C Preferred Stock initially shall be $0.468441, and (iv) per
share of Series D Preferred Stock initially shall be $4.67, each as subject to
adjustment from time to time as provided below.
(b) Automatic Conversion. Each share of any series of Preferred Stock
--------------------
shall automatically be converted into shares of Common Stock at the then
effective Conversion Price upon the earlier of (i) the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the initial
offer and sale of Common Stock to the public involving gross proceeds to the
Company of not less than $15,000,000 and at a minimum offering price of $9.35
per share (a "Qualified Initial Public Offering") or (ii) the consent of holders
of not less than 50% of the then outstanding shares of each series of Preferred
Stock.
(c) Mechanics of Conversion. No fractional shares of Common Stock
-----------------------
shall be issued upon conversion of Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled (after aggregating all
shares of Preferred Stock held by such holder to be converted, such that the
maximum number of whole shares of Common Stock is issued to such holder upon
conversion), the corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price of such series of Preferred Stock. Before
any holder of Preferred Stock shall be entitled to convert the same into shares
of Common Stock pursuant to Section 3(a), such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for such Preferred Stock, and shall give
written notice by mail, postage prepaid, to the corporation at its principal
corporate office, of the election to convert the same, and such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Preferred Stock to be converted. In the
event of an automatic conversion pursuant to Section 3(b), the outstanding
shares of Preferred Stock shall be converted automatically without any further
action by the holder of such shares and whether or not the certificates
representing such shares are surrendered to the corporation or the transfer
agent for such Preferred Stock; and the corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless the certificates evidencing such shares of Preferred
Stock are either delivered to the corporation or the transfer agent for such
Preferred Stock as provided above, or the holder notifies the corporation or the
transfer agent for such Preferred Stock that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the corporation to
indemnify the corporation from any loss incurred by it in connection with such
certificates. The corporation shall, as soon as practicable thereafter, issue
and deliver to such address as the holder may direct, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. If the conversion is in connection with a Qualified Initial Public
Offering, the conversion shall be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, and the
conversion shall not be deemed to have occurred until immediately prior to the
closing of such Qualified Initial Public Offering.
4
<PAGE>
(d) Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to this Section 3, the shares so converted
shall be canceled and shall not be reissued by the corporation.
(e) Adjustment of Conversion Price of Preferred Stock. The Conversion
-------------------------------------------------
Prices shall be subject to adjustment from time to time as follows:
(i) Adjustments for Subdivisions or Combinations of Common
------------------------------------------------------
Stock. In the event the outstanding shares of Common Stock shall be subdivided
- -----
by stock split, stock dividend or otherwise, into a greater number of shares of
Common Stock, the Conversion Price of each series of Preferred Stock then in
effect shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated into a lesser number of shares of Common
Stock, the Conversion Price of each series of Preferred Stock then in effect
shall, concurrently with the effectiveness of such combination or consolidation,
be proportionately increased.
(ii) Adjustments for Stock Dividends and Other Distributions. In
-------------------------------------------------------
the event the corporation makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, any distribution (excluding
repurchases of securities by the corporation not made on a pro rata basis)
payable in property, in securities of the corporation other than shares of
Common Stock or evidences of indebtedness of the corporation, and other than as
otherwise adjusted for in this Section 3(e) or as provided for in Section 1 in
connection with a dividend, then and in each such event the holders of Preferred
Stock shall receive, at the time of such distribution, the amount of property,
the number of securities or the amount of such indebtedness of the corporation
that they would have received had their Preferred Stock been converted into
Common Stock immediately prior to the date of such event.
(iii) Adjustments for Reorganizations, Reclassifications or
-----------------------------------------------------
Similar Events. If the Common Stock shall be changed into the same or a
- --------------
different number of shares of any other class or classes of stock or other
securities or property, whether by capital reorganization, reclassification or
otherwise, then each share of Preferred Stock shall thereafter be convertible
into the number of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the corporation deliverable
upon conversion of such shares of Preferred Stock shall have been entitled upon
such reorganization, reclassification or other event.
(iv) Adjustments for Diluting Issues. In addition to the
-------------------------------
adjustment of the Conversion Prices provided above, the Conversion Price of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock and the Series D Preferred Stock shall be subject to further adjustment
from time to time as follows:
(A) Special Definitions.
-------------------
(1) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
5
<PAGE>
(2) "Original Issue Date" for each series of Preferred
Stock shall mean the date on which the first share of a series of Preferred
Stock was first issued.
(3) "Convertible Securities" shall mean securities,
either directly or indirectly, convertible into, or exchangeable for, Common
Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 3(e)(iv)(C), deemed to be
issued) by the corporation after the Original Issue Date other than shares of
Common Stock issued (or, pursuant to Section 3(e)(iv)(C), deemed to be issued):
i) upon conversion of shares of Preferred
Stock;
ii) to employees, consultants or directors
pursuant to stock option, stock grant, stock purchase or similar plans or
arrangements approved by the Board of Directors, including without limitation
upon the exercise of Options;
iii) to equipment lessors, banks, financial
institutions or similar entities in transactions approved by the Board of
Directors, the principle purpose of which is other than the raising of capital;
iv) as a dividend or other distribution in
connection with which an adjustment to the Conversion Price is made pursuant to
Section 3(e)(i), (ii) or (iii);
v) in the corporation's first initial public
offering of its Common Stock;
vi) in a merger or acquisition that is approved
by the Board of Directors;
vii) pursuant to any transactions approved by the
Board of Directors primarily for the purpose of (A) joint ventures, technology
licensing or research and development activities, (B) distribution or
manufacture of the corporation's products or services, or (C) any other
transactions involving corporate partners that are primarily for purposes other
than raising capital; or
viii) if the holders of a majority of the then
outstanding shares of each series of Preferred Stock agree in writing that such
Additional Shares of Common Stock, of which the Conversion Price may be subject
to adjustment, shall not constitute Additional Shares of Common Stock.
(B) No Adjustment of Conversion Price. No adjustment in
---------------------------------
the Conversion Price shall be made pursuant to Section 3(e)(iv)(D) unless the
consideration per share for an Additional Share of Common Stock issued (or,
pursuant to Section 3(e)(iv)(C), deemed to be issued) by the corporation is less
than the Conversion Price in effect on the date of, and immediately prior to,
such issue, and provided that any such adjustment shall not have the
6
<PAGE>
effect of increasing the Conversion Price to an amount which exceeds the
Conversion Price existing immediately prior to such adjustment.
(C) Deemed Issue of Additional Shares of Common Stock.
-------------------------------------------------
Except as otherwise provided in Section 3(e)(iv)(A) or 3(e)(iv)(B), in the event
the corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date for
the determination of any holders of any class of securities entitled to receive
any such Options or Convertible Securities, then the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that in
any such case in which additional shares of Common Stock are deemed to be
issued:
(1) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of such Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof or upon the occurrence of a record date with respect thereto, and
any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recalculated to reflect such increase or
decrease;
(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof or upon the occurrence of a record date with respect thereto, and any
subsequent adjustments based thereon, shall, upon such expiration, be
recalculated as if:
i) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, and the
consideration received therefor was the consideration actually received by the
corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the corporation upon such exercise, or
for the issue of all such Convertible Securities, whether or not converted or
exchanged, plus the additional consideration, if any, actually received by the
corporation upon such conversion or exchange; and
ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were
7
<PAGE>
issued at the time of issue of such Options and the consideration received by
the corporation for the Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received by the corporation for the
issue of all such Options, whether or not exercised, plus the consideration
deemed to have been received by the corporation upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to Section 3(e)(iv)(C)(2)
or (3) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the Conversion Price existing immediately prior to the
original adjustment with respect to the issuance of such Options or Convertible
Securities, as adjusted for any Additional Shares of Common Stock issued (or,
pursuant to Section 3(e)(iv)(C), deemed to be issued) between such original
adjustment date and such readjustment date;
(5) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options; and
(6) in the case of any Option or Convertible Security
with respect to which the maximum number of shares of Common Stock issuable upon
exercise or conversion or exchange thereof is not determinable, no adjustment to
the Conversion Price shall be made until such number becomes determinable.
(D) Adjustment of Conversion Price Upon Issuance of
-----------------------------------------------
Additional Shares of Common Stock. Subject to the limitation set forth in
- ---------------------------------
Section 3(e)(iv)(B) above, if Additional Shares of Common Stock are issued (or,
pursuant to Section 3(e)(iv)(C), deemed to be issued) without consideration or
for a consideration per share (computed on an as-converted to Common Stock
basis) less than the Conversion Price in effect on the date of, and immediately
prior to, such issue (a "Dilutive Issue"), then, and in such event, such
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Conversion Price
by a fraction, (x) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price, and (y) the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so issued. For
the purposes of this Section 3(e)(iv)(D), all shares of Common Stock issuable
upon exercise of outstanding Options, upon conversion of outstanding Convertible
Securities and Preferred Stock, shall be deemed to be outstanding, and,
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section 3(e)(iv)(C), such Additional Shares of Common Stock shall be
deemed to be outstanding.
(E) Determination of Consideration. For purposes of this
------------------------------
Section 3(e)(iv), the consideration received by the corporation for any
Additional Shares of
8
<PAGE>
Common Stock issued (or, pursuant to Section 3(e)(iv)(C), deemed to be issued)
shall be computed as follows:
(1) Cash and Property. Such consideration shall:
-----------------
i) insofar as it consists of cash, be computed
at the aggregate amount of cash received by the corporation after deducting any
commissions paid by the corporation with respect to such issuance;
ii) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issuance, as
determined in good faith by the Board of Directors of the corporation; and
iii) if Additional Shares of Common Stock are
issued (or, pursuant to Section 3(e)(iv)(C), deemed to be issued) together with
other shares or securities or other assets of the corporation for consideration
which covers both, be the proportion of such consideration so received, computed
as provided in clauses (A) and (B) above, as determined in good faith by the
Board of Directors of the corporation.
(2) Options and Convertible Securities. The
----------------------------------
consideration received by the corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3(e)(iv)(C) relating to Options
and Convertible Securities shall be the sum of (x) the total amount, if any,
received or receivable by the corporation as consideration for the issue of such
Options or Convertible Securities, plus (y) the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock to which such adjustment pertains a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Prices at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of such holder's
Preferred Stock.
Section 4. Voting.
--------- ------
(a) General. Except as otherwise required by law, each holder of
-------
Common Stock shall be entitled to one vote for each share of Common Stock so
held and each holder of
9
<PAGE>
Preferred Stock shall be entitled to the number of votes equal to the number of
shares of Common Stock into which the shares of Preferred Stock so held could be
converted at the record date for determination of the stockholders entitled to
vote, or, if no such record date is established, at the date such vote is taken
or any written consent of stockholders is solicited. Except as required by law
or as otherwise set forth herein (including without limitation Section 4(b)),
all shares of all series of Preferred Stock and all shares of Common Stock shall
vote together as a single class. Fractional votes by the holders of Preferred
Stock shall not, however, be permitted, and any fractional voting rights shall
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) be rounded down to the nearest whole number.
(b) Election of Directors. The authorized number of directors of the
---------------------
corporation shall be set forth in the Bylaws of the corporation and may be
increased or decreased by an amendment to such Bylaws in accordance with their
provisions. For so long as at least fifty percent (50%) of the initial shares
of Series A Preferred Stock remain outstanding (as adjusted for
recapitalizations, stock combinations, stock dividends, stock splits and the
like), the holders of shares of Series A Preferred Stock, voting separately as a
class, shall be entitled to elect three (3) directors of the corporation at each
annual election of directors (and to fill any vacancies with respect thereto)
(the "Series A Directors"). For so long as at least fifty percent (50%) of the
initial shares of Series C Preferred Stock remain outstanding (as adjusted for
recapitalizations, stock combinations, stock dividends, stock splits and the
like), the holders of Series C Preferred Stock, voting separately as a class,
shall be entitled to elect three (3) directors of the corporation at each annual
election of directors (and to fill any vacancies with respect thereto) (the
"Series C Directors"). The Common Stock and Preferred Stock, together as a
single class, shall be entitled to elect all remaining directors at each annual
election of directors (and to fill any vacancies with respect thereto).
(c) Approval by Series A Preferred Stock. The corporation shall not,
------------------------------------
without first obtaining the approval of the holders of not less than a majority
of the then outstanding total number of shares of Series A Preferred Stock:
(i) increase the number of authorized shares of Series A
Preferred Stock;
(ii) authorize, create or issue any shares of any class or
series of stock, or any other securities convertible into equity securities of
the corporation, or reclassify any existing shares into equity securities or any
other securities convertible into equity securities of the corporation, having
any preference or priority superior to any such preference or priority of the
Series A Preferred Stock;
(iii) adversely alter or change in any material respect the
rights, references, privileges, or restrictions of the Series A Preferred Stock;
(iv) take any action resulting in the repurchase or redemption
of shares of Common Stock, except as set forth in Section 5 hereof;
10
<PAGE>
(v) change the size of the Board of Directors;
(vi) enter into, amend or in any way alter in any material way
the provisions of any strategic relationship or agreement entered into by the
corporation with any holder holding a majority of the Series C Preferred Stock,
unless approved by a majority of the Series A Directors (as defined in 4(b)); or
(vii) enter into any transaction that would occasion the
corporation's sale or lease of all or substantially all of its assets or the
acquisition of the corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of the
corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its subsidiary, unless the stockholders of this
corporation immediately prior to such transaction hold at least 50% of the
voting power of the surviving corporation in such a transaction.
(d) Approval by Series C Preferred Stock. The corporation shall not,
------------------------------------
without first obtaining the approval of the holders of not less than a majority
of the then outstanding total number of shares of Series C Preferred Stock:
(i) increase the number of authorized shares of Series C
Preferred Stock;
(ii) authorize, create or issue any shares of any class or
series of stock, or any other securities convertible into equity securities of
the corporation, or reclassify any existing shares into equity securities or any
other securities convertible into equity securities of the corporation, having
any preference or priority superior to or on parity with any such preference or
priority of the Series C Preferred Stock;
(iii) adversely alter or change in any material respect the
rights, preferences, privileges, or restrictions of the Series C Preferred
Stock;
(iv) take any action resulting in the repurchase or redemption
of shares of Common Stock, except as set forth in Section 5 hereof;
(v) change the size of the Board of Directors;
(vi) enter into, amend or in any way alter in any material way
the provisions of any strategic relationship or agreement entered into by the
corporation with any holder holding a majority of the Series A Preferred Stock,
unless approved by a majority of the Series C Directors (as defined in 4(b)); or
(vii) enter into any transaction that would occasion the
corporation's sale or lease of all or substantially all of its assets or the
acquisition of the corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of the
corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its subsidiary, unless the stockholders of this
corporation immediately prior to
11
<PAGE>
such transaction hold at least 50% of the voting power of the surviving
corporation in such a transaction.
Section 5. Consent to Distributions. Each holder of Preferred Stock shall
--------- ------------------------
be deemed to have consented, for purposes of Sections 502, 503 and 506 of the
California Corporations Code and Sections 1 and 2 of this Article Four, to
distributions made by the corporation in connection with the repurchase of
shares of Common Stock from employees, officers, directors or consultants of the
corporation in connection with the termination of their employment or services
pursuant to agreements or arrangements approved by the Board of Directors of the
corporation.
Section 6. Reacquired Shares. Any shares of Preferred Stock purchased or
--------- -----------------
otherwise acquired by the corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 7. Waiver of Rights, Preferences or Privileges. Any right,
--------- -------------------------------------------
preference or privilege of the Preferred Stock may be waived by a majority of
the outstanding shares of each series of Preferred Stock voting on an as-
converted to Common Stock basis, and such waiver shall be binding on all holders
of Preferred Stock.
FIVE. The corporation is to have perpetual existence.
SIX. The number of directors which constitute the whole Board of the
corporation, including those specified in Article Four, Section 4(b) hereof,
shall be as specified in the Bylaws of the corporation.
SEVEN. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the corporation is expressly authorized to
make, alter, amend or repeal the Bylaws of the corporation.
EIGHT. Elections of directors need not be by written ballot unless a
stockholder demands election by written ballot at the meeting and before voting
begins or unless the Bylaws of the corporation shall so provide.
NINE. Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws of the corporation may provide. The books of the
corporation may be kept outside of the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors of the
corporation or in the Bylaws of the corporation.
12
<PAGE>
TEN.
(a) Limitation of Director's Liability. To the fullest extent not
----------------------------------
prohibited by the General Corporation Law of Delaware as the same exists or as
it may hereafter be amended, a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for conduct as a director.
(b) Indemnification of Corporate Agents. The corporation may
-----------------------------------
indemnify to the fullest extent not prohibited by law any person made or
threatened to be made a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of the fact that such person,
such person's testator or intestate is or was a director, officer, employee
benefit plan fiduciary, agent or employee of the corporation or any predecessor
of the corporation or serves or served at the request of the corporation or any
predecessor of the corporation as a director, officer, agent, employee benefit
plan fiduciary or employee of another corporation, partnership, limited
liability company, joint venture, trust or other entity or enterprise.
(c) Repeal or Modification. Neither any amendment or repeal of this
----------------------
Article Ten, nor the adoption of any provision of this Amended and Restated
Certificate of Incorporation inconsistent with this Article Ten, shall eliminate
or reduce the effect of this Article Ten, in respect of any matter occurring, or
any action or proceeding accruing or arising or that, but for this Article Ten,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision."
4. The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the Board of Directors of the
corporation in accordance with the provisions of Section 242 and 245 of the
General Corporation Law.
5. The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the written consent of the stockholders
in accordance with Sections 228, 242 and 245 of the General Corporation Law.
The total number of outstanding shares of Common Stock of the Corporation is
2,006,283. The total number of outstanding shares of Series A Preferred Stock
is 3,000,000. The total number of outstanding shares of Series B Preferred
Stock is 1,800,000. The total number of outstanding shares of Series C
Preferred Stock 2,400,000. The number of shares held by stockholders who
consented to this amendment in writing equaled or exceeded the required
percentage. Pursuant to Section 228 of the General Corporation Law, prompt
written notice of this amendment and restatement has been given to all
stockholders who did not consent in writing to this amendment.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Tom McGovern, Jr., President, this
5th day of October 1999.
13
<PAGE>
PETsMART.com, Inc.
By: /s/ Tom McGovern
----------------------------
Tom McGovern, Jr., President
14
<PAGE>
EXHIBIT 3.2
[FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION]
____________________________________________________________________
Pursuant to Sections 242 and 245 of the
Delaware General Corporation Law
______________________________________________________________________
PETsMART.com, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the "GCL"),
does hereby certify as follows:
(1) The name of the Corporation is PETsMART.com, Inc., which is the
name under which the Corporation was originally incorporated. The original
certificate of incorporation of the Corporation was filed with the office of the
Secretary of State of the State of Delaware on May 6, 1999.
(2) This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation (the "Board of Directors")
and by the stockholders of the Corporation in accordance with Sections 228, 242
and 245 of the GCL.
(3) This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the certificate of incorporation of the
Corporation, as heretofore amended or supplemented.
(4) The text of the Certificate of Incorporation is amended and
restated in its entirety as follows:
FIRST: The name of the Corporation is PETsMART.com, Inc.
-----
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is 9 East Loockerman Street, P.O. Box 899, in the City of
Dover, County of Kent. The name of its registered agent at that address is
National Registered Agents, Inc.
<PAGE>
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the "GCL").
FOURTH: (a) Authorized Capital Stock. The total number of shares of stock
------ ------------------------
which the Corporation shall have authority to issue is [__________] shares of
capital stock, consisting of (i) [__________] shares of common stock, par value
$0.001 per share (the "Common Stock"), and (ii) [__________] shares of preferred
stock, par value $0.001 per share (the "Preferred Stock").
(b) Common Stock. The powers, preferences and rights, and the
------------
qualifications, limitations and restrictions, of each class of the Common Stock
are as follows:
(1) Voting. Except as otherwise expressly required by law or
------
provided in this Amended and Restated Certificate of Incorporation, and subject
to any voting rights provided to holders of Preferred Stock at any time
outstanding, at each annual or special meeting of stockholders, each holder of
record of shares of Common Stock on the relevant record date shall be entitled
to cast one vote in person or by proxy for each share of the Common Stock
standing in such holder's name on the stock transfer records of the Corporation.
(2) No Cumulative Voting. The holders of shares of Common Stock
--------------------
shall not have cumulative voting rights.
(3) Dividends; Stock Splits. Subject to the rights of the holders
-----------------------
of Preferred Stock, and subject to any other provisions of this Amended and
Restated Certificate of Incorporation, as it may be amended from time to time,
holders of shares of Common Stock shall be entitled to receive such dividends
and other distributions in cash, stock or property of the Corporation when, as
and if declared thereon by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor.
(4) Liquidation, Dissolution, etc. In the event of any
-----------------------------
liquidation, dissolution or winding up (either voluntary or involuntary) of the
Corporation, the holders of shares of Common Stock shall be entitled to receive
the assets and funds of the Corporation available for distribution after
payments to creditors and to the holders of any Preferred Stock of the
Corporation that may at the time be outstanding, in proportion to the number of
shares held by them, respectively, without regard to class.
(5) No Preemptive or Subscription Rights. No holder of shares of
------------------------------------
Common Stock shall be entitled to preemptive or subscription rights.
2
<PAGE>
(6) Power to Sell and Purchase Shares. Subject to the requirements
---------------------------------
of applicable law, the Corporation shall have the power to issue and sell all or
any part of any shares of any class of stock herein or hereafter authorized to
such persons, and for such consideration, as the Board of Directors shall from
time to time, in its discretion, determine, whether or not greater consideration
could be received upon the issue or sale of the same number of shares of another
class, and as otherwise permitted by law. Subject to the requirements of
applicable law, the Corporation shall have the power to purchase any shares of
any class of stock herein or hereafter authorized from such persons, and for
such consideration, as the Board of Directors shall from time to time, in its
discretion, determine, whether or not less consideration could be paid upon the
purchase of the same number of shares of another class, and as otherwise
permitted by law.
(c) Preferred Stock. The Board of Directors is hereby expressly
---------------
authorized to provide for the issuance of all or any shares of the Preferred
Stock in one or more classes or series, and to fix for each such class or series
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in preference to,
or in such relation to, the dividends payable on any other class or classes or
any other series; (iii) entitled to such rights upon the dissolution of, or upon
any distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock, of the Corporation at
such price or prices or at such rates of exchange and with such adjustments; all
as may be stated in such resolution or resolutions.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(b) The Board of Directors shall consist of not less than one or more
than fifteen members, the exact number of which shall be fixed from time to time
by
3
<PAGE>
resolution adopted by the affirmative vote of a majority of the active Board of
Directors.
(c) The directors shall be divided into three classes, designated Class
I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors. The initial division of the Board of Directors into classes
shall be made by the decision of the affirmative vote of a majority of the
entire Board of Directors. The term of the initial Class I directors shall
terminate on the date of the 2000 annual meeting; the term of the initial Class
II directors shall terminate on the date of the 2001 annual meeting; and the
term of the initial Class III directors shall terminate on the date of the 2002
annual meeting. At each succeeding annual meeting of stockholders beginning in
2000, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
(d) A director shall hold office until the annual meeting for the year
in which his or her term expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
(e) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of the
Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors of such class shall hold
office for a term that shall coincide with the remaining term of that class. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his predecessor.
Subject to the rights, if any, of the holders of shares of Preferred Stock then
outstanding, any or all of the directors of the Corporation may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least a majority of the voting power of the Corporation's then
outstanding capital stock entitled to vote generally in the election of
directors. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office,
4
<PAGE>
filling of vacancies and other features of such directorships shall be governed
by the terms of this Amended and Restated Certificate of Incorporation
applicable thereto and such directors so elected shall not be divided into
classes pursuant to this Article FIFTH unless expressly provided by such terms.
(f) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the GCL, this
Amended and Restated Certificate of Incorporation, and any By-Laws adopted by
the stockholders; provided, however, that no By-Laws hereafter adopted by the
-------- -------
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
SIXTH: No director shall be personally liable to the Corporation or any of
-----
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL as the same exists or may hereafter be
amended. If the GCL is amended hereafter to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent authorized
by the GCL, as so amended. Any repeal or modification of this Article SIXTH by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
SEVENTH: The Corporation shall indemnify its directors and officers to the
-------
fullest extent authorized or permitted by law, as now or hereafter in effect,
and such right to indemnification shall continue as to a person who has ceased
to be a director or officer of the Corporation and shall inure to the benefit of
his or her heirs, executors and personal and legal representatives; provided,
--------
however, that, except for proceedings to enforce rights to indemnification, the
- -------
Corporation shall not be obligated to indemnify any director or officer (or his
or her heirs, executors or personal or legal representatives) in connection with
a proceeding (or part thereof) initiated by such person unless such proceeding
(or part thereof) was authorized or consented to by the Board of Directors. The
right to indemnification conferred by this Article SEVENTH shall include the
right to be paid by the Corporation the expenses incurred in defending or
otherwise participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
5
<PAGE>
expenses to employees and agents of the Corporation similar to those conferred
in this Article SEVENTH to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred
in this Article SEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under this Amended and Restated Certificate
of Incorporation, the By-Laws of the Corporation, any statute, agreement, vote
of stockholders or disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification and
to the advancement of expenses of a director or officer of the Corporation
existing at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
EIGHTH: Any action required or permitted to be taken by the stockholders of
------
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation, and the ability of the stockholders to consent
in writing to the taking of any action is hereby specifically denied.
NINTH: Meetings of stockholders may be held within or without the State of
-----
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the GCL) outside the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation.
TENTH: In furtherance and not in limitation of the powers conferred upon it
-----
by the laws of the State of Delaware, the Board of Directors shall have the
power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of at least a majority of the entire Board of Directors shall
be required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of the shares entitled to vote at an election of directors.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
--------
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed in this Amended and
Restated Certificate of Incorporation, the Corporation's By-Laws or the GCL, and
all rights herein conferred upon stockholders are granted subject to such
reservation; provided, however, that, notwithstanding any other provision of
-------- -------
this Amended and Restated Certificate of Incorporation (and in addition to any
other vote that may be required by law),
6
<PAGE>
the affirmative vote of the holders of at least eighty percent (80%) of the
voting power of the shares entitled to vote at an election of directors shall be
required to amend, alter, change or repeal, or to adopt any provision as part of
this Amended and Restated Certificate of Incorporation inconsistent with the
purpose and intent of Articles FIFTH, EIGHTH and TENTH of this Amended and
Restated Certificate of Incorporation or this Article ELEVENTH.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed on its behalf this [_____]
day of January, 2000.
PETSMART.COM, INC.
By:___________________________
Tom McGovern, Jr.
President
8
<PAGE>
EXHIBIT 3.3
================================================================================
BYLAWS
OF
PETsMART.COM, INC.
May 6, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES................................................ 1
1.1 Registered Office.............................................. 1
1.2 Other Offices.................................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS........................................ 1
2.1 Place of Meetings.............................................. 1
2.2 Annual Meeting................................................. 1
2.3 Special Meeting................................................ 2
2.4 Notice of Stockholders' Meetings............................... 2
2.5 Manner of Giving Notice; Affidavit of Notice................... 2
2.6 Quorum......................................................... 2
2.7 Adjourned Meeting; Notice...................................... 2
2.8 Voting......................................................... 3
2.9 Waiver of Notice............................................... 3
2.10 Stockholder Action by Written Consent Without a Meeting........ 3
2.11 Record Date for Stockholder Notice; Voting; Giving Consents.... 3
2.12 Proxies........................................................ 4
2.13 List of Stockholders Entitled to Vote.......................... 4
ARTICLE III DIRECTORS...................................................... 5
3.1 Powers......................................................... 5
3.2 Number of Directors............................................ 5
3.3 Election, Qualification and Term of Office of Directors........ 5
3.4 Resignation and Vacancies...................................... 5
3.5 Place of Meetings; Meetings by Telephone....................... 6
3.6 First Meetings................................................. 7
3.7 Regular Meetings............................................... 7
3.8 Special Meetings; Notice....................................... 7
3.9 Quorum......................................................... 7
3.10 Waiver of Notice............................................... 7
3.11 Adjourned Meeting; Notice...................................... 8
3.12 Board Action by Written Consent Without a Meeting.............. 8
3.13 Fees and Compensation of Directors............................. 8
3.14 Approval of Loans to Officers.................................. 8
3.15 Removal of Directors........................................... 8
ARTICLE IV COMMITTEES...................................................... 9
4.1 Committees of Directors........................................ 9
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.2 Committee Minutes................................................ 9
4.3 Meetings and Action of Committees................................ 9
ARTICLE V OFFICERS.......................................................... 10
5.1 Officers......................................................... 10
5.2 Election of Officers............................................. 10
5.3 Subordinate Officers............................................. 10
5.4 Removal and Resignation of Officers.............................. 10
5.5 Vacancies in Offices............................................. 11
5.6 Chairman of the Board............................................ 11
5.7 President........................................................ 11
5.8 Vice President................................................... 11
5.9 Secretary........................................................ 11
5.10 Treasurer........................................................ 12
5.11 Assistant Secretary.............................................. 12
5.12 Assistant Treasurer.............................................. 12
5.13 Authority and Duties of Officers................................. 13
ARTICLE VI INDEMNITY........................................................ 13
6.1 Indemnification of Directors and Officers........................ 13
6.2 Indemnification of Others........................................ 13
6.3 Insurance........................................................ 13
ARTICLE VII RECORDS AND REPORTS............................................. 14
7.1 Maintenance and Inspection of Records............................ 14
7.2 Inspection by Directors.......................................... 14
7.3 Annual Statement to Stockholders................................. 15
7.4 Representation of Shares of Other Corporations................... 15
ARTICLE VIII GENERAL MATTERS................................................ 15
8.1 Checks........................................................... 15
8.2 Execution of Corporate Contracts and Instruments................. 15
8.3 Stock Certificates; Partly Paid Shares........................... 15
8.4 Special Designation on Certificates.............................. 16
8.5 Lost Certificates................................................ 16
8.6 Construction; Definitions........................................ 17
8.7 Dividends........................................................ 17
8.8 Fiscal Year...................................................... 17
8.9 Seal............................................................. 17
8.10 Transfer of Stock................................................ 17
8.11 Stock Transfer Agreements........................................ 17
8.12 Registered Stockholders.......................................... 18
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX AMENDMENTS....................................................... 18
ARTICLE X DISSOLUTION....................................................... 18
ARTICLE XI CUSTODIAN........................................................ 19
11.1 Appointment of a Custodian in Certain Cases...................... 19
11.2 Duties of Custodian.............................................. 19
</TABLE>
-iii-
<PAGE>
PETsMART.COM, INC.
BYLAWS
------
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office
-----------------
The registered office of the corporation shall be in the City of Dover,
County of Kent, State of Delaware. The name of the registered agent of the
corporation at such location is Incorporating Services, Ltd.
1.2 Other Offices
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 Annual Meeting
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Tuesday of April in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected
and any other proper business may be transacted.
<PAGE>
2.3 Special Meeting
---------------
A special meeting of the stockholders may be called, at any time for any
purpose or purposes, by the board of directors or by such person or persons as
may be authorized by the certificate of incorporation or the bylaws.
2.4 Notice of Stockholders' Meetings
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 Manner of Giving Notice; Affidavit of Notice
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 Quorum
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 Adjourned Meeting; Notice
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
<PAGE>
2.8 Voting
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledges and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
2.9 Waiver of Notice
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 Stockholder Action by Written Consent Without a Meeting
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 Record Date for Stockholder Notice; Voting; Giving Consents
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate
<PAGE>
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(ii) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed.
(iii) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.12 Proxies
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 List of Stockholders Entitled to Vote
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
<PAGE>
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
3.1 Powers
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 Number of Directors
-------------------
The number of directors of the corporation shall be not less than one (1)
nor more than seven (7). The exact number of directors shall be seven (7).
This number may be changed by a duly adopted amendment to the certificate of
incorporation or by an amendment to this bylaw duly adopted by the vote or
written consent of the holders of a majority of the stock issued and outstanding
and entitled to vote or by resolution of a majority of the board of directors,
except as may be otherwise specifically provided by statute or by the
certificate of incorporation.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 Election, Qualification and Term of Office of Directors
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 Resignation and Vacancies
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or
<PAGE>
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Place of Meetings; Meetings by Telephone
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
<PAGE>
3.6 First Meetings
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 Regular Meetings
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 Special Meetings; Notice
------------------------
Special meetings of the board of directors may be called by the president
on three (3) days' notice to each director, either personally or by mail,
telegram, telex, or telephone; special meetings shall be called by the president
or secretary in like manner and on like notice on the written request of two (2)
directors unless the board consists of only one (1) director, in which case
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of the sole director.
3.9 Quorum
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 Waiver of Notice
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or
<PAGE>
special meeting of the directors, or members of a committee of directors, need
be specified in any written waiver of notice unless so required by the
certificate of incorporation or these bylaws.
3.11 Adjourned Meeting; Notice
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 Board Action by Written Consent Without a Meeting
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 Fees and Compensation of Directors
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 Approval of Loans to Officers
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 Removal of Directors
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
<PAGE>
ARTICLE IV
COMMITTEES
4.1 Committees of Directors
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 Committee Minutes
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 Meetings and Action of Committees
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment),
<PAGE>
and Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 Officers
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 Election of Officers
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 Subordinate Officers
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 Removal and Resignation of Officers
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not
<PAGE>
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 Vacancies in Offices
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
5.6 Chairman of the Board
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 President
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 Vice President
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 Secretary
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
<PAGE>
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 Treasurer
---------
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the board of directors. He shall disburse the funds of the corporation as may be
ordered by the board of directors, shall render to the president and directors,
whenever they request it, an account of all of his transactions as treasurer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the board of directors or
these bylaws.
5.11 Assistant Secretary
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 Assistant Treasurer
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
<PAGE>
5.13 Authority and Duties of Officers
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 Indemnification of Directors and Officers
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 Indemnification of Others
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 Insurance
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the
<PAGE>
power to indemnify him against such liability under the provisions of the
General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Records
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 Inspection by Directors
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any
<PAGE>
limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
7.3 Annual Statement to Stockholders
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 Representation of Shares of Other Corporations
----------------------------------------------
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 Checks
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 Execution of Corporate Contracts and Instruments
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 Stock Certificates; Partly Paid Shares
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all
<PAGE>
classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the chairman or vice-chairman of the board of directors, or the president or
vice-president, and by the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 Special Designation on Certificates
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 Lost Certificates
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be
<PAGE>
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 Construction; Definitions
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 Dividends
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 Fiscal Year
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 Seal
----
The seal of the corporation shall be such as from time to time may be
approved by the board of directors.
8.10 Transfer of Stock
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
8.11 Stock Transfer Agreements
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares
<PAGE>
of stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
8.12 Registered Stockholders
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall
<PAGE>
be necessary. The consent shall be filed and shall become effective in
accordance with Section 103 of the General Corporation Law of Delaware. Upon
such consent's becoming effective in accordance with Section 103 of the General
Corporation Law of Delaware, the corporation shall be dissolved. If the consent
is signed by an attorney, then the original power of attorney or a photocopy
thereof shall be attached to and filed with the consent. The consent filed with
the Secretary of State shall have attached to it the affidavit of the secretary
or some other officer of the corporation stating that the consent has been
signed by or on behalf of all the stockholders entitled to vote on a
dissolution; in addition, there shall be attached to the consent a certification
by the secretary or some other officer of the corporation setting forth the
names and residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 Appointment of a Custodian in Certain Cases
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the stockholders
are so divided that they have failed to elect successors to directors whose
terms have expired or would have expired upon qualification of their successors;
or
(ii) the business of the corporation is suffering or is threatened with
irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed within a
reasonable time to take steps to dissolve, liquidate or distribute its assets.
11.2 Duties of Custodian
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
OF
PETsMART.COM, INC.
Adoption by Incorporator
------------------------
The undersigned person appointed in the Certificate of Incorporation to act
as the Incorporator of PETsMART.com, Inc. hereby adopts the foregoing bylaws,
comprising nineteen (19) pages, as the Bylaws of the corporation.
Executed this 6/th/ day of May, 1999.
/s/ John McKenna
-----------------------------------
John T. McKenna, Incorporator
Certificate by Secretary of Adoption by Incorporator
----------------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of PETsMART.com, Inc. and that the foregoing Bylaws,
comprising nineteen (19) pages, were adopted as the Bylaws of the corporation on
May 6, 1999, by the person appointed in the Certificate of Incorporation to act
as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this 6/th/ day of May, 1999.
/s/ Tom McGovern
------------------------------------------------------
Tom McGovern, Jr., Secretary
<PAGE>
EXHIBIT 3.4
[FORM OF AMENDED AND RESTATED
BY-LAWS
OF
PETsMART.COM, INC.]
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the Corporation
--------- -----------------
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
--------- -------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
--------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
Section 2. Annual Meetings. The Annual Meetings of Stockholders for the
--------- ---------------
election of directors shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors. Any other proper
business may be transacted at the Annual Meeting of Stockholders.
Section 3. Special Meetings. Unless otherwise required by law or by the
--------- ----------------
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), Special Meetings of
Stock-
<PAGE>
holders, for any purpose or purposes, may be called by either (i) the Chairman,
if there be one, or (ii) the President, (iii) any Vice President, if there be
one, (iv) the Secretary or (v) any Assistant Secretary, if there be one, and
shall be called by any such officer at the request in writing of (i) the Board
of Directors or (ii) a committee of the Board of Directors that has been duly
designated by the Board of Directors and whose powers and authority include the
power to call such meetings. Such request shall state the purpose or purposes of
the proposed meeting. At a Special Meeting of Stockholders, only such business
shall be conducted as shall be specified in the notice of meeting (or any
supplement thereto).
Section 4. Notice. Whenever stockholders are required or permitted to
--------- ------
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 5. Nature of Business at Meetings of Stockholders. No business
--------- ----------------------------------------------
may be transacted at an annual meeting of stockholders, other than business that
is either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the Company (i) who is a stockholder of record on the date of the
giving of the notice provided for in this Section 5 and on the record date for
the determination of stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this Section 5.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Company.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Company not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of stockholders;
2
<PAGE>
provided, however, that in the event that the annual meeting is called for a
- -------- -------
date that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such stockholder, (iii) the
class or series and number of shares of capital stock of the Company which are
owned beneficially or of record by such stockholder, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 5; provided, however, that, once business
-------- -------
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 5 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 6. Adjournments. Any meeting of the stockholders may be
--------- ------------
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned
3
<PAGE>
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 7. Quorum. Unless otherwise required by law or the Certificate
--------- ------
of Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, in the manner
provided in Section 6, until a quorum shall be present or represented.
Section 8. Voting. Unless otherwise required by law, the Certificate of
--------- ------
Incorporation or these By-laws, any question brought before any meeting of
stockholders, other than the election of directors, shall be decided by the vote
of the holders of a majority of the total number of votes of the capital stock
represented and entitled to vote thereat, voting as a single class. Unless
otherwise provided in the Certificate of Incorporation, and subject to Section 5
of Article V hereof, each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of the capital stock entitled
to vote thereat held by such stockholder. Such votes may be cast in person or by
proxy but no proxy shall be voted on or after three years from its date, unless
such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in such officer's discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 9. List of Stockholders Entitled to Vote. The officer of the
--------- -------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the
4
<PAGE>
meeting during the whole time thereof, and may be inspected by any stockholder
of the Corporation who is present.
Section 10. Stock Ledger. The stock ledger of the Corporation shall be
---------- ------------
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 11. Conduct of Meetings. The Board of Directors of the
---------- -------------------
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE III
DIRECTORS
---------
Section 1. Number and Election of Directors. The Board of Directors
--------- --------------------------------
shall consist of not less than one nor more than fifteen members, the exact
number of which shall be determined from time to time by resolution adopted by
the Board of Directors. The Board of Directors shall be classified in the manner
set forth in the Certificate of Incorporation. Except as provided in Section 3
of this Article III, directors shall be elected by a plurality of the votes cast
at the Annual Meetings of Stockholders and each director so elected shall hold
office until the Annual Meeting of Stockholders for the year in which such
director's
5
<PAGE>
term expires and until such director's successor is duly elected and qualified,
or until such director's earlier death, resignation or removal. Any director may
resign at any time upon written notice to the Corporation. Directors need not be
stockholders.
Section 2. Nomination of Directors. Only persons who are nominated in
--------- -----------------------
accordance with the following procedures shall be eligible for election as
directors of the Company, except as may be otherwise provided in the Certificate
of Incorporation with respect to the right of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors may
be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Company (i) who is a stockholder of record on
the date of the giving of the notice provided for in this Section 2 and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 2.
In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Company (a)
in the case of an annual meeting, not less than sixty (60) days nor more than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event that the
-------- -------
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth (10th) day following the day on which notice of the date
of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
6
<PAGE>
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Company which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Company which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Company
unless nominated in accordance with the procedures set forth in this Section 2.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
Section 3. Vacancies. Unless otherwise required by law or the
--------- ---------
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled only
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal.
7
<PAGE>
Section 4. Duties and Powers. The business and affairs of the
--------- -----------------
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 5. Meetings. The Board of Directors may hold meetings, both
--------- --------
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman, if
there be one, the President, or by a majority of the directors then in office.
Notice thereof stating the place, date and hour of the meeting shall be given to
each director either by mail not less than forty-eight (48) hours before the
date of the meeting, by telephone or telegram on twenty-four (24) hours' notice,
or on such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
Section 6. Quorum. Except as otherwise required by law or the
--------- ------
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 7. Actions by Written Consent. Unless otherwise provided in the
--------- --------------------------
Certificate of Incorporation, or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 8. Meetings by Means of Conference Telephone. Unless otherwise
--------- -----------------------------------------
provided in the Certificate of Incorporation, members of the Board of Directors
of the Corporation, or any committee thereof, may participate in a
8
<PAGE>
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 8 shall constitute presence in person at such meeting.
Section 9. Committees. The Board of Directors may designate one or more
--------- ----------
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
Section 10. Compensation. The directors may be paid their expenses, if
---------- ------------
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director, payable in cash or securities. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 11. Interested Directors. No contract or transaction between
---------- --------------------
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such
9
<PAGE>
purpose if (i) the material facts as to the director or officer's relationship
or interest and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board of Directors or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (ii) the material facts as to the director
or officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be chosen by
--------- -------
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, also may choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law or
the Certificate of Incorporation. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors, at its first meeting held
--------- --------
after each Annual Meeting of Stockholders (or action by written consent of
stockholders in lieu of the Annual Meeting of Stockholders), shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier death, resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
10
<PAGE>
Section 3. Voting Securities Owned by the Corporation. Powers of
--------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President or any
other officer authorized to do so by the Board of Directors and any such officer
may, in the name of and on behalf of the Corporation, take all such action as
any such officer may deem advisable to vote in person or by proxy at any meeting
of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
--------- ----------------------------------
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer, and,
except where by law the signature of the President is required, the Chairman of
the Board of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the powers
and discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as may from time to time be assigned by these By-Laws or by the Board of
Directors.
Section 5. President. The President shall, subject to the control of
--------- ---------
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board
11
<PAGE>
of Directors. If there be no Chairman of the Board of Directors, or if the Board
of Directors shall otherwise designate, the President shall be the Chief
Executive Officer of the Corporation. The President shall also perform such
other duties and may exercise such other powers as may from time to time be
assigned to such officer by these By-Laws or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or in the
--------- ---------------
President's absence or in the event of the President's inability or refusal to
act (and if there be no Chairman of the Board of Directors), the Vice President,
or the Vice Presidents if there is more than one (in the order designated by the
Board of Directors), shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the
--------- ---------
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, the Chairman of the Board of Directors or the President, under
whose supervision the Secretary shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest to the affixing by such officer's signature.
The Secretary shall see
12
<PAGE>
that all books, reports, statements, certificates and other documents and
records required by law to be kept or filed are properly kept or filed, as the
case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
--------- ---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of the Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under the Treasurer's control belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if there be
--------- ---------------------
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Secretary, and in the absence of the Secretary or in the
event of the Secretary's disability or refusal to act, shall perform the duties
of the Secretary, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be
---------- --------------------
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of the Treasurer's disability or refusal to act, shall perform the duties
of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Treasurer and for the restora-
13
<PAGE>
tion to the Corporation, in case of the Assistant Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the Assistant Treasurer's
possession or under the Assistant Treasurer's control belonging to the
Corporation.
Section 11. Other Officers. Such other officers as the Board of
---------- --------------
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate
--------- ----------
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
--------- -----------------
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or the owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may
14
<PAGE>
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed
or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be transferable in
--------- ---------
the manner prescribed by law and in these By-Laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued. No transfer of stock shall be valid as against the
Corporation for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
Section 5. Record Date.
--------- -----------
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; providing, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such
15
<PAGE>
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to
--------- -------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by law, the
--------- -------
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law,
--------- -----------------
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting, present in person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
16
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 7 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
--------- -------------
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
--------- --------------
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
--------- ---------------------------------------------------------
than Those by or in the Right of the Corporation. Subject to Section 3 of this
- ------------------------------------------------
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such
17
<PAGE>
person is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
--------- ------------------------------------------------------------
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
- ----------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
18
<PAGE>
Section 3. Authorization of Indemnification. Any indemnification under
--------- --------------------------------
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iv) by the stockholders. Such
determination shall be made, with respect to former directors and officers, by
any person or persons having the authority to act on the matter on behalf of the
Corporation. To the extent, however, that a present or former director or
officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith, without the necessity of authorization in the
specific case.
Section 4. Good Faith Defined. For purposes of any determination under
--------- ------------------
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe such person's conduct
was unlawful, if such person's action is based on the records or books of
account of the Corporation or another enterprise, or on information supplied to
such person by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in this
Section 4 shall mean any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to have
met the applicable
19
<PAGE>
standard of conduct set forth in Section 1 or 2 of this Article VIII, as the
case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
--------- --------------------------
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a director
--------- ---------------------------
or officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
--------- ----------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or granted
- --------
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to
20
<PAGE>
preclude the indemnification of any person who is not specified in Section 1 or
2 of this Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the General Corporation Law of the State of
Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
--------- ---------
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
--------- -------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
21
<PAGE>
Section 10. Survival of Indemnification and Advancement of Expenses.
---------- -------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
---------- -----------------------------
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
---------- ---------------------------------------
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
----------
Section 1. Amendments. These By-Laws may be altered, amended or
--------- ----------
repealed, in whole or in part, or new By-Laws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
22
<PAGE>
Section 2. Entire Board of Directors. As used in this Article IX and in
--------- -------------------------
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
* * *
Adopted as of: _____________________
Last Amended as of: ________________
23
<PAGE>
EXHIBIT 10.1
===============================================================================
PETsMART.COM, INC.
COMMON STOCK PURCHASE AGREEMENT
May 12, 1999
================================================================================
<PAGE>
PETsMART.COM, INC.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
May 12, 1999 (the "Closing Date"), by and between PETsMART.com, Inc., a Delaware
corporation (the "Corporation") and idealab! Holdings, L.L.C. (the "Purchaser").
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Common Stock Purchase.
---------------------
1.1 Purchase. Subject to the terms and conditions of this Agreement,
--------
the Corporation hereby sells to the Purchaser, and the Purchaser hereby
purchases from the Corporation 1,276,469 shares of the Corporation's Common
Stock, par value $0.001 per share (the "Shares"), at a price of $0.20 per share
for an aggregate purchase price of $255,293.80 (the "Purchase Price").
1.2 Delivery. The Corporation hereby delivers to the Purchaser a
--------
certificate representing the Shares (issued in such Purchaser's name), and the
Purchaser hereby delivers to the Corporation (a) an executed counterpart of this
Agreement, and (b) the Purchase Price of such Shares in the form of (i) a check
payable to the Corporation, (ii) a wire transfer or immediately available funds
to an account designated by the Corporation, or (iii) any combination of the
foregoing.
2. Investment Representations.
--------------------------
In connection with the acquisition of the Shares, the Purchaser represents
to the Corporation the following:
2.1 Investment. The Purchaser is acquiring the Shares to be issued to
----------
the Purchaser for investment for the Purchaser's own account and not with the
view to, or for resale in connection with, any distribution, assignment or
resale within the meaning of the Securities Act of 1933, as amended (the
"Securities Act") or the California Corporate Securities Law of 1968, as amended
("the California Securities Law") to others and no other person has a direct or
indirect beneficial interest, in whole or in part, in such Shares. The Purchaser
understands that the Shares to be issued to the Purchaser have not been and will
not be registered under the Securities Act or qualified under the California
Securities Law or under the laws of any other state of the United States in
reliance upon specific exemptions therefrom which depend upon, among other
things, the bona fide nature of the investment intent as expressed herein and in
any other representations, warranties or information provided by the Purchaser
to the Corporation under this Agreement.
2.2 Restrictions on Transfer. The Purchaser acknowledges that the
------------------------
Shares to be issued to the Purchaser must be held indefinitely unless
subsequently registered and qualified under the Securities Act or unless an
exemption from registration and qualification is otherwise available. In
addition, the Purchaser understands that the certificate representing the Shares
will be imprinted with a legend which prohibits the transfer of such Shares
unless they are sold in a transaction in
<PAGE>
compliance with the Securities Act or are registered and qualified or such
registration and qualification are not required in the opinion of counsel
acceptable to the Corporation.
2.3 No Public Market. The Purchaser understands and acknowledges that
----------------
no public market now exists for any of the securities issued by the Corporation
and that there can be no assurance that a public market will ever exist for the
Shares.
2.4 Rule 144. The Purchaser is aware of the provisions of Rule 144,
--------
promulgated under the Securities Act, which permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the Shares, the availability of certain current
public information about the Corporation, the resale occurring not less than one
year after the latter of the date full payment has been made for the securities
purchased from the Corporation or an affiliate of the Corporation, the sale
being through a "broker's transaction" or in transactions directly with a
"market maker" (as such term is defined under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) and the number of securities being sold
during any three (3) month period not exceeding specified limitations stated
therein; provided, however, if the Purchaser is not an affiliate of the
Corporation and the Shares were held more than two (2) years after full payment
and acquisition from the Corporation or an affiliate, which ever is later, or if
the Shares are sold to the Purchaser pursuant to Rule 701 promulgated under the
Securities Act and the Corporation has been subject to reporting requirements of
the Exchange Act, as amended, for ninety (90) days, then certain of the
foregoing conditions under Rule 144 may not be applicable.
2.5 Exemption from Registration. The Purchaser further
---------------------------
acknowledges that, in the event all of the applicable requirements of Rule 144
are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that,
although Rule 144 is not exclusive, the Staff of the Securities and Exchange
Commission has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and other than pursuant
to Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales and that such
persons and the brokers who participate in the transactions do so at their own
risk and that therefore there is no assurance that any exemption from
registration under the Securities Act will be available, or, if available, will
allow him to dispose of, or otherwise transfer, all or any portion of the
Shares.
2.6 Relationship to the Corporation; Experience. The Purchaser
-------------------------------------------
either has a preexisting business or personal relationship with the Corporation
or any of its officers, directors or controlling persons or, by reason of the
Purchaser's business or financial experience or the business or financial
experience of the Purchaser's personal representative(s), if any, who are
unaffiliated with and who are not compensated by the Corporation or any
affiliate or selling agent, directly or indirectly, has the capacity to protect
the Purchaser's own interests in connection with the Purchaser's acquisition of
the Shares to be issued to the Purchaser hereunder. The Purchaser and/or the
Purchaser's personal representative(s) have such knowledge and experience in
financial, tax and business matters to enable the Purchaser and/or them to
utilize the information made available to the Purchaser and/or them in
connection with the acquisition of the Shares to evaluate the merits and risks
of the prospective investment and to make an informed investment decision with
respect
<PAGE>
thereto. The Purchaser is experienced in evaluating and investing in high risk,
high technology companies such as the Corporation.
2.7 Offer and Sale. The Purchaser understands that the offer and sale
--------------
of the Shares have not been registered under the Securities Act in reliance upon
exemption therefrom. The Purchaser was not offered or sold the Shares, directly
or indirectly, by means of any form of general solicitation or general
advertisement, including the following: (i) any advertisement, article, notice
or other communication published in any newspaper, magazine or similar medium or
broadcast over television or radio; or (ii) any seminar or meeting whose
attendees had been invited by general solicitation or general advertising.
2.8 Access to Data. The Purchaser acknowledges that during the course
--------------
of this transaction and before deciding to acquire the Shares, the Purchaser has
been provided with financial and other written information about the
Corporation. The Purchaser has been given the opportunity by the Corporation to
obtain any information and ask questions concerning the Corporation, the Shares,
and the Purchaser's investment that the Purchaser felt necessary; and to the
extent the Purchaser availed himself of that opportunity, the Purchaser has
received satisfactory information and answers.
2.9 Risks. The Purchaser acknowledges and understands that (i)
-----
an investment in the Corporation constitutes a high risk, (ii) the Shares are
highly speculative, and (iii) there can be no assurance as to what investment
return, if any, there may be. The Purchaser is aware that the Corporation may
issue additional securities in the future which could result in the dilution of
the Purchaser's ownership interest in the Corporation.
2.10 Valid Agreement. This Agreement when executed and delivered by
---------------
the Purchaser shall constitute a valid and legally binding obligation of the
Purchaser which is enforceable in accordance with its terms.
3. Securities Compliance.
---------------------
3.1 Legends. The certificate or certificates representing the Shares
-------
shall bear legends in substantially the following form (in addition to any other
legend imposed by applicable blue sky laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS A REGISTRATION
STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR
IN THE OPINION OF COUNSEL FOR THE CORPORATION, SUCH TRANSFER
MAY BE MADE PURSUANT TO RULE 144 OR REGISTRATION UNDER THE
ACT IS OTHERWISE UNNECESSARY IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE ACT.
<PAGE>
3.2 No Qualification.
----------------
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS
AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA CORPORATIONS COMMISSIONER,
IS SUBJECT TO SUCH QUALIFICATION OR AN EXEMPTION BEING AVAILABLE, AND THE
ISSUANCE OF SUCH SECURITIES, OR THE RECEIPT OF ANY PART OF THE CONSIDERATION
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL. THE RIGHTS OF THE PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN
EXEMPTION BEING AVAILABLE.
3.3 Transfers. All transfers of Shares or any interest in any such
---------
Shares shall be made in strict compliance with applicable state and federal
securities laws.
4. Market Stand-off Agreement.
--------------------------
In connection with the initial public offering of the Corporation's
securities in connection with a registration statement filed under the
Securities Act, the Purchaser hereby agrees, if so requested by the managing
underwriters of such offering, that, without the prior written consent of such
managing underwriters, the Purchaser will not offer, sell, contract to sell,
grant any option to purchase, make any short sale or otherwise dispose of any
capital stock of the Corporation held or beneficially owned by the Purchaser
(other than those included in any such registration) without the prior written
consent of such managing underwriters for a period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
managing underwriters, provided that the officers and directors who own stock of
the Corporation and all 1% stockholders of the Corporation also agree to such
restrictions.
5. Miscellaneous.
-------------
5.1 Amendment. This Agreement may only be amended by written
---------
agreement between the Corporation and the Purchaser.
5.2 Notices. Any notice, demand, request or other communications
-------
hereunder shall be in writing and shall be deemed sufficient when delivered
personally or sent by telegram or upon deposit in the U.S. mail, as certified,
registered or first class mail, with postage prepaid, and addressed as follows:
if to the Corporation, at its principal place of business; and if to the
Purchaser, at the address as shown on Exhibit A. The address to which notice is
---------
to be given hereunder may be changed from time to time by the parties entitled
to notice by notice given to the other party as provided herein.
5.3 Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by, the Corporation's
successors and assigns. The rights and obligations of the Purchaser under this
Agreement may only be assigned with the prior written consent of the
Corporation.
5.4 Further Actions. Both parties agree to execute any additional
---------------
documents and take such further action as may be reasonably necessary to carry
out the purposes of this Agreement.
<PAGE>
5.5 Injunctive Relief. The Purchaser agrees that the Corporation
-----------------
and/or other stockholders of the Corporation shall be entitled to a decree of
specific performance of the terms hereof or an injunction restraining violations
of this Agreement, such right to be in addition to any of the remedies of the
Corporation. No remedy provided herein is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity.
5.6 Governing Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of California.
5.7 Severability. If any provision of this Agreement is held by a
------------
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way and shall be construed in
accordance with the purposes, tenor and effect of this Agreement.
5.8 Expenses. Each party hereto shall pay its own expenses incurred
--------
(including, without limitation, the fees of counsel) on his behalf in connection
with this Agreement or any transactions contemplated by this Agreement.
5.9 Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding of the parties hereto in respect of the subject matter hereof
and supersedes all prior and contemporaneous written or oral communications or
agreements between the Corporation and the Purchaser regarding the subject
matter hereof and no amendment or addition hereto shall be deemed effective
unless agreed to in writing by the parties hereto.
5.10 Waivers. No waiver of any provision of this Agreement or any
-------
rights or obligations of any party hereunder shall be effective, except pursuant
to a written instrument signed by the party or parties waiving compliance, and
any such waiver shall be effective only in the specific instance and for the
specific purpose stated in such writing.
5.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be an original and all of which together shall
constitute one and the same instrument.
5.12 Attorneys' Fees. If any legal action or any arbitration or other
---------------
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
provision of this Agreement, the successful or prevailing party shall be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it may be
entitled.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PURCHASER: CORPORATION:
IDEALAB! HOLDINGS, L.L.C. PETsMART.COM, INC.
/s/ Marcia Goodstein /s/ Tom McGovern
- ---------------------------------- ------------------------------
Marcia Goodstein, Secretary Tom McGovern, President
<PAGE>
EXHIBIT 10.2
SUBSCRIPTION AGREEMENT
PETsMART.com, Inc.
35 Hugus Alley, Suite 210
Pasadena, CA 91103
Attention: Tom McGovern, Jr.
This Subscription Agreement (the "Agreement") is made by and between
PETsMART.com, Inc., a Delaware corporation (the "Company"), and PETsMART, Inc.,
a Delaware corporation (the "Subscriber"), which is subscribing hereby to
purchase 1,361,027 shares (the "Shares") of the Company's common stock, $0.001
par value per share ("Common Stock") for a purchase price of $0.36 per share.
NOW THEREFORE, the parties hereto hereby agree as follows:
A. SUBSCRIPTION
1. The Subscriber hereby irrevocably subscribes to purchase the
Shares for an aggregate purchase price of $489,969.72.
2. The purchase and sale of the Shares will be consummated on
February 10, 2000 or such other date as may agreed upon between
the Subscriber and the Company (the date of consummation of the
purchase and sale of the Shares is hereinafter referred to as the
"Closing Date"). On the Closing Date, the Subscriber will pay and
deliver to the Company $489,969.72 in the form of a check or
wire transfer (the "Payment") payable to "PETsMART.com, Inc.",
and the Company will deliver to the Subscriber certificates
representing the Shares at the time of purchase.
B. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
1. The Subscriber hereby represents and warrants to, and agrees with
the Company, as follows:
(a) The Shares are being purchased for the Subscriber's own
account, and not for the account of any other person, and
not with a view to, or for sale in connection with, any
distribution or resale to others within the meaning of
Section 2(11) or Rule 502(d) promulgated under the
Securities Act
<PAGE>
of 1933, as amended (the "Act"). The offering and sale of
the Shares is intended to be exempt from registration under
the Act by virtue of Section 4(2) of the Act. The Subscriber
is an "accredited investor" as defined in Rule 501(a) under
the Act. No other person has a direct or indirect beneficial
interest in such Shares.
(b) The Subscriber will not sell, hypothecate, or otherwise
transfer his or her Shares (except in accordance with the
registration requirements of the Act and applicable state
securities laws) unless the Subscriber delivers a written
opinion of counsel, acceptable in form and substance and
addressed to the Company, to the effect that an exemption
from the registration requirements of the Act and such state
securities laws is available.
(c) The Company has made available to the Subscriber all
documents and information that the Subscriber has requested
relating to an investment in the Company. The Subscriber
recognizes the Company has only recently been organized and
that it has a limited financial or operating history and
that investing in the Company involves substantial risks,
and has taken full cognizance of and understands all of the
risk factors related to the purchase of the Shares. The
Subscriber has carefully considered and has, to the extent
the Subscriber believes such discussion necessary, discussed
with the Subscriber's professional legal, tax and financial
advisers the suitability of an investment in the Company and
the Subscriber has determined that the Shares are a suitable
investment for the Subscriber. The Subscriber has not relied
on the Company for any tax or legal advice in connection
with the Subscriber's purchase of the Shares.
(d) All corporate action necessary for the authorization,
execution, delivery and performance of the Agreement by the
Subscriber has been taken or will be taken prior to the
Closing. This Agreement is a valid and binding obligation of
the Subscriber, enforceable in accordance with its terms,
subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules
of law governing specific performance, injunctive relief or
other equitable remedies.
2
<PAGE>
(e) The Shares have not been registered under the Act nor
qualified under the California Corporate Securities Law of
1968, as amended, or any other applicable state securities
or blue sky laws in reliance, in part, on the
representations and warranties herein. No federal or state
agency has made any finding or determination as to the
fairness of this offering for investment, nor any
recommendation or endorsement of the Shares. There is no
public market for the Shares or any of the Company's
securities and there is no certainty that such a market will
ever develop. There can be no assurance that the Subscriber
will be able to sell or dispose of the Shares.
(f) The Subscriber shall not sell, transfer, assign, distribute
or otherwise make any transfer of the Shares (including,
without limitation, any distribution to shareholders,
partners, beneficiaries or the like) during the period
beginning on the Closing Date and ending 180 calendar days
following the earliest of (i) the date the Company has a
class of publicly traded equity securities registered
pursuant to Section 12(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) the date the
Company is acquired by an entity with publicly traded equity
securities registered pursuant to Section 12(b) of the
Exchange Act and the terms of such acquisition provide for
the equity securities of the Company to be converted into
the equity securities of such other entity, or (iii) January
1, 2008; provided, that the restriction in this sentence
--------
shall not apply to a transfer by the Subscriber to one or
more trusts or other entities for the benefit of employees
of the Subscriber complying with the provisions of paragraph
B.1.(b) above if, prior to such transfer, the transferee
agrees to be bound by (and makes the representations,
warranties and agreements contained in) this Section B
pursuant to a written agreement in form and substance
satisfactory to the Company. The restriction in the
foregoing sentence is in addition to any other restrictions
in this Agreement.
2. The Company hereby represents and warrants to the Subscriber as
follows:
3
<PAGE>
(a) The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware and is in
good standing under such laws. The Company has the
requisite corporate power and authority to own and operate
its properties and assets and to carry on its business as
presently conducted and as proposed to be conducted. The
Company is presently qualified to do business as a foreign
corporation in California and there is no other jurisdiction
in which the failure to be so qualified would have a
material adverse effect on the business or financial
condition of the Company.
(b) The authorized capital stock of the Company consists of
70,000,000 shares of Common Stock and 19,769,648 shares of
Preferred Stock, 3,300,000 of which have been designated
Series A Preferred, 1,800,000 of which have been designated
Series B Preferred Stock, 2,805,770 of which have been
designated Series C Preferred Stock and 11,863,878 shares of
which have been designated Series D Preferred Stock. The
Company has an aggregate of 5,466,464 shares of Common Stock
reserved for issuance under its 1999 Stock Plan.
(c) All corporate action necessary for the authorization,
execution, delivery and performance of the Agreement by the
Company, and the authorization, sale, issuance and delivery
of the Shares has been taken or will be taken prior to the
Closing. This Agreement is a valid and binding obligation of
the Company, enforceable in accordance with their terms,
subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules
of law governing specific performance, injunctive relief or
other equitable remedies. The Shares, when issued in
compliance with the provisions of this Agreement, will be
validly issued, fully paid and nonassessable. At the time of
Closing, the issuance of the Shares is not subject to any
preemptive rights or rights of first refusal which will not
have been complied with or waived.
C. MISCELLANEOUS
4
<PAGE>
1. All pronouns and any variations thereof used herein shall be
deemed to refer to the masculine, feminine, singular, or plural
as the identity of the person or persons may require.
2. Neither this Agreement nor any provisions hereof shall be waived,
modified, changed, discharged, terminated, revoked, or cancelled
except by an instrument in writing signed by the party against
whom any change, discharge, or termination is sought.
3. Notices required or permitted to be given under this Agreement
shall be in writing and shall be deemed to be sufficiently given
when personally delivered or sent by registered mail, return
receipt requested, addressed to the Company at the address set
forth above or, in the case of the Subscriber, at the address
provided in this Agreement, or to such other address furnished by
notice given in accordance with this paragraph.
4. Failure of the Company to exercise any right or remedy under this
Agreement or any other agreement between the Company and the
Subscriber, or otherwise, or delay by the Company in exercising
such right or remedy, shall not operate as a waiver thereof. No
waiver by the Company shall be effective unless and until it is
in writing and signed by the Company.
5. This Agreement and all questions relating to its validity,
interpretation, performance, and enforcement shall be enforced,
governed and construed in accordance with the laws of the State
of California, without giving effect to conflict of law
principles and shall be binding on the Subscriber and the
Subscriber's successors and assigns, and shall inure to the
benefit of the Company, its successors and assigns.
6. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any provision hereof which may
prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
7. Any dispute concerning this Agreement shall be submitted to
arbitration before a single arbitrator under the then applicable
rules of the American Arbitration Association (or any successor
thereto or
5
<PAGE>
any replacement arbitration tribunal as agreed to by the
parties). The provisions of Part 3, Title 9 (Sections 1280 et
seq.), of the California Code of Civil Procedure will apply to
any such arbitration. The arbitration hearing will be held in
Los Angeles, California.
8. This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof and
supersedes any and all prior or contemporaneous representations,
warranties, agreements and understandings in connection
therewith. This Agreement may be amended only by a writing
executed by the Subscriber and the Company.
6
<PAGE>
PETsMART.COM, INC.
SUBSCRIPTION AGREEMENT
SIGNATURE PAGE
This page constitutes the Signature Page for the Agreement. The
Subscriber represents to the Company that (a) the information contained in the
Agreement is complete and accurate on the date hereof and will be accurate on
the Closing Date and may be relied upon by the Company and (b) the Subscriber
will notify the Company immediately of any change in any of such information
occurring prior to the acceptance of the subscription and will promptly send the
Company written confirmation of such change. The Subscriber hereby certifies
that he or she has read and understands this Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Agreement
effective as of February 3, 2000.
PETsMART.com, Inc.
By: /s/ Tom McGovern
----------------------------
Name: Tom McGovern, Jr.
Title: President and CEO
Address:
PETsMART, Inc.
By: /s/ Philip L. Francis
----------------------------
Name: Philip L. Francis
Title: President and CEO
Address:
7
<PAGE>
EXHIBIT 10.3
PETsMART.COM, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made effective the 12 day of May, 1999 (the "Effective
Date") between PETsMART.com, Inc., a Delaware corporation (the "Company") and
Tom McGovern, Jr. (the "Purchaser").
WHEREAS the Purchaser is an employee of the Company and his continued
participation is considered by the Company to be important for the Company's
continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Company is willing to sell to the Purchaser and the
Purchaser desires to purchase 1,043,111 shares of Common Stock according to the
terms and conditions hereof.
THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
-------------
and the Purchaser hereby agrees to purchase an aggregate of 1,043,111
shares of the Company's Common Stock (the "Shares"), at the price of $0.20
per share for an aggregate purchase price of $208,622.22 (the "Purchase
Price").
2. Payment of Purchase Price. The Purchase Price for the Shares shall be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement
of a check or wire transfer.
3. Issuance of Shares. Upon receipt by the Company of the Purchase Price,
------------------
the Company shall issue a duly executed certificate evidencing the Shares
in the name of the Purchaser to be held in escrow until expiration of the
Company's repurchase option as described in this Agreement.
4. Repurchase Option.
-----------------
(1) All of the Shares are subject to the Company's repurchase option
defined in this section. In the event of the voluntary or involuntary
termination of the Purchaser's employment with or services to the
Company for any or no reason (including death or disability) before
all of the Shares are released from the Company's repurchase option
under Section 5, the Company shall, upon the date of such termination
(as reasonably fixed and determined by the Company) have an
irrevocable, exclusive option for a period of 90 days from such date
to repurchase all or any portion of the Shares which have not been
released from the repurchase option at such time at the original
purchase price per share ($0.01) ("Repurchase Option"). Said
Repurchase Option shall be exercised by the Company by written notice
to the
<PAGE>
Purchaser or his executor (with a copy to the Escrow Holder (as
defined below)) and, at the Company's option, (i) by delivery to the
Purchaser or his executor with such notice of a check in the amount of
the repurchase price for the Shares being repurchased, or (ii) by
cancellation by the Company of an amount of the Purchaser's
indebtedness to the Company equal to the repurchase price for the
Shares being repurchased, or (iii) by a combination of (i) and (ii) so
that the combined payment and cancellation of indebtedness equals such
repurchase price. Upon delivery of such notice and the payment of the
repurchase price in any of the ways described above, the Company shall
become the legal and beneficial owner of the Shares being repurchased
and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name
the number of Shares being repurchased by the Company.
(2) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees,
officers, directors or stockholders of the Company or other persons or
organizations to exercise all or a part of the Company's repurchase
rights under this Agreement and purchase all or a part of such Shares.
5. Release of Shares From Repurchase Option.
----------------------------------------
(1) 25,000 of the Shares shall be released from the Company's
Repurchase Option at the Effective Date and 6.25% of the remaining
Shares shall be released at the end of each full three-calendar-month
period from the Effective Date until all of the Shares have been
released, provided in each case that, subject to Section 5(2), the
Purchaser's services as an employee of or consultant to the Company
have not been terminated prior to the date of any such release.
(2) (a) Upon the merger or consolidation of the Company with or into
another corporation, entity or person or the sale of all or
substantially all of the Company's assets to another corporation,
entity or person, where after such merger, consolidation or sale of
assets, less than 50% of the capital stock or equity interests in such
other corporation, entity or person are owned by persons who owned in
the aggregate less than 50% of the capital stock of the Company
immediately before such merger, consolidation or sale of assets (a
"Dispositive Transaction"), and if the Purchaser voluntary or
involuntary terminates his employment with or services to the Company
for any or no reason within sixty (60) days of such Dispositive
Transaction, fifty percent (50%) of the previously unvested Shares
shall be immediately released from the Company's Repurchase Option.
(b) Upon the Company's termination of the Purchaser's employment
with or services to the Company without "Cause" (as defined herein),
up to fifty percent (50%) of the previously unvested Shares shall be
immediately released from the
2
<PAGE>
Company's Repurchase Option; provided, however, that once an aggregate
of 1,410,000 shares have been released from the Company's Repurchase
Option under any provision of this Section 5, no further shares shall
be released under this Section 5(2)(b). For purposes of this Section
5(2)(b), "Cause" is defined as (i) an act of dishonesty made by
Purchaser in connection with his responsibilities as an employee of
the Company, (ii) Purchaser's conviction of, or plea of nolo
----
contendere to, a felony, (iii) Purchaser's serious misconduct, (iv)
----------
Purchaser's continued violations of his employment duties after
Purchaser has received a written demand for performance from the
Company which specifically sets forth the factual basis for the
Company's belief that Purchaser has not substantially performed his
duties, or (v) Purchaser's death or permanent and total disability.
6. Restriction on Transfer. Except for the escrow described in Section 7
-----------------------
or transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares nor any beneficial interest therein
shall be transferred, encumbered or otherwise disposed of in any way until
the release of such Shares from the Company's Repurchase Option in
accordance with the provisions of this Agreement.
7. Escrow of Shares.
----------------
(1) The Shares issued under this Agreement shall be held by the
Secretary of the Company as escrow holder ("Escrow Holder"), along
with a stock assignment executed by the Purchaser in blank, until the
expiration of the Company's Repurchase Option with respect to such
Shares as set forth above.
(2) The Escrow Holder is hereby directed to permit transfer of the
Shares only in accordance with this Agreement or instructions signed
by both parties. In the event further instructions are desired by the
Escrow Holder, he shall be entitled to rely upon directions executed
by a majority of the authorized number of the Company's Board of
Directors. The Escrow Holder shall have no liability for any act or
omission hereunder while acting in good faith in the exercise of his
own judgment.
(3) If the Company or any assignee exercises its Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such
option exercise from the proposed transferee, shall take all steps
necessary to accomplish such transfer.
(4) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from such
Repurchase Option, upon Purchaser's request the Escrow Holder shall
promptly cause a new certificate to be issued for such released Shares
and shall deliver such certificate to the Purchaser.
(5) Subject to the terms hereof, the Purchaser shall have all the
rights of a stockholder with respect to such Shares while they are
held in escrow, including
3
<PAGE>
without limitation, the right to vote the Shares and receive any cash
dividends declared thereon. If, from time to time during the term of
the Company's Repurchase Option, there is (i) any stock dividend,
stock split or other change in the Shares, or (ii) any merger or sale
of all or substantially all of the assets or other acquisition of the
Company, any and all new, substituted or additional securities to
which the Purchaser is entitled by reason of his ownership of the
Shares shall be immediately subject to this escrow, deposited with the
Escrow Holder and included thereafter as "Shares" for purposes of this
Agreement and the Company's repurchase option.
8. Legends. The share certificate evidencing the Shares issued
-------
hereunder shall be endorsed with the following legends:
(1) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933."
(2) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY
AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY."
(3) Any legend required to be placed thereon by applicable state
securities laws.
9. Investment Representations; Restriction on Transfer.
---------------------------------------------------
(1) In connection with the purchase of the Shares, the Purchaser
represents to the Company the following:
(1) He is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the
securities. He is purchasing these securities for investment for his
own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities
Act of 1933 (the "Securities Act").
(2) He understands that the securities have not been registered under
the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of
his investment intent as expressed herein. In this connection, he
understands that, in view of the Securities and Exchange Commission
(the "Commission"), the statutory basis for such
4
<PAGE>
exemption may not be present if his representations meant that his
present intention was to hold these securities for a minimum capital
gains period under the tax statutes, for a deferred sale, for a market
rise, for a sale if the market does not rise, or for a year or any
other fixed period in the future.
(3) He further acknowledges and understands that the securities must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. He
further acknowledges and understands that the Company is under no
obligation to register the securities. He understands that the
certificate evidencing the securities will be imprinted with a legend
which prohibits the transfer of the securities unless they are
registered or such registration is not required in the opinion of
counsel for the Company.
(4) He is aware of the adoption of Rule 144 by the Commission,
promulgated under the Securities Act, which permits limited public
resale of securities acquired in a non-public offering subject to the
satisfaction of certain conditions.
(5) He further acknowledges that in the event all of the requirements
of Rule 144 are not met, compliance with Regulation A or some other
registration exemption will be required; and that although Rule 144 is
not exclusive, the staff of the Commission has expressed its opinion
that persons proposing to sell private placement securities other than
in a registered offering and other than pursuant to Rule 144 will have
a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales and that such
persons and the brokers who participate in the transactions do so at
their own risk.
(2) The Purchaser agrees, in connection with the Company's initial public
offering of the Company's securities, (i) not to sell, make short sales of,
loan, grant any options for the purchase of, or otherwise dispose of any
shares of Common Stock of the Company held by the Purchaser (other than
those shares included in the registration) without the prior written
consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for up to one
hundred eighty (180) days from the effective date of such registration and
(ii) further agrees to execute any agreement reflecting (i) above as may be
requested by the underwriters at the time of the public offering.
10. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the Purchase Price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
11. General Provisions.
------------------
(1) This Agreement shall be governed by the internal laws of the State of
California. This Agreement represents the entire agreement between the
parties with respect to the
5
<PAGE>
purchase of Common Stock by the Purchaser, may only be modified or amended
in writing signed by both parties and satisfies all of the Company's
obligations to the Purchaser with regard to the issuance or sale of
securities.
(2) Any notice, demand or request required or permitted to be given by
either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed
to the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address with
a copy to the other party not sending the notice.
(3) The rights and benefits of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by
the Company's successors and assigns. The rights and obligations of the
Purchaser under this Agreement may only be assigned with the prior written
consent of the Company.
(4) Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing
each and every other provision of this Agreement. The rights granted both
parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
(5) The Purchaser agrees upon request to execute any further documents or
instruments necessary or desirable to carry out the purposes or intent of
this Agreement.
(6) The Purchaser understands that he (and not the Company) shall be
responsible for his own federal, state, local or foreign tax liability and
any of the other tax consequences that may arise as a result of the
transactions contemplated by this Agreement. The Purchaser shall rely
solely on the determinations of his tax advisors or his own determinations,
and not on any statements or representations by the Company or any of its
agents, with regard to all such tax matters. The Purchaser shall notify the
Company in writing if the Purchaser files an election pursuant to Section
83(b) of the Internal Revenue Code of 1986, as amended, with the Internal
Revenue Service within thirty (30) days from the date of the sale of the
Shares hereunder. The Company intends, in the event it does not receive
from the Purchaser evidence of such filing, to claim a tax deduction for
any amount which would be taxable to the Purchaser in the absence of such
an election.
(7) THE PURCHASER UNDERSTANDS THAT THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA
6
<PAGE>
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART
OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION
25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF
ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
7
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first set forth above.
PURCHASER HEREBY ACKNOWLEDGES AND AGREES THAT THIS DOCUMENT REPRESENTS THE
DEFINITIVE AGREEMENT BETWEEN THE PURCHASER AND THE COMPANY WITH REGARD TO THE
ISSUANCE OF COMPANY SECURITIES TO THE PURCHASER AND THAT IT SUPERSEDES ANY OTHER
AGREEMENT, EITHER ORAL OR WRITTEN, RELATING TO THE PURCHASER'S RIGHTS TO COMPANY
SECURITIES. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT ANY AND ALL FUTURE
ISSUANCES OF COMPANY SECURITIES TO THE PURCHASER MUST BE APPROVED BY THE
COMPANY'S BOARD OF DIRECTORS AND EVIDENCED BY AN EXECUTED WRITTEN AGREEMENT IN
ORDER TO BECOME BINDING ON THE COMPANY.
PETsMART.COM, INC.
a Delaware corporation PURCHASER: Tom McGovern, Jr.
By: /s/ Tom McGovern /s/Tom McGovern
------------------- ----------------------------
Tom McGovern, Jr. (Signature)
President
983 Old Mill Road
----------------------------
(Address)
Pasadena, CA 91108
----------------------------
8
<PAGE>
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of Tom McGovern, Jr. have read and approve the
foregoing Agreement. In consideration of granting of the right to my spouse to
purchase shares of PETsMART.com, Inc. Common Stock, as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws of the
State of California or similar laws relating to marital property in effect in
the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated:____________________
_______________________________
Signature
9
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, Tom McGovern Jr. hereby sell, assign and transfer to
_____________________ (________) shares of the Common Stock of PETsMART.com,
Inc. (the "Company") standing in my name on the books of the Company represented
by Certificate No. __________ and do hereby irrevocably constitute and appoint
Wilson Sonsini Goodrich & Rosati, attorney, to transfer said stock on the books
of the Company with full power of substitution in the premises.
This Assignment Separate from Certificate may only be used in accordance with
the Restricted Stock Purchase Agreement dated May ___, 1999.
Dated: __________, ____.
Signature:___________________________
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Right set forth in the Agreement without requiring additional
signature on the part of Purchaser.
10
<PAGE>
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal
Code, to include in his gross income for the current taxable year, the amount of
any compensation taxable to him in connection with his receipt of the property
described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: Tom McGovern, Jr. SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described as
follows:
2,820,000 shares of Common Stock (the "Shares"), par value $0.001, of
PETsMART.com, Inc., a Delaware corporation (the "Company").
3. The date on which the property was transferred is: May 12, 1999
----------------------
4. The property is subject to the following restrictions:
The Company has the right to repurchase a portion of the Shares upon the
happening of certain events. This right of repurchase lapses with regard
to a portion of the Shares over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $208,622.22.
6. The amount (if any) paid for such property: $208,622.22.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- --------------------------------------------
Dated: _________________________ /s/ Tom McGovern
-------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________________ _______________________________
Spouse of Taxpayer
11
<PAGE>
EXHIBIT 10.4
AMENDMENT NUMBER ONE TO
RESTRICTED STOCK PURCHASE AGREEMENT
This Amendment Number One to the Restricted Stock Purchase Agreement (the
"Amendment"), is made and entered into effective as of May 12, 1999, by and
- ----------
between PETsMART.com, Inc., a Delaware corporation (the "Company") and Tom
McGovern, Jr. (the "Purchaser").
---------
RECITALS
WHEREAS, the Company and the Purchaser desire to amend the Restricted Stock
Purchase Agreement, dated as of May 12, 1999 (the "Agreement"), by and between
---------
the Company and the Purchaser, in order to correct certain typographical and
other errors contained therein.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions - The capitalized terms used in this Amendment and not
-----------
otherwise defined herein shall have the meanings set forth in the Agreement.
ARTICLE II
AMENDMENT OF AGREEMENT
2.1 Payment of Purchase Price - Section 2 of the Agreement is hereby
-------------------------
amended by deleting "a check or wire transfer" and inserting, in lieu thereof "a
check in the amount of $1,043.11 and a promissory note in the amount of
$207,579.09."
2.2 Purchase Price for Repurchase Option - Section 4(1) of the Agreement
------------------------------------
is hereby amended by deleting "($0.01)" and inserting, in lieu thereof
"($0.20)".
2.3 Release of Shares from Repurchase Option - Section 5(1) of the
----------------------------------------
Agreement shall be amended to read as follows:
"(1) One third (1/3) of the Shares shall be released from the Company's
Repurchase Option at the Effective Date and 1/36th of the remaining
Shares shall be released at the end of each month thereafter until all
of the Shares have been released three years from the Effective Date,
provided in each case, that subject to Section 5(2), the Purchaser's
service as an employee or consultant to the Company have not been
terminated prior to the date of any such release."
<PAGE>
2.4 Release of Shares from Repurchase Option - Section 5(2) of the
----------------------------------------
Agreement shall be amended to read as follows:
"(2) In the event Purchaser's employment terminates (i) involuntarily
by Pur chaser or (ii) as a result of an "Involuntary Termination" (as
defined in that certain employment agreement between Purchaser and the
Company, dated May 12, 1999, (the "Employment Agreement") within six
months following a Change in Control (as defined in the Employment
Agreement), fifty percent (50%) of the previously unvested Shares
shall be immediately released from the Company's Repurchase Option."
2.5 Release of Shares - Section 5(2)(b) of the Agreement is hereby amended
-----------------
by deleting "1,410,000" and inserting, in lieu thereof "1,043,111".
ARTICLE III
MISCELLANEOUS PROVISIONS
3.1 Effect of Amendment - Except as expressly modified by this Amendment,
--------------------
the Agreement shall continue to be and remain in full force and effect in
accordance with its terms. Any future reference to the Agreement shall be deemed
to be a reference to the Agreement as modified by this Amendment.
3.2 Multiple Counterparts. This Amendment may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, with the same effect as
if signatures thereto and hereto were upon the same instrument.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have duly executed this
Amendment as of the day and year first set forth above.
PETsMART.com, Inc., PURCHASER: Tom McGovern, Jr.
a Delaware corporation
/s/ Tom McGovern
BY: /s/ Tom McGovern --------------------------------------
------------------------- (Signature)
Name: Tom McGovern
Title: Chief Executive Officer ---------------------------------------
(Address)
---------------------------------------
---------------------------------------
<PAGE>
EXHIBIT 10.5
SECURED PROMISSORY NOTE
Los Angeles, California
$187,249.00 January 18, 2000
FOR VALUE RECEIVED, Tom McGovern ("Borrower"), hereby unconditionally
promises to pay to the order of PETsMART.com, Inc., a Delaware corporation, and
its successors, endorsees, transferees and assigns ("Payee"), the principal
amount of One Hundred Eighty Seven Thousand Two Hundred Forty Nine Dollars of
the United States of America (U.S $187,249.00) and interest on the unpaid
principal amount hereof, on or before the earlier of (i) January 18, 2005 or
(ii) (A) 30 days after the termination of Borrower's employment with the Payee
with cause (as defined in Borrower's employment agreement with the Payee) or (B)
six months after the termination of the Borrower's employment with Payee without
cause. Interest shall accrue from the date hereof until this Note is paid in
full at a rate equal to seven percent (7%) per annum compounded semiannually.
Interest shall be computed on the basis of a 360-day year and the actual number
of days elapsed in the period.
Borrower may at its option make principal payments on this Note without
premium or penalty. All payments of principal shall be accompanied by payments
of accrued and unpaid interest on the principal being repaid. If any payment of
principal or interest on this Note shall become due on a Saturday, Sunday or
legal holiday under the laws of the State of California, such payment shall be
made on the next succeeding business day, and any such extended time of the
payment of principal shall be included in computing interest at the rate this
Note bears prior to maturity in connection with such payment.
Borrower shall make payment of all interest accruing on all obligations of
the Borrower now existing or hereafter incurred under, arising out of, or in
connection with this Note and the Pledge Agreement (as defined below) after the
filing of a petition by or against the Borrower under the Bankruptcy Code, in
accordance with and at the rate specified in this Note whether or not the claim
for such interest is allowed as a claim after such filing in any proceeding
under the Bankruptcy Code).
All payments of principal, interest and other amounts payable in respect of
this Note shall be made in lawful money of the United States of America or by
personal check, at the office of Payee located at 35 Hugus Alley, Suite 210,
Pasadena, CA 91103, Attention: Chief Financial Officer or at such other place
that Payee shall have designated in writing for such purpose. Payee shall,
before disposing of this Note or any part hereof, make a notation hereon of all
principal and interest payments previously made hereunder and of the date to
which interest hereon has been paid; provided, that the failure to correctly
make a notation of any payment made on this Note shall not limit or otherwise
affect the obligation of Borrower under this Note with respect to any loan
evidenced hereby or payments of principal or interest on this Note.
The proceeds of this Note, together with $251.00 in cash, shall be used by
the Borrower, to purchase 250,000 shares of Common Stock (the "Common Stock") of
Payee under the 1999 Stock Plan Stock Option Agreement, dated November 12, 1999,
between the Borrower and the Payee (the "Option Agreement"), which Common Stock
shall secure this Note pursuant to the Pledge Agreement between the Borrower and
Payee, dated as of the date hereof (the "Pledge Agreement"). No reference herein
to the Pledge Agreement and no provision of this Note or the Pledge Agreement
shall alter or impair the obligation of Borrower, which is absolute and
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
The occurrence of any of the following shall constitute an "Event of
Default":
<PAGE>
(1) failure of Borrower to pay any principal, interest or
other amount due under this Note when due, whether at stated maturity,
by acceleration, by notice of prepayment or otherwise, in each case
within ten (10) days after the same becomes due and payable;
(2) breach of any other representation, warranty or covenant
of Borrower contained in this Note or of the Pledgor (as defined
therein) in the Pledge Agreement;
(3) an involuntary case shall be commenced against Borrower or
a court having jurisdiction shall enter a decree or order for relief in
respect of Borrower in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect
(collectively, "Bankruptcy Laws"), which decree or order is not stayed;
or any other similar relief shall be granted under any other law; or a
decree or order of a court having jurisdiction for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Borrower, or over all or a substantial part
of Borrower's property, shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of
Borrower for all or a substantial part of Borrower's property; or the
issuance of a warrant of attachment, execution or similar process
against any substantial part of the property of Borrower; or
(4) Borrower shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable
Bankruptcy Law, or shall consent to the entry of an order for relief in
an involuntary case, or to the conversion to an involuntary case, under
any such law, or shall consent to the appointment of or taking
possession of a receiver, trustee or other custodian for all or a
substantial part of Borrower's properties; the making by Borrower of
any assignment for the benefit of creditors; or the inability or
failure of Borrower, or the admission of Borrower in writing of its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in items (3) or (4)
above, the principal of this Note, together with all unpaid interest and all
other amounts payable hereunder, shall become due and payable forthwith, without
presentment, demand, notice, protest or other requirement of any kind, all of
which are expressly waived by Borrower. Upon the occurrence of any event
specified in items (1) or (2) above, Payee may, by written notice to Borrower,
declare this Note, together with all unpaid interest and all other amounts
payable hereunder, and this Note, together with all unpaid interest and all
other amounts payable hereunder, shall immediately become, due and payable
without presentment, further demand or notice, protest or other requirements of
any kind, all of which are expressly waived by Borrower.
Borrower agrees to advise Payee as to the occurrence of any event or
existence of any condition that, with the passage of time or giving of notice,
or both, could constitute an Event of Default as soon as possible but not later
than two business days after Borrower becomes aware of the occurrence of such
event or existence of such condition. The failure to provide such notice will
constitute an Event of Default.
This Note shall be construed and enforced in accordance with, and shall be
governed by, the laws of the State of California, without regard to conflict of
law principles thereof. Borrower and Payee further agree that a non-exclusive
forum for the determination of any action relating to this Note or the Pledge
Agreement shall include an appropriate court of the State of California or the
United States District Court or United States Bankruptcy Court for the District
of California and Borrower and Payee hereby irrevocably submit to the
jurisdiction thereof.
2
<PAGE>
To the maximum extent permitted by law, Borrower and Payee hereby expressly
waive any right to trial by jury of any action, cause of action, claim, demand,
or proceeding arising under or with respect to this Note, or in any way
connected with, related to, or incidental to the dealings of Borrower and Payee
with respect to this Note or the transactions related hereto, in each case
whether now existing or hereafter arising, and irrespective of whether sounding
in contract, tort, or otherwise. To the maximum extent permitted by law,
Borrower and Payee each mutually agree that any such action, cause of action,
claim, demand, or proceedings shall be decided by a court trial without a jury
and that the defending party may file a copy of this section with any court or
other tribunal as written evidence of the consent of the complaining party to
the waiver of its right to trial by jury.
Borrower promises to pay all costs and expenses, including attorneys' fees,
incurred in the collection and enforcement of this Note, including, without
limitation, enforcement before any court and including all appellate
proceedings. Borrower hereby consents to renewal and extensions of time at or
after the maturity hereof, without notice, and hereby waives diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
No delay or omission on the part of Payee in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Payee of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. The rights and remedies of
Payee are cumulative and not exclusive of any rights or remedies it otherwise
has.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note, shall be interpreted so as to be effective and valid.
The holder of this Note shall have the right at any time to sell, assign,
transfer, negotiate or pledge all or any part of its interest in this Note.
Borrower may not assign, and no person may assume, any of the obligations of
Borrower under this Note without the prior written consent of Payee, which
consent may be granted or withheld in Payee's sole discretion, and any attempt
to do so without such consent shall be void.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
day and year and at the place first written above.
Borrower
By: /s/ Tom McGovern
-------------------------
Tom McGovern
983 Old Mill Road
Pasadena, CA 91108
3
<PAGE>
EXHIBIT 10.6
SECURITY AGREEMENT
This Security Agreement is made as of May 12, 1999 between PETsMART.com, Inc., a
Delaware corporation ("Pledgee"), and Tom McGovern, Jr. ("Pledgor").
Recitals
--------
Pursuant to Pledgor's purchase of 1,043,111 shares of the Pledgee's Common Stock
under the Common Stock Purchase Agreement dated May 12, 1999 (the "Purchase
Agreement"), between Pledgor and Pledgee, Pledgor's desires to pay for such
shares of Pledgee's Common Stock (the "Shares") with this promissory note (the
"Note"), for a total loan of $208,622.20. The Note and the obligations
thereunder are as set forth as Exhibit A to this Security Agreement.
---------
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Purchase Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number CS-___, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
Payment of Indebtedness. Pledgor will pay the principal sum of the
-----------------------
Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
<PAGE>
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
-----------------
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
------------------
subscription options or other rights or options shall be issued in connection
with the pledged Shares, such rights and options shall be the property of
Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
Pledgor fails to perform any of the covenants contained in this
Security Agreement for a period of 10 days after written notice thereof from
Pledgee.
In the case of an event of Default, as set forth above, Pledgee
shall have the right to accelerate payment of the Note upon notice to Pledgor,
and Pledgee shall thereafter be entitled to pursue its remedies under the
California Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
<PAGE>
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
----------------------
Pledgeholder shall not be liable to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
"PLEDGOR" /s/ Tom McGovern
--------------------------------
Tom McGovern, Jr.
"PLEDGEE" PETsMART.com, Inc.,
a Delaware corporation
/s/ Tom McGovern
--------------------------------
Tom McGovern, Jr.,
President
"PLEDGEHOLDER" /s/ Tom McGovern
--------------------------------
Tom McGovern, Jr.,
Secretary of PETsMART.com, Inc.
EXHIBIT A
---------
NOTE
$207,579.09 Pasadena, CA
As of May 12, 1999
FOR VALUE RECEIVED, Tom McGovern, Jr. ("Payee") promises to pay to PETsMART.com,
Inc., a Delaware corporation (the "Company"), or order, the principal sum of Two
Hundred Seven Thousand Five Hundred Seventy Nine Dollars and Nine Cents
($207,579.09), together with interest on the unpaid principal hereof from the
date hereof at the rate of seven percent (7%) per annum, compounded
semiannually.
Principal and interest shall be due and payable upon the earlier of (i) May 12,
2004 or (ii) (A) 30 days after the termination of Payee's employment with the
Company or any successor-in-interest of the Company with cause (as defined in
the Employment Agreement by and between Payee and the Company dated of even date
herewith) or (B) six months after the termination of Payee's employment with the
Company or any successor-in-interest of the Company without cause. Payment of
principal and interest shall be made in lawful money of the United States of
America.
The undersigned may at any time prepay all or any portion of the principal or
interest owing hereunder.
<PAGE>
This Note is secured by a pledge of the Company's Common Stock under the terms
of a Security Agreement dated May 12, 1999, and is subject to all the provisions
thereof.
The holder of this Note shall have full recourse against the undersigned, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the reasonable
costs and attorney's fees therein of the holder shall be paid by the
undersigned.
/s/ Tom McGovern
--------------------------------
Tom McGovern, Jr.
<PAGE>
EXHIBIT 10.7
SECURITY AGREEMENT
This Security Agreement is made as of April 1, 1999 between Interpet, Inc., a
Delaware corporation ("Pledgee"), and Tom McGovern ("Pledgor").
Recitals
--------
Pursuant to Pledgor's purchase of 400,000 shares of the Pledgee's Common Stock
under the Common Stock Purchase Agreement dated April 1, 1999 (the "Purchase
Agreement"), between Pledgor and Pledgee, Pledgor's desires to pay for 200,000
of such shares of Pledgee's Common Stock (the "Shares") with this promissory
note (the "Note"), for a total loan of $50,000. The Note and the obligations
thereunder are as set forth as Exhibit A to this Security Agreement.
---------
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Securitv Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Purchase Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number C-___, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
-----------------
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
------------------
subscription options or other rights or options shall be issued in connection
with the pledged Shares, such rights and options shall be the property of
Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
Payment of principal or interest on the Note shall be delinquent
for a period of l0 days or more; or
Pledgor fails to perform any of the covenants contained in this
Security Agreement for a period of l0 days after written notice thereof from
Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares
<PAGE>
held by Pledgeholder hereunder upon payments of the principal of the Note. The
number of the pledged Shares which shall be released shall be that number of
full Shares which bears the same proportion to the initial number of Shares
pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
1l. Pledgeholder Liability. In the absence of willful or gross negligence,
----------------------
Pledgeholder shall not be liable to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
---------------------
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
"PLEDGOR" /s/ Tom McGovern
----------------
Tom McGovern
"PLEDGEE" Interpet, Inc.,
a Delaware corporation
/s/ Tom McGovern
----------------
Tom McGovern, President
"PLEDGEHOLDER" /s/ Marcia Goodstein
--------------------
Marcia Goodstein, Secretary of Interpet, Inc.
EXHIBIT A
---------
NOTE
$50,000 Pasadena, CA
April 1, 1999
FOR VALUE RECEIVED, Tom McGovem promises to pay to Interpet, Inc., a Delaware
corporation (the "Company"), or order, the principal sum of Fifty Thousand
Dollars ($50,000), together with interest on the unpaid principal hereof from
the date hereof at the rate of seven percent (7%) per annum, compounded
semiannually.
Principal and interest shall be due and payable on April 1, 2004. Payment of
principal and interest shall be made in lawful money of the United States of
America.
The undersigned may at any time prepay all or any portion of the principal or
interest owing hereunder.
This Note is secured solely by a pledge of the Company's Common Stock under the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.
The holder of this Note shall have no recourse against the undersigned, and
shall be required to proceed solely against the collateral securing this Note in
the event of default.
<PAGE>
Should any action be instituted for the collection of this Note, the reasonable
costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
/s/ Tom McGovern
----------------
Tom McGovern
<PAGE>
EXHIBIT 10.8
PETsMART.COM, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made effective the 12 day of May, 1999 (the "Effective
Date") between PETsMART.com, Inc., a Delaware corporation (the "Company") and
Carina Schaldach (the "Purchaser").
WHEREAS the Purchaser is an employee of the Company and her continued
participation is considered by the Company to be important for the Company's
continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Company is willing to sell to the Purchaser and the
Purchaser desires to purchase 387,283 shares of Common Stock according to the
terms and conditions hereof.
THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
-------------
and the Purchaser hereby agrees to purchase an aggregate of 387,283 shares
of the Company's Common Stock (the "Shares"), at the price of $0.20 per
share for an aggregate purchase price of $77,456.60 (the "Purchase Price").
2. Payment of Purchase Price. The Purchase Price for the Shares
-------------------------
shall be paid by delivery to the Company at the time of execution of this
Agreement of a check or wire transfer.
3. Issuance of Shares. Upon receipt by the Company of the Purchase
------------------
Price, the Company shall issue a duly executed certificate evidencing the
Shares in the name of the Purchaser to be held in escrow until expiration
of the Company's repurchase option as described in this Agreement.
4. Repurchase Option.
-----------------
(1) All of the Shares are subject to the Company's repurchase
option defined in this section. In the event of the voluntary or
involuntary termination of the Purchaser's employment with or
services to the Company for any or no reason (including death or
disability) before all of the Shares are released from the
Company's repurchase option under Section 5, the Company shall,
upon the date of such termination (as reasonably fixed and
determined by the Company) have an irrevocable, exclusive option
for a period of 90 days from such date to repurchase all or any
portion of the Shares which have not been released from the
repurchase option
<PAGE>
at such time at the original purchase price per share ($0.05)
("Repurchase Option"). Said Repurchase Option shall be exercised
by the Company by written notice to the Purchaser or his executor
(with a copy to the Escrow Holder (as defined below)) and, at the
Company's option, (i) by delivery to the Purchaser or his executor
with such notice of a check in the amount of the repurchase price
for the Shares being repurchased, or (ii) by cancellation by the
Company of an amount of the Purchaser's indebtedness to the
Company equal to the repurchase price for the Shares being
repurchased, or (iii) by a combination of (i) and (ii) so that the
combined payment and cancellation of indebtedness equals such
repurchase price. Upon delivery of such notice and the payment of
the repurchase price in any of the ways described above, the
Company shall become the legal and beneficial owner of the Shares
being repurchased and all rights and interests therein or relating
thereto, and the Company shall have the right to retain and
transfer to its own name the number of Shares being repurchased by
the Company.
(2) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more
employees, officers, directors or stockholders of the Company or
other persons or organizations to exercise all or a part of the
Company's repurchase rights under this Agreement and purchase all
or a part of such Shares.
5. Release of Shares From Repurchase Option.
----------------------------------------
(1) 20% of the Shares shall be released from the Company's
Repurchase Option at the Effective Date and 20% of the remaining
Shares shall be released on each anniversary of the Effective Date
until all of the Shares have been released, provided in each case
that the Purchaser's services as an employee of or consultant to
the Company have not been terminated prior to the date of any such
release.
(2) Upon the merger or consolidation of the Company with or
into another corporation, entity or person or the sale of all or
substantially all of the Company's assets to another corporation,
entity or person, where immediately after such merger,
consolidation or sale of assets, less than 50% of the capital
stock or equity interests in such other corporation, entity or
person are owned by persons who owned in the aggregate more than
50% of the capital stock of the Company immediately before such
merger, consolidation or sale of assets, the surviving entity
shall assume the rights and obligations of the Company's
Repurchase Option and the Purchaser shall remain subject to the
conditions set forth herein.
(3) Notwithstanding the foregoing, if Purchaser's employment
with the Company terminates involuntarily by the Purchaser or as a
result of an "Involuntary Termination" (as defined herein) at any
time within six (6) months after a "Change of Control" (as defined
herein), then 50% of the shares that have not been released from
<PAGE>
the Repurchase Option shall be released as of the date of such
termination.
For this purpose, "Change of Control" of the Company is
defined as: (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of
the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities;
or (ii) a change in the composition of the Board of Directors of
the Company occurring within a two-year period, as a result of
which fewer than a majority of the directors are Incumbent
Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the date hereof, or (B) are
elected, or nominated for election, to the Board of Directors of
the Company with the affirmative votes of at least a majority of
the Incumbent Directors at the time of such election or nomination
(but shall not include an individual whose election or nomination
is in connection with an actual or threatened proxy contest
relating to the election of directors to the Company); or (iii)
the date of the consummation of a merger or consolidation of the
Company with any other corporation that has been approved by the
stockholders of the Company, other than a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%)
of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company
approve a plan of complete liquidation of the Company; or (iv) the
date of the consummation of the sale or disposition by the Company
of all or substantially all the Company's assets.
For this purpose, "Involuntary Termination" shall mean
(i) without Purchaser's consent, the significant reduction of her
duties or responsibilities relative to her duties or
responsibilities in effect immediately prior to such reduction;
(ii) without Purchaser's consent, a significant reduction by the
Company in her base salary as in effect immediately prior to such
reduction; (iii) a significant reduction by the Company in the
kind or level of employee benefits to which Purchaser is entitled
immediately prior to such reduction with the result that
Purchaser's overall benefits package is significantly reduced; or
(iv) any purported termination of Purchaser by the Company which
is not effected by virtue of her death, permanent and total
disability, or for "Cause" (as defined herein).
For this purpose, "Cause" is defined as (i) an act of
dishonesty made by Purchaser in connection with Purchaser's
responsibilities as an employee, (ii) Purchaser's conviction of,
or plea of nolo contendere to, a felony, (iii) Purchaser's serious
--------------
misconduct, (iv) Purchaser's continued violations of her
employment duties after Purchaser has received a written demand
for performance from the Company
<PAGE>
which specifically sets forth the factual basis for the Company's
belief that Purchaser has not substantially performed her duties,
or (v) Purchaser's death or permanent and total disability.
6. Restriction on Transfer. Except for the escrow described in
-----------------------
Section 7 or transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares nor any beneficial
interest therein shall be transferred, encumbered or otherwise disposed
of in any way until the release of such Shares from the Company's
Repurchase Option in accordance with the provisions of this Agreement.
7. Escrow of Shares.
----------------
(1) The Shares issued under this Agreement shall be held by the
Secretary of the Company as escrow holder ("Escrow Holder"), along
with a stock assignment executed by the Purchaser in blank, until
the expiration of the Company's Repurchase Option with respect to
such Shares as set forth above.
(2) The Escrow Holder is hereby directed to permit transfer of
the Shares only in accordance with this Agreement or instructions
signed by both parties. In the event further instructions are
desired by the Escrow Holder, he shall be entitled to rely upon
directions executed by a majority of the authorized number of the
Company's Board of Directors. The Escrow Holder shall have no
liability for any act or omission hereunder while acting in good
faith in the exercise of his own judgment.
(3) If the Company or any assignee exercises its Repurchase
Option hereunder, the Escrow Holder, upon receipt of written
notice of such option exercise from the proposed transferee, shall
take all steps necessary to accomplish such transfer.
(4) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from such
Repurchase Option, upon Purchaser's request the Escrow Holder
shall promptly cause a new certificate to be issued for such
released Shares and shall deliver such certificate to the
Purchaser.
(5) Subject to the terms hereof, the Purchaser shall have all the
rights of a stockholder with respect to such Shares while they are
held in escrow, including without limitation, the right to vote
the Shares and receive any cash dividends declared thereon. If,
from time to time during the term of the Company's Repurchase
Option, there is (i) any stock dividend, stock split or other
change in the Shares, or (ii) any merger or sale of all or
substantially all of the assets or other acquisition of the
Company, any and all new, substituted or additional securities to
which the Purchaser is entitled by reason of his ownership of the
Shares shall be immediately subject to this escrow, deposited with
the Escrow Holder and included thereafter as "Shares" for purposes
of this Agreement and the Company's repurchase option.
<PAGE>
8. Legends. The share certificate evidencing the Shares issued
-------
hereunder shall be endorsed with the following legends:
(1) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(2) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY."
(3) Any legend required to be placed thereon by applicable state
securities laws.
9. Investment Representations; Restriction on Transfer.
---------------------------------------------------
(1) In connection with the purchase of the Shares, the Purchaser
represents to the Company the following:
(1) She is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire
the securities. She is purchasing these securities for investment
for her own account only and not with a view to, or for resale in
connection with, any "distribution" thereof within the meaning of
the Securities Act of 1933 (the "Securities Act").
(2) She understands that the securities have not been registered
under the Securities Act by reason of a specific exemption
therefrom, which exemption depends upon, among other things, the
bona fide nature of his investment intent as expressed herein. In
this connection, she understands that, in view of the Securities
and Exchange Commission (the "Commission"), the statutory basis
for such exemption may not be present if his representations meant
that his present intention was to hold these securities for a
minimum capital gains period under the tax statutes, for a
deferred sale, for a market rise, for a sale if the market does
not rise, or for a year or any other fixed period in the future.
(3) She further acknowledges and understands that the securities
must be held indefinitely unless they are subsequently registered
under the Securities Act or an
<PAGE>
exemption from such registration is available. She further
acknowledges and understands that the Company is under no
obligation to register the securities. She understands that the
certificate evidencing the securities will be imprinted with a
legend which prohibits the transfer of the securities unless they
are registered or such registration is not required in the opinion
of counsel for the Company.
(4) She is aware of the adoption of Rule 144 by the Commission,
promulgated under the Securities Act, which permits limited public
resale of securities acquired in a non-public offering subject to
the satisfaction of certain conditions.
(5) She further acknowledges that in the event all of the
requirements of Rule 144 are not met, compliance with Regulation A
or some other registration exemption will be required; and that
although Rule 144 is not exclusive, the staff of the Commission
has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and other
than pursuant to Rule 144 will have a substantial burden of proof
in establishing that an exemption from registration is available
for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
(2) The Purchaser agrees, in connection with the Company's initial
public offering of the Company's securities, (i) not to sell, make
short sales of, loan, grant any options for the purchase of, or
otherwise dispose of any shares of Common Stock of the Company
held by the Purchaser (other than those shares included in the
registration) without the prior written consent of the Company or
the underwriters managing such initial underwritten public
offering of the Company's securities for up to one hundred eighty
(180) days from the effective date of such registration and (ii)
further agrees to execute any agreement reflecting (i) above as
may be requested by the underwriters at the time of the public
offering.
10. Adjustment for Stock Split. All references to the number of
--------------------------
Shares and the Purchase Price of the Shares in this Agreement shall be
appropriately adjusted to reflect any stock split, stock dividend or
other change in the Shares which may be made by the Company after the
date of this Agreement.
11. General Provisions.
------------------
(1) This Agreement shall be governed by the internal laws of the
State of California. This Agreement represents the entire
agreement between the parties with respect to the purchase of
Common Stock by the Purchaser, may only be modified or amended in
writing signed by both parties and satisfies all of the Company's
obligations to the Purchaser with regard to the issuance or sale
of securities.
(2) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms
of this Agreement shall be in writing and
<PAGE>
shall be deemed given when delivered personally or deposited in the
U.S. mail, First Class with postage prepaid, and addressed to the
parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying
the other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.
(3) The rights and benefits of the Company under this Agreement shall
be transferable to any one or more persons or entities, and all
covenants and agreements hereunder shall inure to the benefit of, and
be enforceable by the Company's successors and assigns. The rights and
obligations of the Purchaser under this Agreement may only be assigned
with the prior written consent of the Company.
(4) Either party's failure to enforce any provision or provisions of
this Agreement shall not in any way be construed as a waiver of any
such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights
granted both parties herein are cumulative and shall not constitute a
waiver of either party's right to assert all other legal remedies
available to it under the circumstances.
(5) The Purchaser agrees upon request to execute any further documents
or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(6) The Purchaser understands that she (and not the Company) shall be
responsible for her own federal, state, local or foreign tax liability
and any of the other tax consequences that may arise as a result of
the transactions contemplated by this Agreement. The Purchaser shall
rely solely on the determinations of her tax advisors or her own
determinations, and not on any statements or representations by the
Company or any of its agents, with regard to all such tax matters. The
Purchaser shall notify the Company in writing if the Purchaser files
an election pursuant to Section 83(b) of the Internal Revenue Code of
1986, as amended, with the Internal Revenue Service within thirty (30)
days from the date of the sale of the Shares hereunder. The Company
intends, in the event it does not receive from the Purchaser evidence
of such filing, to claim a tax deduction for any amount which would be
taxable to the Purchaser in the absence of such an election.
(7) THE PURCHASER UNDERSTANDS THAT THE SALE OF THE SECURITIES WHICH ARE
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE
ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF
THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION
25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first set forth above.
PURCHASER HEREBY ACKNOWLEDGES AND AGREES THAT THIS DOCUMENT REPRESENTS THE
DEFINITIVE AGREEMENT BETWEEN THE PURCHASER AND THE COMPANY WITH REGARD TO THE
ISSUANCE OF COMPANY SECURITIES TO THE PURCHASER AND THAT IT SUPERSEDES ANY OTHER
AGREEMENT, EITHER ORAL OR WRITTEN, RELATING TO THE PURCHASER'S RIGHTS TO COMPANY
SECURITIES. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT ANY AND ALL FUTURE
ISSUANCES OF COMPANY SECURITIES TO THE PURCHASER MUST BE APPROVED BY THE
COMPANY'S BOARD OF DIRECTORS AND EVIDENCED BY AN EXECUTED WRITTEN AGREEMENT IN
ORDER TO BECOME BINDING ON THE COMPANY.
PITTSBURGH.COM, INC.
a Delaware corporation PURCHASER: Carina Schaldach
By: /s/ Tom McGovern /s/ Carina Schaldach
------------------------- --------------------------------
Tom McGovern, Jr. (Signature)
President
999 San Pasqual #2
Pasadena, CA 91106
<PAGE>
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of Carina Schaldach, have read and approve the
foregoing Agreement. In consideration of granting of the right to my spouse to
purchase shares of Pittsburgh.com, Inc. Common Stock, as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact in respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in said Agreement
or any shares issued pursuant thereto under the community property laws of the
State of California or similar laws relating to marital property in effect in
the state of our residence as of the date of the signing of the foregoing
Agreement.
Dated:____________________
_______________________________
Signature
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, Carina Schaldach hereby sell, assign and transfer to
_____________________ (________) shares of the Common Stock of Pittsburgh.com,
Inc. (the "Company") standing in my name on the books of the Company represented
by Certificate No. __________ and do hereby irrevocably constitute and appoint
Wilson Sonsini Goodrich & Rosati, attorney, to transfer said stock on the books
of the Company with full power of substitution in the premises.
This Assignment Separate from Certificate may only be used in accordance with
the Restricted Stock Purchase Agreement dated May ___, 1999.
Dated:____________, ____.
Signature:___________________________
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Right set forth in the Agreement without requiring additional
signature on the part of Purchaser.
<PAGE>
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to the above-referenced Federal
Code, to include in her gross income for the current taxable year, the amount of
any compensation taxable to her in connection with her receipt of the property
described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: Carina Schaldach SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR: 1999
2. The property with respect to which the election is made is described as
follows:
387,283 shares of Common Stock (the "Shares"), par value $0.001, of
Pittsburgh.com, Inc., a Delaware corporation (the "Company").
3. The date on which the property was transferred is: ______________________.
4. The property is subject to the following restrictions:
The Company has the right to repurchase a portion of the Shares upon the
happening of certain events. This right of repurchase lapses with regard
to a portion of the Shares over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $77,456.60
6. The amount (if any) paid for such property: $77,456.60
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- --------------------------------------------
Dated: _________________________ ________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________________ ________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.9
AMENDMENT NUMBER ONE TO
RESTRICTED STOCK PURCHASE AGREEMENT
This Amendment Number One to the Restricted Stock Purchase Agreement (the
"Amendment"), is made and entered into effective as of May 12, 1999, by and
- ----------
between PETsMART.com, Inc., a Delaware corporation (the "Company") and Carina
-------
Schaldach (the "Purchaser").
---------
RECITALS
WHEREAS, the Company and the Purchaser desire to amend the Restricted Stock
Purchase Agreement, dated as of May 12, 1999 (the "Agreement"), by and between
---------
the Company and the Purchaser, in order to correct certain typographical and
other errors contained therein.
NOW THEREFORE, the parties hereto agree as follows:
1.
DEFINITIONS
a. Definitions - The capitalized terms used in this Amendment and not
-----------
otherwise defined herein shall have the meanings set forth in the
Agreement.
2.
AMENDMENT OF AGREEMENT
a. Payment of Purchase Price - Section 2 of the Agreement is hereby
-------------------------
amended by deleting "a check or wire transfer" and inserting, in lieu
thereof "a check in the amount of $387.28 and a promissory note in the
amount of $77,069.32."
b. Purchase Price for Repurchase Option - Section 4(1) of the Agree ment
------------------------------------
is hereby amended by deleting "($0.05)" and inserting, in lieu thereof
"($0.20)".
3.
MISCELLANEOUS PROVISIONS
<PAGE>
a. Effect of Amendment - Except as expressly modified by this Amendment,
--------------------
the Agreement shall continue to be and remain in full force and effect
in accordance with its terms. Any future reference to the Agreement
shall be deemed to be a reference to the Agreement as modified by this
Amendment.
b. Multiple Counterparts. This Amendment may be executed in one or more
---------------------
counterparts, each of which shall be deemed an original, with the same
effect as if signatures thereto and hereto were upon the same
instrument.
* * * * *
IN WITNESS WHEREOF, the Company and the Purchaser have duly executed this
Amendment as of the day and year first set forth above.
PETsMART.com, Inc., PURCHASER: Carina Schaldach
a Delaware corporation
/s/ Carina Schaldach
BY: /s/ Tom McGovern ---------------------------------------
--------------------------- (Signature)
Name: Tom McGovern
Title: CEO 292 W. Carter Ave
---------------------------------------
(Address)
Sierra Madre, CA 91024
---------------------------------------
2
<PAGE>
EXHIBIT 10.10
SECURED PROMISSORY NOTE
Los Angeles, California
$52,429.00 January 19, 2000
FOR VALUE RECEIVED, Carina Schaldach ("Borrower"), hereby unconditionally
promises to pay to the order of PETsMART.com, Inc., a Delaware corporation, and
its successors, endorsees, transferees and assigns ("Payee"), the principal
amount of Fifty Two Thousand Four Hundred Twenty Nine Only of the United States
of America (U.S $52,429.00) and interest on the unpaid principal amount hereof,
on or before the earlier of (i) January 19, 2005 or (ii) (A) 30 days after the
termination of Borrower's employment with the Payee with cause (as defined in
Borrower's employment agreement with the Payee) or (B) six months after the
termination of the Borrower's employment with Payee without cause. Interest
shall accrue from the date hereof until this Note is paid in full at a rate
equal to seven percent (7%) per annum compounded semiannually. Interest shall be
computed on the basis of a 360-day year and the actual number of days elapsed in
the period.
Borrower may at its option make principal payments on this Note without
premium or penalty. All payments of principal shall be accompanied by payments
of accrued and unpaid interest on the principal being repaid. If any payment of
principal or interest on this Note shall become due on a Saturday, Sunday or
legal holiday under the laws of the State of California, such payment shall be
made on the next succeeding business day, and any such extended time of the
payment of principal shall be included in computing interest at the rate this
Note bears prior to maturity in connection with such payment.
Borrower shall make payment of all interest accruing on all obligations of
the Borrower now existing or hereafter incurred under, arising out of, or in
connection with this Note and the Pledge Agreement (as defined below) after the
filing of a petition by or against the Borrower under the Bankruptcy Code, in
accordance with and at the rate specified in this Note whether or not the claim
for such interest is allowed as a claim after such filing in any proceeding
under the Bankruptcy Code).
All payments of principal, interest and other amounts payable in respect of
this Note shall be made in lawful money of the United States of America or by
personal check, at the office of Payee located at 35 Hugus Alley, Suite 210,
Pasadena, CA 91103, Attention: Chief Financial Officer or at such other place
that Payee shall have designated in writing for such purpose. Payee shall,
before disposing of this Note or any part hereof, make a notation hereon of all
principal and interest payments previously made hereunder and of the date to
which interest hereon has been paid; provided, that the failure to correctly
make a notation of any payment made on this Note shall not limit or otherwise
affect the obligation of Borrower under this Note with respect to any loan
evidenced hereby or payments of principal or interest on this Note.
The proceeds of this Note, together with $71.00 in cash, shall be used by
the Borrower, to purchase 70,000 shares of Common Stock (the "Common Stock") of
Payee under the 1999 Stock Plan Stock Option Agreement, dated November 12, 1999,
between the Borrower and the Payee (the "Option Agreement"), which Common Stock
shall secure this Note pursuant to the Pledge Agreement between the Borrower and
Payee, dated as of the date hereof (the "Pledge Agreement"). No reference herein
to the Pledge Agreement and no provision of this Note or the Pledge Agreement
shall alter or impair the obligation of Borrower, which is absolute and
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
The occurrence of any of the following shall constitute an "Event of
Default":
<PAGE>
(1) failure of Borrower to pay any principal, interest or
other amount due under this Note when due, whether at stated maturity,
by acceleration, by notice of prepayment or otherwise, in each case
within ten (10) days after the same becomes due and payable;
(2) breach of any other representation, warranty or covenant
of Borrower contained in this Note or of the Pledgor (as defined
therein) in the Pledge Agreement;
(3) an involuntary case shall be commenced against Borrower or
a court having jurisdiction shall enter a decree or order for relief in
respect of Borrower in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect
(collectively, "Bankruptcy Laws"), which decree or order is not stayed;
or any other similar relief shall be granted under any other law; or a
decree or order of a court having jurisdiction for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Borrower, or over all or a substantial part
of Borrower's property, shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of
Borrower for all or a substantial part of Borrower's property; or the
issuance of a warrant of attachment, execution or similar process
against any substantial part of the property of Borrower; or
(4) Borrower shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable
Bankruptcy Law, or shall consent to the entry of an order for relief in
an involuntary case, or to the conversion to an involuntary case, under
any such law, or shall consent to the appointment of or taking
possession of a receiver, trustee or other custodian for all or a
substantial part of Borrower's properties; the making by Borrower of
any assignment for the benefit of creditors; or the inability or
failure of Borrower, or the admission of Borrower in writing of its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in items (3) or (4)
above, the principal of this Note, together with all unpaid interest and all
other amounts payable hereunder, shall become due and payable forthwith, without
presentment, demand, notice, protest or other requirement of any kind, all of
which are expressly waived by Borrower. Upon the occurrence of any event
specified in items (1) or (2) above, Payee may, by written notice to Borrower,
declare this Note, together with all unpaid interest and all other amounts
payable hereunder, and this Note, together with all unpaid interest and all
other amounts payable hereunder, shall immediately become, due and payable
without presentment, further demand or notice, protest or other requirements of
any kind, all of which are expressly waived by Borrower.
Borrower agrees to advise Payee as to the occurrence of any event or
existence of any condition that, with the passage of time or giving of notice,
or both, could constitute an Event of Default as soon as possible but not later
than two business days after Borrower becomes aware of the occurrence of such
event or existence of such condition. The failure to provide such notice will
constitute an Event of Default.
This Note shall be construed and enforced in accordance with, and shall be
governed by, the laws of the State of California, without regard to conflict of
law principles thereof. Borrower and Payee further agree that a non-exclusive
forum for the determination of any action relating to this Note or the Pledge
Agreement shall include an appropriate court of the State of California or the
United States District Court or United States Bankruptcy Court for the District
of California and Borrower and Payee hereby irrevocably submit to the
jurisdiction thereof.
2
<PAGE>
To the maximum extent permitted by law, Borrower and Payee hereby expressly
waive any right to trial by jury of any action, cause of action, claim, demand,
or proceeding arising under or with respect to this Note, or in any way
connected with, related to, or incidental to the dealings of Borrower and Payee
with respect to this Note or the transactions related hereto, in each case
whether now existing or hereafter arising, and irrespective of whether sounding
in contract, tort, or otherwise. To the maximum extent permitted by law,
Borrower and Payee each mutually agree that any such action, cause of action,
claim, demand, or proceedings shall be decided by a court trial without a jury
and that the defending party may file a copy of this section with any court or
other tribunal as written evidence of the consent of the complaining party to
the waiver of its right to trial by jury.
Borrower promises to pay all costs and expenses, including attorneys' fees,
incurred in the collection and enforcement of this Note, including, without
limitation, enforcement before any court and including all appellate
proceedings. Borrower hereby consents to renewal and extensions of time at or
after the maturity hereof, without notice, and hereby waives diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
No delay or omission on the part of Payee in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Payee of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. The rights and remedies of
Payee are cumulative and not exclusive of any rights or remedies it otherwise
has.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note, shall be interpreted so as to be effective and valid.
The holder of this Note shall have the right at any time to sell, assign,
transfer, negotiate or pledge all or any part of its interest in this Note.
Borrower may not assign, and no person may assume, any of the obligations of
Borrower under this Note without the prior written consent of Payee, which
consent may be granted or withheld in Payee's sole discretion, and any attempt
to do so without such consent shall be void.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
day and year and at the place first written above.
Borrower
By: /s/ Carina Schaldach
----------------------------------
Carina Schaldach
292 West Carter Avenue
Sierra Madre, CA 91024
3
<PAGE>
EXHIBIT 10.11
SECURITY AGREEMENT
This Security Agreement is made as of May 12, 1999 between PETsMART.com, Inc., a
Delaware corporation ("Pledgee"), and Carina Schaldach ("Pledgor").
Recitals
--------
Pursuant to Pledgor's purchase of 387,283 shares of the Pledgee's Common Stock
under the Common Stock Purchase Agreement dated May 12, 1999 (the "Purchase
Agreement"), between Pledgor and Pledgee, Pledgor's desires to pay for such
shares of Pledgee's Common Stock (the "Shares") with this promissory note (the
"Note"), for a total loan of $77,456.60. The Note and the obligations
thereunder are as set forth as Exhibit A to this Security Agreement.
---------
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Purchase Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number CS-___, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
<PAGE>
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
-----------------
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
------------------
subscription options or other rights or options shall be issued in connection
with the pledged Shares, such rights and options shall be the property of
Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
Pledgor fails to perform any of the covenants contained in this
Security Agreement for a period of 10 days after written notice thereof from
Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
<PAGE>
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
"PLEDGOR" /s/Carina Schaldach
-------------------------------
Carina Schaldach
"PLEDGEE" PETsMART.com, Inc.,
a Delaware corporation
/s/Tom McGovern
------------------------------
Tom McGovern, Jr., President
"PLEDGEHOLDER" /s/Tom McGovern
------------------------------
Tom McGovern, Jr.,
Secretary of PETsMART.com, Inc.
<PAGE>
EXHIBIT A
---------
NOTE
$77,069.32 Pasadena, CA
As of May 12, 1999
FOR VALUE RECEIVED, Carina Schaldach ("Payee") promises to pay to PETsMART.com,
Inc., a Delaware corporation (the "Company"), or order, the principal sum of
Seventy Seven Thousand Sixty Nine Dollars and Thirty Two Cents ($77,069.32),
together with interest on the unpaid principal hereof from the date hereof at
the rate of seven percent (7%) per annum, compounded semiannually.
Principal and interest shall be due and payable upon the earlier of (i) May 12,
2004 or (ii) (A) 30 days after the termination of Payee's employment with the
Company or any successor-in-interest of the Company with cause (as defined in
the Employment Agreement by and between Payee and the Company dated of even date
herewith) or (B) six months after the termination of Payee's employment with the
Company or any successor-in-interest of the Company without cause. Payment of
principal and interest shall be made in lawful money of the United States of
America.
The undersigned may at any time prepay all or any portion of the principal or
interest owing hereunder.
This Note is secured by a pledge of the Company's Common Stock under the terms
of a Security Agreement dated May 12, 1999, and is subject to all the provisions
thereof.
The holder of this Note shall have full recourse against the undersigned, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the reasonable
costs and attorney's fees therein of the holder shall be paid by the
undersigned.
/s/ Carina Schaldach
---------------------------------
Carina Schaldach
<PAGE>
EXHIBIT 10.12
SECURITY AGREEMENT
This Security Agreement is made as of April l, 1999 between Interpet, Inc., a
Delaware corporation ("Pledgee"), and Carina Schaldach ("Pledgor").
Recitals
--------
Pursuant to Pledgor's purchase of 240,000 shares of the Pledgee's Common Stock
under the Common Stock Purchase Agreement dated April 1, 1999 (the "Purchase
Agreement"), between Pledgor and Pledgee, Pledgor's desires to pay for 120,000
of such shares of Pledgee's Common Stock (the "Shares") with this promissory
note (the "Note"), for a total loan of $30,000. The Note and the obligations
thereunder are as set forth as Exhibit A to this Security Agreement.
---------
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
---------------------------------------------
the transfer of the Shares to Pledgor under the Purchase Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number C- duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
Payment of Indebtedness. Pledgor will pay the principal sum of the
-----------------------
Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
<PAGE>
Encumbrances. The Shares are free of all other encumbrances, defenses
------------
and liens, and Pledgor will not further encumber the Shares without the prior
written consent of Pledgee.
Margin Regulations. In the event that Pledgee's Common Stock is now
------------------
or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title l2 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
------------------
pledge, subscription options or other rights or options shall be issued in
connection with the pledged Shares, such rights and options shall be the
property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
Payment of principal or interest on the Note shall be delin-
quent for a period of 10 days or more; or
2
<PAGE>
Pledgor fails to perform any of the covenants contained in this
Security Agreement for a period of 10 days after written notice thereof from
Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement
3
<PAGE>
shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
/s/ Carina Schaldach
"PLEDGOR" --------------------------------------------------
Carina Schaldach
"PLEDGEE" Interpet, Inc.
a Delaware corporation
/s/ Tom McGovern
--------------------------------------------------
Tom McGovern, President
/s/ Marcia Goodstein
"PLEDGEHOLDER" --------------------------------------------------
Marcia Goodstein, Secretary of Interpret, Inc.
5
<PAGE>
EXHIBIT A
---------
NOTE
$30,000 Pasadena, CA
April 1, 1999
FOR VALUE RECEIVED, Carina Schaldach promises to pay to Interpet, Inc., a
Delaware corporation (the "Company"), or order, the principal sum of Thirty
Thousand Dollars ($30,000), together with interest on the unpaid principal
hereof from the date hereof at the rate of seven percent (7%) per annum,
compounded semiannually.
Principal and interest shall be due and payable on April 1, 2004. Payment of
principal and interest shall be made in lawful money of the United States of
America.
The undersigned may at any time prepay all or any portion of the principal or
interest owing hereunder.
This Note is secured solely by a pledge of the Company's Common Stock under the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.
The holder of this Note shall have no recourse against the undersigned, and
shall be required to proceed solely against the collateral securing this Note in
the event of default.
Should any action be instituted for the collection of this Note, the reasonable
costs and attorneys fees therein of the holder shall be paid by the undersigned.
/s/ Carina Schaldach
-----------------------------------------------
Carina Schaldach
6
<PAGE>
EXHIBIT 10.13
SECURED PROMISSORY NOTE
Los Angeles, California
$26,267.00 January 4, 2000
FOR VALUE RECEIVED, Michael Houlahan ("Borrower"), hereby unconditionally
promises to pay to the order of PETsMART.com, Inc., a Delaware corporation, and
its successors, endorsees, transferees and assigns ("Payee"), the principal
amount of Twenty Six Thousand Two Hundred Sixty Seven Dollars of the United
States of America (U.S $26,267.00) and interest on the unpaid principal amount
hereof, on or before the earlier of (i) January 4, 2005 or (ii) (A) 30 days
after the termination of Borrower's employment with the Payee with cause (as
defined in Borrower's employment agreement with the Payee) or (B) six months
after the termination of the Borrower's employment with Payee without cause.
Interest shall accrue from the date hereof until this Note is paid in full at a
rate equal to seven percent (7%) per annum compounded semiannually. Interest
shall be computed on the basis of a 360-day year and the actual number of days
elapsed in the period.
Borrower may at its option make principal payments on this Note without
premium or penalty. All payments of principal shall be accompanied by payments
of accrued and unpaid interest on the principal being repaid. If any payment of
principal or interest on this Note shall become due on a Saturday, Sunday or
legal holiday under the laws of the State of California, such payment shall be
made on the next succeeding business day, and any such extended time of the
payment of principal shall be included in computing interest at the rate this
Note bears prior to maturity in connection with such payment.
Borrower shall make payment of all interest accruing on all obligations of
the Borrower now existing or hereafter incurred under, arising out of, or in
connection with this Note and the Pledge Agreement (as defined below) after the
filing of a petition by or against the Borrower under the Bankruptcy Code, in
accordance with and at the rate specified in this Note whether or not the claim
for such interest is allowed as a claim after such filing in any proceeding
under the Bankruptcy Code).
All payments of principal, interest and other amounts payable in respect of
this Note shall be made in lawful money of the United States of America or by
personal check, at the office of Payee located at 35 Hugus Alley, Suite 210,
Pasadena, CA 91103, Attention: Chief Financial Officer or at such other place
that Payee shall have designated in writing for such purpose. Payee shall,
before disposing of this Note or any part hereof, make a notation hereon of all
principal and interest payments previously made hereunder and of the date to
which interest hereon has been paid; provided, that the failure to correctly
make a notation of any payment made on this Note shall not limit or otherwise
affect the obligation of Borrower under this Note with respect to any loan
evidenced hereby or payments of principal or interest on this Note.
The proceeds of this Note, together with $133.00 in cash, shall be used by
the Borrower, to purchase 132,000 shares of Common Stock (the "Common Stock") of
Payee under the 1999 Stock Plan Stock Option Agreement, dated May 12, 1999,
between the Borrower and the Payee (the "Option Agreement"), which Common Stock
shall secure this Note pursuant to the Pledge Agreement between the Borrower and
Payee, dated as of the date hereof (the "Pledge Agreement"). No reference herein
to the Pledge Agreement and no provision of this Note or the Pledge Agreement
shall alter or impair the obligation of Borrower, which is absolute and
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
The occurrence of any of the following shall constitute an "Event of
Default":
<PAGE>
(1) failure of Borrower to pay any principal, interest or
other amount due under this Note when due, whether at stated maturity,
by acceleration, by notice of prepayment or otherwise, in each case
within ten (10) days after the same becomes due and payable;
(2) breach of any other representation, warranty or covenant
of Borrower contained in this Note or of the Pledgor (as defined
therein) in the Pledge Agreement;
(3) an involuntary case shall be commenced against Borrower or
a court having jurisdiction shall enter a decree or order for relief in
respect of Borrower in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect
(collectively, "Bankruptcy Laws"), which decree or order is not stayed;
or any other similar relief shall be granted under any other law; or a
decree or order of a court having jurisdiction for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Borrower, or over all or a substantial part
of Borrower's property, shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of
Borrower for all or a substantial part of Borrower's property; or the
issuance of a warrant of attachment, execution or similar process
against any substantial part of the property of Borrower; or
(4) Borrower shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable
Bankruptcy Law, or shall consent to the entry of an order for relief in
an involuntary case, or to the conversion to an involuntary case, under
any such law, or shall consent to the appointment of or taking
possession of a receiver, trustee or other custodian for all or a
substantial part of Borrower's properties; the making by Borrower of
any assignment for the benefit of creditors; or the inability or
failure of Borrower, or the admission of Borrower in writing of its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in items (3) or (4)
above, the principal of this Note, together with all unpaid interest and all
other amounts payable hereunder, shall become due and payable forthwith, without
presentment, demand, notice, protest or other requirement of any kind, all of
which are expressly waived by Borrower. Upon the occurrence of any event
specified in items (1) or (2) above, Payee may, by written notice to Borrower,
declare this Note, together with all unpaid interest and all other amounts
payable hereunder, and this Note, together with all unpaid interest and all
other amounts payable hereunder, shall immediately become, due and payable
without presentment, further demand or notice, protest or other requirements of
any kind, all of which are expressly waived by Borrower.
Borrower agrees to advise Payee as to the occurrence of any event or
existence of any condition that, with the passage of time or giving of notice,
or both, could constitute an Event of Default as soon as possible but not later
than two business days after Borrower becomes aware of the occurrence of such
event or existence of such condition. The failure to provide such notice will
constitute an Event of Default.
This Note shall be construed and enforced in accordance with, and shall be
governed by, the laws of the State of California, without regard to conflict of
law principles thereof. Borrower and Payee further agree that a non-exclusive
forum for the determination of any action relating to this Note or the Pledge
Agreement shall include an appropriate court of the State of California or the
United States District Court or United States Bankruptcy Court for the District
of California and Borrower and Payee hereby irrevocably submit to the
jurisdiction thereof.
2
<PAGE>
To the maximum extent permitted by law, Borrower and Payee hereby expressly
waive any right to trial by jury of any action, cause of action, claim, demand,
or proceeding arising under or with respect to this Note, or in any way
connected with, related to, or incidental to the dealings of Borrower and Payee
with respect to this Note or the transactions related hereto, in each case
whether now existing or hereafter arising, and irrespective of whether sounding
in contract, tort, or otherwise. To the maximum extent permitted by law,
Borrower and Payee each mutually agree that any such action, cause of action,
claim, demand, or proceedings shall be decided by a court trial without a jury
and that the defending party may file a copy of this section with any court or
other tribunal as written evidence of the consent of the complaining party to
the waiver of its right to trial by jury.
Borrower promises to pay all costs and expenses, including attorneys' fees,
incurred in the collection and enforcement of this Note, including, without
limitation, enforcement before any court and including all appellate
proceedings. Borrower hereby consents to renewal and extensions of time at or
after the maturity hereof, without notice, and hereby waives diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
No delay or omission on the part of Payee in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Payee of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. The rights and remedies of
Payee are cumulative and not exclusive of any rights or remedies it otherwise
has.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note, shall be interpreted so as to be effective and valid.
The holder of this Note shall have the right at any time to sell, assign,
transfer, negotiate or pledge all or any part of its interest in this Note.
Borrower may not assign, and no person may assume, any of the obligations of
Borrower under this Note without the prior written consent of Payee, which
consent may be granted or withheld in Payee's sole discretion, and any attempt
to do so without such consent shall be void.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
day and year and at the place first written above.
Borrower
By: /s/ M. Houlahan
---------------------------------
Michael Houlahan
1438 Ontario Avenue
Pasadena, CA 91103
3
<PAGE>
EXHIBIT 10.14
SECURED PROMISSORY NOTE
Los Angeles, California
$125,831.00 January 10, 2000
FOR VALUE RECEIVED, Michael Houlahan ("Borrower"), hereby unconditionally
promises to pay to the order of PETsMART.com, Inc., a Delaware corporation, and
its successors, endorsees, transferees and assigns ("Payee"), the principal
amount of One Hundred Twenty Five Thousand Eight Hundred Thirty One Dollars of
the United States of America (U.S $125,831.00) and interest on the unpaid
principal amount hereof, on or before the earlier of (i) January 10, 2005 or
(ii) (A) 30 days after the termination of Borrower's employment with the Payee
with cause (as defined in Borrower's employment agreement with the Payee) or (B)
six months after the termination of the Borrower's employment with Payee without
cause. Interest shall accrue from the date hereof until this Note is paid in
full at a rate equal to seven percent (7%) per annum compounded semiannually.
Interest shall be computed on the basis of a 360-day year and the actual number
of days elapsed in the period.
Borrower may at its option make principal payments on this Note without
premium or penalty. All payments of principal shall be accompanied by payments
of accrued and unpaid interest on the principal being repaid. If any payment of
principal or interest on this Note shall become due on a Saturday, Sunday or
legal holiday under the laws of the State of California, such payment shall be
made on the next succeeding business day, and any such extended time of the
payment of principal shall be included in computing interest at the rate this
Note bears prior to maturity in connection with such payment.
Borrower shall make payment of all interest accruing on all obligations of
the Borrower now existing or hereafter incurred under, arising out of, or in
connection with this Note and the Pledge Agreement (as defined below) after the
filing of a petition by or against the Borrower under the Bankruptcy Code, in
accordance with and at the rate specified in this Note whether or not the claim
for such interest is allowed as a claim after such filing in any proceeding
under the Bankruptcy Code).
All payments of principal, interest and other amounts payable in respect of
this Note shall be made in lawful money of the United States of America or by
personal check, at the office of Payee located at 35 Hugus Alley, Suite 210,
Pasadena, CA 91103, Attention: Chief Financial Officer or at such other place
that Payee shall have designated in writing for such purpose. Payee shall,
before disposing of this Note or any part hereof, make a notation hereon of all
principal and interest payments previously made hereunder and of the date to
which interest hereon has been paid; provided, that the failure to correctly
make a notation of any payment made on this Note shall not limit or otherwise
affect the obligation of Borrower under this Note with respect to any loan
evidenced hereby or payments of principal or interest on this Note.
The proceeds of this Note, together with $169.00 in cash, shall be used by
the Borrower, to purchase 168,000 shares of Common Stock (the "Common Stock") of
Payee under the 1999 Stock Plan Stock Option Agreement, dated November 12, 1999,
between the Borrower and the Payee (the "Option Agreement"), which Common Stock
shall secure this Note pursuant to the Pledge Agreement between the Borrower and
Payee, dated as of the date hereof (the "Pledge Agreement"). No reference herein
to the Pledge Agreement and no provision of this Note or the Pledge Agreement
shall alter or impair the obligation of Borrower, which is absolute and
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
The occurrence of any of the following shall constitute an "Event of
Default":
<PAGE>
(1) failure of Borrower to pay any principal, interest or
other amount due under this Note when due, whether at stated maturity,
by acceleration, by notice of prepayment or otherwise, in each case
within ten (10) days after the same becomes due and payable;
(2) breach of any other representation, warranty or covenant
of Borrower contained in this Note or of the Pledgor (as defined
therein) in the Pledge Agreement;
(3) an involuntary case shall be commenced against Borrower or
a court having jurisdiction shall enter a decree or order for relief in
respect of Borrower in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect
(collectively, "Bankruptcy Laws"), which decree or order is not stayed;
or any other similar relief shall be granted under any other law; or a
decree or order of a court having jurisdiction for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Borrower, or over all or a substantial part
of Borrower's property, shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of
Borrower for all or a substantial part of Borrower's property; or the
issuance of a warrant of attachment, execution or similar process
against any substantial part of the property of Borrower; or
(4) Borrower shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable
Bankruptcy Law, or shall consent to the entry of an order for relief in
an involuntary case, or to the conversion to an involuntary case, under
any such law, or shall consent to the appointment of or taking
possession of a receiver, trustee or other custodian for all or a
substantial part of Borrower's properties; the making by Borrower of
any assignment for the benefit of creditors; or the inability or
failure of Borrower, or the admission of Borrower in writing of its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in items (3) or (4)
above, the principal of this Note, together with all unpaid interest and all
other amounts payable hereunder, shall become due and payable forthwith, without
presentment, demand, notice, protest or other requirement of any kind, all of
which are expressly waived by Borrower. Upon the occurrence of any event
specified in items (1) or (2) above, Payee may, by written notice to Borrower,
declare this Note, together with all unpaid interest and all other amounts
payable hereunder, and this Note, together with all unpaid interest and all
other amounts payable hereunder, shall immediately become, due and payable
without presentment, further demand or notice, protest or other requirements of
any kind, all of which are expressly waived by Borrower.
Borrower agrees to advise Payee as to the occurrence of any event or
existence of any condition that, with the passage of time or giving of notice,
or both, could constitute an Event of Default as soon as possible but not later
than two business days after Borrower becomes aware of the occurrence of such
event or existence of such condition. The failure to provide such notice will
constitute an Event of Default.
This Note shall be construed and enforced in accordance with, and shall be
governed by, the laws of the State of California, without regard to conflict of
law principles thereof. Borrower and Payee further agree that a non-exclusive
forum for the determination of any action relating to this Note or the Pledge
Agreement shall include an appropriate court of the State of California or the
United States District Court or United States Bankruptcy Court for the District
of California and Borrower and Payee hereby irrevocably submit to the
jurisdiction thereof.
2
<PAGE>
To the maximum extent permitted by law, Borrower and Payee hereby expressly
waive any right to trial by jury of any action, cause of action, claim, demand,
or proceeding arising under or with respect to this Note, or in any way
connected with, related to, or incidental to the dealings of Borrower and Payee
with respect to this Note or the transactions related hereto, in each case
whether now existing or hereafter arising, and irrespective of whether sounding
in contract, tort, or otherwise. To the maximum extent permitted by law,
Borrower and Payee each mutually agree that any such action, cause of action,
claim, demand, or proceedings shall be decided by a court trial without a jury
and that the defending party may file a copy of this section with any court or
other tribunal as written evidence of the consent of the complaining party to
the waiver of its right to trial by jury.
Borrower promises to pay all costs and expenses, including attorneys' fees,
incurred in the collection and enforcement of this Note, including, without
limitation, enforcement before any court and including all appellate
proceedings. Borrower hereby consents to renewal and extensions of time at or
after the maturity hereof, without notice, and hereby waives diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
No delay or omission on the part of Payee in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Payee of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. The rights and remedies of
Payee are cumulative and not exclusive of any rights or remedies it otherwise
has.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note, shall be interpreted so as to be effective and valid.
The holder of this Note shall have the right at any time to sell, assign,
transfer, negotiate or pledge all or any part of its interest in this Note.
Borrower may not assign, and no person may assume, any of the obligations of
Borrower under this Note without the prior written consent of Payee, which
consent may be granted or withheld in Payee's sole discretion, and any attempt
to do so without such consent shall be void.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
day and year and at the place first written above.
Borrower
By: /s/ M. Houlahan
------------------------------
Michael Houlahan
1438 Ontario Avenue
Pasadena, CA 91103
3
<PAGE>
EXHIBIT 10.15
PETsMART.COM, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made effective the 24th day of January, 2000 (the
"Effective Date") between PETsMART.com, Inc., a Delaware corporation (the
"Company") and Gary Marcotte (the "Purchaser").
WHEREAS the Purchaser is an employee of the Company and his continued
participation is considered by the Company to be important for the Company's
continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Company is willing to sell to the Purchaser and the
Purchaser desires to purchase 330,000 shares of Common Stock according to the
terms and conditions hereof.
THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and the
-------------
Purchaser hereby agrees to purchase an aggregate of 330,000 shares of the
Company's Common Stock (the "Shares"), at the price of $0.75 per share for an
aggregate purchase price of $247,500 (the "Purchase Price"). The Shares shall
be subject to the terms, definitions and provisions of the Company's 1999 Stock
Plan (the "Plan"), which shall be incorporated herein by reference.
2. Payment of Purchase Price. The Purchase Price for the Shares shall be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement of
(i) a full recourse promissory note (other with respect to the par value of the
Shares, which shall be paid in cash or cash equivalents) or (ii) cash or check.
3. Issuance of Shares. Upon receipt by the Company of the Purchase Price,
------------------
the Company shall issue a duly executed certificate evidencing the Shares in the
name of the Purchaser to be held in escrow until expiration of the Company's
repurchase option as described in this Agreement.
4. Repurchase Option.
-----------------
(A) All of the Shares are subject to the Company's repurchase option
described in this section. In the event of the voluntary or involuntary
termination of the Purchaser's employment with or services to the Company for
any or no reason (including death or disability) before all of the Shares are
released from the Company's repurchase option under Section 5, the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option for a period of 90 days from
such date to
<PAGE>
repurchase all or any portion of the Shares which have not been released from
the purchase option at such time at the original purchase price per share
($0.75) ("Repurchase Option").
(B) The Repurchase Option shall be exercised by the Company by
written notice to the Purchaser or his executor (with a copy to the Escrow
Holder (as defined below)) and, at the Company's option, (i) by delivery to the
Purchaser or his executor with such notice of a check in the amount of the
repurchase price for the Shares being repurchased, or (ii) by cancellation by
the Company of an amount of the Purchaser's indebtedness to the Company equal to
the repurchase price for the Shares being repurchased, or (iii) by a combination
of (i) and (ii) so that the combined payment and cancellation of indebtedness
equals such repurchase price. Upon delivery of such notice and the payment of
the repurchase price in any of the ways described above, the Company shall
become the legal and beneficial owner of the Shares being repurchased and all
rights and interests therein or relating thereto, and the Company shall have the
right to retain and transfer to its own name the number of Shares being
repurchased by the Company.
(C) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or stockholders of the Company or other persons or organizations to
exercise all or a part of the Company's repurchase rights under this Agreement
and purchase all or a part of such Shares.
5. Release of Shares From Repurchase Option.
----------------------------------------
(A) 1/5th of the Shares shall become vested and be released from the
Company's Repurchase Option on the Effective Date, 1/5th of the Shares shall
become vested and be released from the Company's Repurchase Option on the first
anniversary of the Effective Date and 1/60th of the Shares shall become vested
and be released from the Company's Repurchase Option on the last day of each
calendar month beginning on or after the first anniversary of the Effective
Date, in each case provided that the Purchaser's services as an employee of or
consultant to the Company have not been terminated prior to the date of any such
release.
(B) If Purchaser (i) is terminated without Cause (as defined herein),
(ii) suffers a material diminution in compensation or duties or (iii) is
relocated by the Company, without Purchaser's written consent, to a location
more than fifty (50) miles from the Company's Pasadena office, at any time
within six (6) months after a "Change of Control" (as defined herein), then 50%
of the unvested shares that have not been released from the Repurchase Option
shall become vested and be released as of the date of such termination.
(C) If Purchaser is terminated without Cause (as defined below) on or
prior to the six month anniversary of the Effective Date, 3/48th of the unvested
Shares (1/20th of the Shares) shall become vested and be released from the
Company's Repurchase Option as of the date of such termination.
<PAGE>
(D) If Purchaser is terminated without Cause (a) following the six
month anniversary of the Effective Date and (b) prior to the twelve month
anniversary of the Effective Date, then 6/48th of the unvested Shares (1/10th of
the Shares) shall become vested and be released from the Company's Repurchase
Option as of the date of such termination.
(E) If Purchaser is terminated without Cause on or after the twelve
month anniversary of the Effective Date then that number of Shares equal to
lesser of (a) the number of then unvested Shares and (b) the product of (i)
1/60th of the Shares and (ii) the number of full months Executive was employed
by the Company shall become vested and be released from the Company's Repurchase
Option as the date of such termination.
A termination "For Cause" means that Purchaser (i) is terminated for
any act of personal dishonesty taken by the Purchaser in connection with
Purchaser's responsibilities to the Company intended to result in personal
enrichment for Purchaser, (ii) is convicted of a felony, (iii) is terminated due
to a willful act that constitutes misconduct and is injurious to the Company,
(iv) is terminated as a result of gross negligence, recklessness, or willful
misconduct or malfeasance in the performance by the Purchaser of his duties, (v)
is terminated as a result of the willful and repeated failure by the Purchaser
to perform his duties and obligations substantially in compliance with his
Employment Agreement (as defined below) or (vi) is terminated as a result of the
breach by the Purchaser of any of the provisions of Section 10 of his employment
agreement with the Company, entered into as of January 24, 2000 (the "Employment
Agreement"), which has resulted in material damage to the business or reputation
of the Company.
A "Change in Control" shall occur upon (i) any acquisition or merger
or similar transaction (e.g., tender offer) of the Company where the
stockholders of the Company immediately prior to such transaction hold 50% or
less of the voting power of the surviving corporation, (ii) any transaction
pursuant to which any person or "group" (as defined in 13d-5 of the Securities
Exchange Act of 1934) acquires 51% or more of the voting power of the Company
but only if such person or group has nominated or designated 50% or more of the
members of the board of directors of the Company, (iii) any sale of all or
substantially all of the assets of the Company or (iv) stockholder approval of
any liquidation of the Company. As used in this definition, voting power means
the power to vote generally in matters considered by the stockholders of the
Company.
6. Restriction on Transfer. Except for the escrow described in Section 7
-----------------------
or transfer of the Shares to the Company or its assignees contemplated by this
Agreement, none of the Shares nor any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until the release of
such Shares from the Company's Repurchase Option in accordance with the
provisions of this Agreement.
<PAGE>
7. Escrow of Shares.
----------------
(A) The Shares issued under this Agreement shall be held by the
Secretary of the Company as escrow holder ("Escrow Holder"), along with a stock
assignment executed by the Purchaser in blank, until the expiration of the
Company's Repurchase Option with respect to such Shares as set forth above.
(B) The Escrow Holder is hereby directed to permit transfer of the
Shares only in accordance with this Agreement or instructions signed by both
parties. In the event further instructions are desired by the Escrow Holder, he
shall be entitled to rely upon directions executed by a majority of the
authorized number of the Company's Board of Directors. The Escrow Holder shall
have no liability for any act or omission hereunder while acting in good faith
in the exercise of his own judgment.
(C) If the Company or any assignee exercises its Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such option
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(D) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from such Repurchase
Option, upon Purchaser's request the Escrow Holder shall promptly cause a new
certificate to be issued for such released Shares and shall deliver such
certificate to the Purchaser.
(E) Subject to the terms hereof, the Purchaser shall have all the
rights of a stockholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the Company's Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of his ownership of the Shares shall be immediately subject to this
escrow, deposited with the Escrow Holder and included thereafter as "Shares" for
purposes of this Agreement and the Company's repurchase option.
8. Legends. The share certificate evidencing the Shares issued hereunder
-------
shall be endorsed with the following legends:
(A) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL SATISFACTORY
<PAGE>
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(B) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY."
(C) Any legend required to be placed thereon by applicable state
securities laws.
9. Investment Representations; Restriction on Transfer.
---------------------------------------------------
(A) In connection with the purchase of the Shares, the Purchaser
represents to the Company the following:
(B) He is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. He is purchasing
these securities for investment for his own account only and not with a view to,
or for resale in connection with, any "distribution" thereof within the meaning
of the Securities Act of 1933 (the "Securities Act").
(C) He understands that the securities have not been registered under
the Securities Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of his investment intent
as expressed herein. In this connection, he understands that, in view of the
Securities and Exchange Commission (the "Commission"), the statutory basis for
such exemption may not be present if his representations meant that his present
intention was to hold these securities for a minimum capital gains period under
the tax statutes, for a deferred sale, for a market rise, for a sale if the
market does not rise, or for a year or any other fixed period in the future.
(D) He further acknowledges and understands that the securities must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. He further
acknowledges and understands that the Company is under no obligation to register
the securities. He understands that the certificate evidencing the securities
will be imprinted with a legend which prohibits the transfer of the securities
unless they are registered or such registration is not required in the opinion
of counsel for the Company.
(E) He is aware of the adoption of Rule 144 by the Commission,
promulgated under the Securities Act, which permits limited public resale of
securities acquired in a non-public offering subject to the satisfaction of
certain conditions.
<PAGE>
(F) He further acknowledges that in the event all of the requirements
of Rule 144 are not met, compliance with Regulation A or some other registration
exemption will be required; and that although Rule 144 is not exclusive, the
staff of the Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and other than
pursuant to Rule 144 will have a substantial burden of proof in establishing
that an exemption from registration is available for such offers or sales and
that such persons and the brokers who participate in the transactions do so at
their own risk.
(G) The Purchaser agrees, in connection with the Company's initial
public offering of the Company's securities, (i) not to sell, make short sales
of; loan, grant any options for the purchase of; or otherwise dispose of any
shares of Common Stock of the Company held by the Purchaser (other than those
shares included in the registration) without the prior written consent of the
Company or the underwriters managing such initial underwritten public offering
of the Company's securities for up to one hundred eighty (180) days from the
effective date of such registration and (ii) further agrees to execute any
agreement reflecting (i) above as may be requested by the underwriters at the
time of the public offering.
10. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the Purchase Price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
11. General Provisions.
------------------
(A) This Agreement shall be governed by the internal laws of the
State of California. This Agreement and the Employment Agreement represent the
entire agreement between the parties with respect to the purchase of Common
Stock by the Purchaser, may only be modified or amended in writing signed by
both parties and satisfies all of the Company's obligations to the Purchaser
with regard to the issuance or sale of securities.
(B) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U. S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by noticing the other in
writing. Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.
(C) The rights and benefits of the Company under this Agreement shall
be transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of; and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
<PAGE>
(D) Either party's failure to enforce any provision or provisions of
this Agreement shall not in any way be construed as a waiver of any such
provision or provisions, nor prevent that party thereafter from enforcing each
and every other provision of this Agreement. The rights granted both parties
herein are cumulative and shall not constitute a waiver of either party's right
to assert all other legal remedies available to it under the circumstances.
(E) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(F) The Purchaser understands that he (and not the Company) shall be
responsible for his own federal, state, local or foreign tax liability and any
of the other tax consequences that may arise as a result of the transactions
contemplated by this Agreement. The Purchaser shall rely solely on the
determinations of his tax advisors or his own determinations, and not on any
statements or representations by the Company or any of its agents, with regard
to all such tax matters. The Purchaser shall notify the Company in writing if
the Purchaser files an election pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended, with the Internal Revenue Service within
thirty (30) days from the date of the sale of the Shares hereunder. The Company
intends, in the event it does not receive from the Purchaser evidence of such
filing, to claim a tax deduction for any amount which would be taxable to the
Purchaser in the absence of such an election.
(G) THE PURCHASER UNDERSTANDS THAT THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first set forth above.
PURCHASER HEREBY ACKNOWLEDGES AND AGREES THAT THIS DOCUMENT AND THE
EMPLOYMENT AGREEMENT REPRESENT THE DEFINITIVE AGREEMENT BETWEEN THE PURCHASER
AND THE COMPANY WITH REGARD TO THE ISSUANCE OF COMPANY SECURITIES TO THE
PURCHASER AND THAT THIS AGREEMENT AND THE EMPLOYMENT AGREEMENT SUPERSEDE ANY
OTHER AGREEMENT, EITHER ORAL OR WRITTEN, RELATING TO THE PURCHASER'S RIGHTS TO
COMPANY SECURITIES. PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT ANY AND ALL
FUTURE ISSUANCES OF COMPANY SECURITIES TO THE PURCHASER MUST BE APPROVED BY THE
COMPANY'S BOARD OF DIRECTORS AND EVIDENCED BY AN EXECUTED WRITTEN AGREEMENT IN
ORDER TO BECOME BINDING ON THE COMPANY.
PETsMART.com, Inc.
a Delaware corporation PURCHASER:
By: /s/ Tom McGovern /s/ Gary Marcotte
------------------------- -----------------------------
Tom McGovern, Jr. (Signature)
President
CONSENT OF SPOUSE
-----------------
I, Kendis Marcotte, spouse of Gary Marcotte, have read and approve the foregoing
Agreement. In consideration of granting of the right to my spouse to purchase
shares of PETsMART.com, Inc. Common Stock, as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact in respect to the exercise of
any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws of the State of
California or similar laws relating to marital property in effect in the state
of our residence as of the date of the signing of the foregoing Agreement.
Dated: 1/24/00
/s/ Kendis Marcotte
-------------------------------
Signature
<PAGE>
EXHIBIT 10.16
SECURED PROMISSORY NOTE
Los Angeles, California
$247,169.00 January 27, 2000
FOR VALUE RECEIVED, Gary R. Marcotte ("Borrower"), hereby unconditionally
promises to pay to the order of PETsMART.com, Inc., a Delaware corporation, and
its successors, endorsees, transferees and assigns ("Payee"), the principal
amount of Two Hundred Forty Seven Thousand One Hundred Sixty Nine Dollars of the
United States of America (U.S $247,169.00) and interest on the unpaid principal
amount hereof, on or before the earlier of (i) January 27, 2005 or (ii) (A) 30
days after the termination of Borrower's employment with the Payee with cause
(as defined in Borrower's employment agreement with the Payee) or (B) six months
after the termination of the Borrower's employment with Payee without cause.
Interest shall accrue from the date hereof until this Note is paid in full at a
rate equal to seven percent (7%) per annum compounded semiannually. Interest
shall be computed on the basis of a 360-day year and the actual number of days
elapsed in the period.
Borrower may at its option make principal payments on this Note without
premium or penalty. All payments of principal shall be accompanied by payments
of accrued and unpaid interest on the principal being repaid. If any payment of
principal or interest on this Note shall become due on a Saturday, Sunday or
legal holiday under the laws of the State of California, such payment shall be
made on the next succeeding business day, and any such extended time of the
payment of principal shall be included in computing interest at the rate this
Note bears prior to maturity in connection with such payment.
Borrower shall make payment of all interest accruing on all obligations of
the Borrower now existing or hereafter incurred under, arising out of, or in
connection with this Note and the Pledge Agreement (as defined below) after the
filing of a petition by or against the Borrower under the Bankruptcy Code, in
accordance with and at the rate specified in this Note whether or not the claim
for such interest is allowed as a claim after such filing in any proceeding
under the Bankruptcy Code).
All payments of principal, interest and other amounts payable in respect of
this Note shall be made in lawful money of the United States of America or by
personal check, at the office of Payee located at 35 Hugus Alley, Suite 210,
Pasadena, CA 91103, Attention: Chief Financial Officer or at such other place
that Payee shall have designated in writing for such purpose. Payee shall,
before disposing of this Note or any part hereof, make a notation hereon of all
principal and interest payments previously made hereunder and of the date to
which interest hereon has been paid; provided, that the failure to correctly
make a notation of any payment made on this Note shall not limit or otherwise
affect the obligation of Borrower under this Note with respect to any loan
evidenced hereby or payments of principal or interest on this Note.
The proceeds of this Note, together with $331.00 in cash, shall be used by
the Borrower, to purchase 330,000 shares of Common Stock (the "Common Stock") of
Payee under the 1999 Stock Plan Stock Option Agreement, dated January 24, 2000,
between the Borrower and the Payee (the "Option Agreement"), which Common Stock
shall secure this Note pursuant to the Pledge Agreement between the Borrower and
Payee, dated as of the date hereof (the "Pledge Agreement"). No reference herein
to the Pledge Agreement and no provision of this Note or the Pledge Agreement
shall alter or impair the obligation of Borrower, which is absolute and
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
The occurrence of any of the following shall constitute an "Event of
Default":
<PAGE>
(1) failure of Borrower to pay any principal, interest or
other amount due under this Note when due, whether at stated maturity,
by acceleration, by notice of prepayment or otherwise, in each case
within ten (10) days after the same becomes due and payable;
(2) breach of any other representation, warranty or covenant
of Borrower contained in this Note or of the Pledgor (as defined
therein) in the Pledge Agreement;
(3) an involuntary case shall be commenced against Borrower or
a court having jurisdiction shall enter a decree or order for relief in
respect of Borrower in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect
(collectively, "Bankruptcy Laws"), which decree or order is not stayed;
or any other similar relief shall be granted under any other law; or a
decree or order of a court having jurisdiction for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Borrower, or over all or a substantial part
of Borrower's property, shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of
Borrower for all or a substantial part of Borrower's property; or the
issuance of a warrant of attachment, execution or similar process
against any substantial part of the property of Borrower; or
(4) Borrower shall have an order for relief entered with
respect to it or commence a voluntary case under any applicable
Bankruptcy Law, or shall consent to the entry of an order for relief in
an involuntary case, or to the conversion to an involuntary case, under
any such law, or shall consent to the appointment of or taking
possession of a receiver, trustee or other custodian for all or a
substantial part of Borrower's properties; the making by Borrower of
any assignment for the benefit of creditors; or the inability or
failure of Borrower, or the admission of Borrower in writing of its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in items (3) or (4)
above, the principal of this Note, together with all unpaid interest and all
other amounts payable hereunder, shall become due and payable forthwith, without
presentment, demand, notice, protest or other requirement of any kind, all of
which are expressly waived by Borrower. Upon the occurrence of any event
specified in items (1) or (2) above, Payee may, by written notice to Borrower,
declare this Note, together with all unpaid interest and all other amounts
payable hereunder, and this Note, together with all unpaid interest and all
other amounts payable hereunder, shall immediately become, due and payable
without presentment, further demand or notice, protest or other requirements of
any kind, all of which are expressly waived by Borrower.
Borrower agrees to advise Payee as to the occurrence of any event or
existence of any condition that, with the passage of time or giving of notice,
or both, could constitute an Event of Default as soon as possible but not later
than two business days after Borrower becomes aware of the occurrence of such
event or existence of such condition. The failure to provide such notice will
constitute an Event of Default.
This Note shall be construed and enforced in accordance with, and shall be
governed by, the laws of the State of California, without regard to conflict of
law principles thereof. Borrower and Payee further agree that a non-exclusive
forum for the determination of any action relating to this Note or the Pledge
Agreement shall include an appropriate court of the State of California or the
United States District Court or United States Bankruptcy Court for the District
of California and Borrower and Payee hereby irrevocably submit to the
jurisdiction thereof.
2
<PAGE>
To the maximum extent permitted by law, Borrower and Payee hereby expressly
waive any right to trial by jury of any action, cause of action, claim, demand,
or proceeding arising under or with respect to this Note, or in any way
connected with, related to, or incidental to the dealings of Borrower and Payee
with respect to this Note or the transactions related hereto, in each case
whether now existing or hereafter arising, and irrespective of whether sounding
in contract, tort, or otherwise. To the maximum extent permitted by law,
Borrower and Payee each mutually agree that any such action, cause of action,
claim, demand, or proceedings shall be decided by a court trial without a jury
and that the defending party may file a copy of this section with any court or
other tribunal as written evidence of the consent of the complaining party to
the waiver of its right to trial by jury.
Borrower promises to pay all costs and expenses, including attorneys' fees,
incurred in the collection and enforcement of this Note, including, without
limitation, enforcement before any court and including all appellate
proceedings. Borrower hereby consents to renewal and extensions of time at or
after the maturity hereof, without notice, and hereby waives diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
No delay or omission on the part of Payee in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Payee of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. The rights and remedies of
Payee are cumulative and not exclusive of any rights or remedies it otherwise
has.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note, shall be interpreted so as to be effective and valid.
The holder of this Note shall have the right at any time to sell, assign,
transfer, negotiate or pledge all or any part of its interest in this Note.
Borrower may not assign, and no person may assume, any of the obligations of
Borrower under this Note without the prior written consent of Payee, which
consent may be granted or withheld in Payee's sole discretion, and any attempt
to do so without such consent shall be void.
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
day and year and at the place first written above.
Borrower
By: /s/ Gary Marcotte
---------------------------
Gary R. Marcotte
965 Arden Road
Pasadena, CA 91106
3
<PAGE>
EXHIBIT 10.17
SECURED PROMISSORY NOTE
Los Angeles, California
$224,699 December 23, 1999
FOR VALUE RECEIVED, Eric Kidd ("Borrower"), hereby unconditionally promises
to pay to the order of PETsMART.com, Inc., a Delaware corporation, and its
successors, endorsees, transferees and assigns ("Payee"), the principal amount
of Two Hundred Twenty Four Thousand Six Hundred Ninety Nine Dollars of the
United States of America (U.S.$224,699) and interest on the unpaid principal
amount hereof, on or before the earlier of (i) December 23, 2004 or (ii) (A) 30
days after the termination of Borrower's employment with the Payee with cause
(as defined in the Option Agreement (defined below)) or (B) six months after the
termination of the Borrower's employment with Payee without cause. Interest
shall accrue from the date hereof until this Note is paid in full at a rate
equal to seven percent (7%) per annum compounded semianually. Interest shall be
computed on the basis of a 360-day year and the actual number of days elapsed in
the period.
Borrower may at its option make principal payments on this Note without
premium or penalty. All payments of principal shall be accompanied by payments
of accrued and unpaid interest on the principal being repaid. If any payment of
principal or interest on this Note shall become due on a Saturday, Sunday or
legal holiday under the laws of the State of California, such payment shall be
made on the next succeeding business day, and any such extended time of the
payment of principal shall be included in computing interest at the rate this
Note bears prior to maturity in connection with such payment.
Borrower shall make payment of all interest accruing on all obligations of
the Borrower now existing or hereafter incurred under, arising out of, or in
connection with this Note and the Pledge Agreement (as defined below) after the
filing of a petition by or against the Borrower under the Bankruptcy Code, in
accordance with and at the rate specified in this Note whether or not the claim
for such interest is allowed as a claim after such filing in any proceeding
under the Bankruptcy Code).
All payments of principal, interest and all other amounts payable in
respect of this Note shall be made in lawful money of the United States of
America in immediately available funds, or by personal check, at the office of
Payee located at 35 Hugus Alley, Suite 210, Pasadena, CA 91103, Attention: Chief
Financial Officer or at such other place that Payee or any successor holder
hereof shall have designated in writing for such purpose. Payee shall, before
disposing of this Note or any part hereof, make a notation hereon of all
principal and interest payments previously made hereunder and of the date to
which interest hereon has been paid; provided, that the failure to correctly
make a notation of any payment made on this Note shall not limit or otherwise
affect the obligation of Borrower under this Note with respect to any loan
evidenced hereby or payments of principal or interest on this Note.
The proceeds of this Note, together with $301 in cash, shall be used by the
Borrower, to purchase 300,000 shares of Common Stock (the "Common Stock") of
Payee under the 1999 Stock Plan Stock Option Agreement, dated ____________,
between the Borrower and the Payee (the "Option Agreement"), which Common Stock
shall secure this Note pursuant to the Pledge Agreement between the Borrower and
Payee, dated as of the date hereof (the "Pledge Agreement"). No reference herein
to the Pledge Agreement and no provision of this Note, the
<PAGE>
Pledge Agreement or the Guarantee shall alter or impair the obligation of
Borrower, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.
The occurrence of any of the following shall constitute an "Event of
Default":
(1) failure of Borrower to pay any principal, interest or other
amount due under this Note when due, whether at stated maturity, by
acceleration, by notice of prepayment or otherwise, in each case within ten
(10) days after the same becomes due and payable;
(2) breach of any other representation, warranty or covenant of
Borrower contained in this Note or of the Pledgor (as defined therein) in
the Pledge Agreement;
(3) an involuntary case shall be commenced against Borrower or a
court having jurisdiction shall enter a decree or order for relief in
respect of Borrower in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect
(collectively, "Bankruptcy Laws"), which decree or order is not stayed; or
any other similar relief shall be granted under any other law; or a decree
or order of a court having jurisdiction for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having
similar powers over Borrower, or over all or a substantial part of
Borrower's property, shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of Borrower
for all or a substantial part of Borrower's property; or the issuance of a
warrant of attachment, execution or similar process against any substantial
part of the property of Borrower; or
(4) Borrower shall have an order for relief entered with respect to
it or commence a voluntary case under any applicable Bankruptcy Law, or
shall consent to the entry of an order for relief in an involuntary case,
or to the conversion to an involuntary case, under any such law, or shall
consent to the appointment of or taking possession of a receiver, trustee
or other custodian for all or a substantial part of Borrower's properties;
the making by Borrower of any assignment for the benefit of creditors; or
the inability or failure of Borrower, or the admission of Borrower in
writing of its inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in items (3) or (4)
above, the principal of this Note, together with all unpaid interest and all
other amounts payable hereunder, shall become due and payable forthwith, without
presentment, demand, notice, protest or other requirement of any kind, all of
which are expressly waived by Borrower. Upon the occurrence of any event
specified in items (1) or (2) above, Payee may, by written notice to Borrower,
declare this Note, together with all unpaid interest and all other amounts
payable hereunder, and this Note, together with all unpaid interest and all
other amounts payable hereunder, shall immediately become, due and payable
without presentment, further demand or notice, protest or other requirements of
any kind, all of which are expressly waived by Borrower.
Borrower agrees to advise Payee as to the occurrence of any event or
existence of any condition that, with the passage of time or giving of notice,
or both, could constitute an Event of Default hereunder as soon as possible but
not later than two business days after Borrower becomes aware of the occurrence
of such event or existence of such condition. The failure to provide such notice
will constitute an Event of Default, pursuant to which Payee may,
2
<PAGE>
by written notice to Borrower, declare this Note, together with all unpaid
interest and all other amounts payable hereunder, and this Note, together with
all unpaid interest and all other amounts payable hereunder, shall immediately
become, due and payable without presentment, further demand or notice, protest
or other requirements of any kind, all of which are expressly waived by
Borrower.
This Note shall be construed and enforced in accordance with, and shall be
governed by, the laws of the State of California, without regard to conflict of
law principles thereof. Borrower and Payee further agree that a non-exclusive
forum for the determination of any action relating to this Note or the Pledge
Agreement shall include an appropriate court of the State of California or the
United States District Court or United States Bankruptcy Court for the District
of California and Borrower and Payee hereby irrevocably submit to the
jurisdiction thereof.
To the maximum extent permitted by law, Borrower and Payee each mutually
hereby expressly waive any right to trial by jury of any action, cause of
action, claim, demand, or proceeding arising under or with respect to this Note,
or in any way connected with, related to, or incidental to the dealings of
Borrower and Payee with respect to this Note or the transactions related hereto,
in each case whether now existing or hereafter arising, and irrespective of
whether sounding in contract, tort, or otherwise. to the maximum extent
permitted by law, Borrower and Payee each mutually agree that any such action,
cause of action, claim, demand, or proceedings shall be decided by a court trial
without a jury and that the defending party may file a copy of this section with
any court or other tribunal as written evidence of the consent of the
complaining party to the waiver of its right to trial by jury.
Borrower promises to pay all costs and expenses, including attorneys' fees,
incurred in the collection and enforcement of this Note, including, without
limitation, enforcement before any court and including all appellate
proceedings. Borrower hereby consents to renewal and extensions of time at or
after the maturity hereof, without notice, and hereby waives diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
No delay or omission on the part of Payee in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Payee of any right or remedy shall preclude any other or further exercise
thereof or the exercise of any other right or remedy. The rights and remedies of
Payee are cumulative and not exclusive of any rights or remedies it otherwise
has.
Wherever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under such law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note, shall be interpreted so as to be effective and valid.
The holder of this Note shall have the right at any time to sell, assign,
transfer, negotiate or pledge all or any part of its interest in this Note.
Borrower may not assign, and no person may assume, any of the obligations of
Borrower under this Note without the prior written consent of Payee, which
consent may be granted or withheld in Payee's sole discretion, and any attempt
to do so without such consent shall be void.
3
<PAGE>
IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
day and year and at the place first written above.
ERIC KIDD
By: /s/ Eric Kidd
-------------------------------
Eric Kidd
12/23/99
4
<PAGE>
EXHIBIT 10.18
============================================================
PETsMART.COM, INC.
PREFERRED STOCK PURCHASE AGREEMENT
May 12, 1999
============================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<C> <S> <C>
SECTION 1 AUTHORIZATION AND SALE OF COMMON STOCK AND PREFERRED
STOCK
1.1 Authorization of Preferred Stock..................................... 2
1.2 Sale and Issuance of the Shares...................................... 2
1.3 Separate Agreements.................................................. 2
SECTION 2 CLOSING DATE; DELIVERY................................................. 2
2.1 Closing Date......................................................... 2
2.2 Delivery and Payment................................................. 2
2.3 Subsequent Sale of Common Stock and Preferred Stock.................. 2
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 2
3.1 Organization and Standing; Certificate of Incorporation and Bylaws... 2
3.2 Corporate Power...................................................... 2
3.3 Subsidiaries......................................................... 2
3.4 Capitalization....................................................... 2
3.5 Authorization........................................................ 2
3.6 Proprietary Rights................................................... 2
3.7 Registration Rights.................................................. 2
3.8 Governmental Consent, etc............................................ 2
3.9 Offering............................................................. 2
3.10 Permits.............................................................. 2
3.11 Compliance with Other Instruments.................................... 2
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................... 2
4.1 Business and Financial Experience.................................... 2
4.2 Investment Intent; Blue Sky.......................................... 2
4.3 Rule 144............................................................. 2
4.4 No Public Market..................................................... 2
4.5 Restrictions on Transfer; Restrictive Legends........................ 2
4.6 Access to Data....................................................... 2
4.7 Authorization........................................................ 2
4.8 Brokers or Finders................................................... 2
4.9 Tax Liability........................................................ 2
4.10 Limited Operating History............................................ 2
SECTION 5 CONDITIONS TO CLOSING OF THE PURCHASERS................................ 2
5.1 Representations and Warranties Correct............................... 2
5.2 Covenants............................................................ 2
5.3 Blue Sky............................................................. 2
5.4 Certificate.......................................................... 2
5.5 Investor Rights Agreement............................................ 2
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
5.6 Voting Agreement..................................................... 2
5.7 Compliance Certificate............................................... 2
5.8 Board of Directors................................................... 2
5.9 Legal Opinion........................................................ 2
5.10 License Agreement.................................................... 2
5.11 Strategic Relationship Terms......................................... 2
5.12 Restricted Stock Purchase Agreements................................. 2
5.13 Warrants............................................................. 2
5.14 Rodale Warrant....................................................... 2
5.15 Investment........................................................... 2
5.16 Board Observer....................................................... 2
SECTION 6 CONDITIONS TO CLOSING OF THE COMPANY................................... 2
6.1 Representations and Warranties Correct............................... 2
6.2 Covenants............................................................ 2
6.3 Certificate.......................................................... 2
6.4 Investor Rights Agreement............................................ 2
6.5 Voting Agreement..................................................... 2
6.6 License Agreement.................................................... 2
6.7 Strategic Relationship Terms......................................... 2
6.8 Restricted Stock Purchase Agreements................................. 2
SECTION 7 MISCELLANEOUS.......................................................... 2
7.1 Governing Law........................................................ 2
7.2 Entire Agreement; Amendment.......................................... 2
7.3 Notices, etc......................................................... 2
7.4 Delays or Omissions.................................................. 2
7.5 Counterparts......................................................... 2
7.6 Severability......................................................... 2
7.7 Titles and Subtitles................................................. 2
7.8 Survival of Warranties............................................... 2
7.9 Successors and Assigns............................................... 2
7.10 Further Assurances................................................... 2
</TABLE>
ii
<PAGE>
PETsMART.COM, INC.
PREFERRED STOCK PURCHASE AGREEMENT
----------------------------------
This Preferred Stock Purchase Agreement (this "Agreement") is made as of
May 12, 1999, by and among PETsMART.com, Inc., a Delaware corporation (the
"Company"), the purchaser of the Company's Series A Preferred Stock who are
signatories to this Agreement (the "Series A Purchaser"), the purchasers of the
Company's Series B Preferred Stock who are signatories to this Agreement (the
"Series B Purchasers"), the purchasers of the Company's Series C Preferred Stock
who are signatories to this Agreement (the "Series C Purchasers" and, together
with the Series A Purchaser and the Series B Purchasers, the "Purchasers"). The
Purchasers are listed on Exhibit A hereto.
---------
RECITALS
WHEREAS, PETsMART and PetJungle, Inc., a Delaware corporation ("PetJungle")
are currently engaged, in part, in the business of selling pet products over the
Internet (the "Business");
WHEREAS, the Company, Pittsburg, PetJungle and the Purchasers desire to
form a single entity that will engage in the Business whereby (i) PETsMART will
contribute $2,000,000 cash and certain costs associated with creating the
"PETsMART.com" web site valued at $3,010,000, (ii) the Series B Purchasers (as
defined herein) will contribute $3,006,000 in cash, (iii) the Series C
Purchasers (as defined herein) will contribute $4,008,000 in cash and (iv)
PetJungle will merge with and into the Company, thereby transferring all of its
assets to the Company (the "Merger"); and
WHEREAS, the Company and the Purchasers desire to effect the contribution
of their capital into the Company pursuant to this Agreement (the "Financing"),
and immediately after the closing of the Financing, the Company and PetJungle
will effect the Merger.
AGREEMENT
In consideration of the mutual promises and covenants herein, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1
AUTHORIZATION AND SALE OF COMMON STOCK AND PREFERRED STOCK
1.1 Authorization of Preferred Stock. The Company has authorized the
--------------------------------
sale and issuance to the Purchasers of up to (a) 3,000,000 shares of its Series
A Preferred Stock, par value $0.001 per share (the "Series A Preferred"), (b)
1,800,000 shares of its Series B Preferred Stock, par
1
<PAGE>
value $0.001 per share (the "Series B Preferred") and (c) 2,400,000 shares of
its Series C Preferred Stock, par value $0.001 per share (the "Series C
Preferred" and, together with the Series A Preferred and Series B Preferred, the
"Shares"), having the rights, preferences, privileges and restrictions as set
forth in the Amended and Restated Certificate of Incorporation in substantially
the form attached hereto as Exhibit B (the "Certificate").
---------
1.2 Sale and Issuance of the Shares. Subject to the terms and
-------------------------------
conditions hereof, the Company will severally issue and sell:
(a) to the Series A Purchaser and the Series A Purchaser will buy
from the Company up to 3,000,000 shares at a per share purchase price of $1.67
(the "Series A Per Share Price"), and at the aggregate purchase price of up to
$5,010,000, in the amount of shares specified opposite the name of the Series A
Purchaser in the column designated "Number of Shares" on Exhibit A.
-------
(b) to the Series B Purchasers and the Series B Purchasers will
severally buy from the Company up to 1,800,000 shares at a per share purchase
price of $1.67 (the "Series B Per Share Price"), and at the aggregate purchase
price of up to $3,006,000, in the amount of shares specified opposite the name
of each Series B Purchaser in the column designated "Number of Shares" on
Exhibit A.
- ---------
(c) to the Series C Purchasers and the Series C Purchasers will
severally buy from the Company up to 2,400,000 shares at a per share purchase
price of $1.67 (the "Series C Per Share Price"), and at the aggregate purchase
price of up to $4,008,000, in the amount of shares specified opposite the name
of each Series C Purchaser in the column designated "Number of Shares" on
Exhibit A.
- ---------
1.3 Separate Agreements. The Company's agreement with each of the
-------------------
Purchasers hereunder is a separate agreement, the obligations of each of the
Purchasers hereunder are several and not joint, and the sale of the Shares to
each of the Purchasers is a separate transaction.
SECTION 2
CLOSING DATE; DELIVERY
2.1 Closing Date. It is anticipated that purchase and sale of the Shares
------------
hereunder shall be consummated at a closing (the" Closing") held at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California
on May 12, 1999, at 4:00 p.m., local time, or at such other date, time and place
upon which the Company and the Purchasers shall agree (the date and time of the
Closing is hereinafter referred to as the "Closing Date").
2.2 Delivery and Payment. At the Closing, the Company will deliver to
--------------------
each Purchaser a certificate or certificates, registered in the Purchaser's
name, representing the number of Shares to
2
<PAGE>
be purchased by the Purchaser at the Closing, against payment of the purchase
price therefor, by (i) check payable to the Company, (ii) by wire transfer per
the Company's instructions, (iii) by any combination of (i) and (ii) above or
(iv) with respect to the Series A Purchaser, a combination of (i) and (ii) above
and by the delivery to the Company, at the time of execution of this Agreement,
of the General Assignment of Assets by and between the Company and the Series A
Purchaser, in the form attached hereto as Exhibit M, whereby the Purchaser shall
---------
assign to the Company all of its rights in the property listed as an exhibit
thereto.
2.3 Subsequent Sale of Common Stock and Preferred Stock. If less than all
---------------------------------------------------
of the authorized number of shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock are sold at the Closing, then,
subject to the terms and conditions of this Agreement, the Company may sell up
to the balance of the authorized but unissued Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, as the case may be, to such persons
as the Board of Directors of the Company may determine at the same price per
share as the Shares sold at the Closing. Any such sale shall be made upon the
same terms and conditions as those contained herein, and such persons or
entities shall become parties to this Agreement, the Voting Agreement and the
Investor Rights Agreement (each as defined herein), and shall have the rights
and obligations of a Purchaser hereunder or thereunder.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions (the "Schedule of
Exceptions") attached hereto as Exhibit C, the Company represents and warrants
---------
to the Purchasers that, as of the Closing Date at which the Purchasers
consummate their purchase of Shares hereunder:
3.1 Organization and Standing; Certificate of Incorporation and Bylaws.
------------------------------------------------------------------
The Company is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of Delaware and is in good standing under such
laws. The Company has requisite corporate power and authority to own and operate
its properties and assets and to carry on its business as presently conducted
and as proposed to be conducted. The Company is presently qualified to do
business as a foreign corporation in California and there is no other
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business or financial condition of the Company. The
Company has furnished counsel for the Purchasers with copies of its Certificate
and Bylaws. Said copies are true, correct and complete and reflect all
amendments now in effect.
3.2 Corporate Power. The Company has all requisite legal and corporate
---------------
power and authority to execute and deliver this Agreement, the Investor Rights
Agreement in substantially the form attached hereto as Exhibit D (the "Investor
---------
Rights Agreement"), the Voting Agreement in substantially the form attached
hereto as Exhibit E (the "Voting Agreement" and, together with this Agreement
---------
and the Investor Rights Agreement, the "Investment Agreements"), to sell and
issue the Shares hereunder, to issue the underlying Common Stock (the
"Conversion Stock") in accordance
3
<PAGE>
with the provisions of the Certificate, and to carry out and perform its
obligations under the terms of the Investment Agreements.
3.3 Subsidiaries. Except as provided in the Schedule of Exceptions, the
------------
Company has no subsidiaries or affiliated companies and does not otherwise own
or control, directly or indirectly, any equity interest in any corporation,
association or business entity.
3.4 Capitalization. The authorized capital stock of the Company will,
--------------
upon the filing of the Certificate, consist of 50,000,000 shares of Common Stock
and 7,905,770 shares of Preferred Stock, 3,300,000 of which have been designated
Series A Preferred, 1,800,000 of which have been designated Series B Preferred
Stock, 2,805,770 of which have been designated Series C Preferred Stock. As of
the Closing Date, no shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock will be outstanding. The Shares
shall have the rights, preferences, privileges and restrictions set forth in the
Certificate. The Company has reserved (i) 3,000,000 shares of Series A Preferred
for issuance hereunder and 300,000 shares for issuance upon exercise of a
warrant granted to PETsMART on the date hereof, (ii) 1,800,000 shares of Series
B Preferred for issuance hereunder, (iii) 2,400,000 shares of Series C Preferred
for issuance hereunder and 405,668 shares for issuance upon exercise warrants
granted to Rodale Press, Inc. and idealab! Holdings, L.L.C. on the date hereof,
(iv) 26,802,247 shares of Common Stock for issuance upon conversion of the
Preferred and (v) 1,430,394 shares of Common Stock for issuance to the Company's
executives pursuant to certain restricted stock purchase agreements entered into
between the Company and certain executives as of the date hereof. Except as set
forth above and as provided in the Company's Certificate and the Schedule of
Exceptions, there are no options, warrants or other rights to purchase or
acquire any of the Company's authorized and unissued capital stock.
3.5 Authorization. All corporate action on the part of the Company and
-------------
its directors necessary for the authorization, execution, delivery and
performance of the Investment Agreements by the Company, the authorization,
sale, issuance and delivery of the Shares and the Conversion Stock and the
performance of the Company's obligations under the Investment Agreements has
been taken or will be taken prior to the Closing. The Investment Agreements,
when executed and delivered by the Company, shall constitute valid and binding
obligations of the Company, enforceable in accordance with their terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies; provided, however, that the Company makes no
-------- -------
representation as to the enforceability of the indemnification provisions
contained in the Investor Rights Agreement. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will have the rights, preferences, privileges and
restrictions described in the Certificate; the Common Stock issuable upon
conversion of the Shares has been duly and validly reserved and, when issued in
compliance with the provisions of the Certificate, will be validly issued, fully
paid and nonassessable; and the Shares and the Conversion Stock will be free of
any liens or encumbrances (assuming the Purchaser takes the Shares with no
notice thereof) other than any liens or encumbrances created by or imposed upon
the holders; provided, however, that the Shares and the Conversion Stock may be
subject to restrictions on transfer under state or federal securities laws and
restrictions set forth in the Investor Rights
4
<PAGE>
Agreement. The issuance of the Shares is not subject to any preemptive rights or
rights of first refusal.
3.6 Proprietary Rights. The Company has title and ownership of, or full
------------------
right to use, all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and, to the Company's knowledge, without any conflict
with or infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of any
other person or entity. The Company has not received any communications alleging
that the Company has violated or, by conducting its business as currently
conducted, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade proprietary rights of any other person or entity. To
the knowledge of the Company, none of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as currently conducted. Neither the execution and delivery of
the Investment Agreements, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as currently
conducted, will, to the Company's knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions of any of its employees (or people it currently intends to hire)
made prior to their employment by the Company.
3.7 Registration Rights. Except as set forth in the Investor Rights
-------------------
Agreement, the Company is not under any contractual obligation to register under
the Securities Act of 1933, as amended (the "Securities Act"), any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
3.8 Governmental Consent, etc. No consent, approval order or
-------------------------
authorization of or registration, qualification, designation, declaration or
filing with any governmental authority on the part of the Company is required in
connection with the valid execution and delivery of the Investment Agreements,
or the offer, sale or issuance of the Shares or the Conversion Stock, or the
consummation of any other transaction contemplated hereby, except (i) the filing
of the Certificate in the office of the Delaware Secretary of State prior to the
Closing and (ii) the qualification (or taking of such action as may be necessary
to secure an exemption from qualification, if available) of the offer and sale
of the Shares and the Conversion Stock under applicable Blue Sky laws, which
filings and qualifications, if required, will be accomplished in a timely
manner.
3.9 Offering. Subject to the accuracy of the Purchaser's representations
--------
in Section 4 hereof, the offer, sale and issuance of the Shares and the
Conversion Stock constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
5
<PAGE>
3.10 Permits. The Company has all franchises, permits, licenses, and any
-------
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, or financial condition of the Company, and the Company
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. To its knowledge,
the Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
3.11 Compliance with Other Instruments. The Company is not in violation
---------------------------------
of any term of the Certificate or Bylaws, or in any respect of any term or
provision of any mortgage, indenture, contract, agreement, instrument, judgment
or decree, and to its knowledge, is not in violation of any order, statute, rule
or regulation applicable to the Company, which violation reasonably would be
expected to have a material adverse effect on the Company's business. The
execution, delivery and performance of and compliance with this Agreement, and
the Investment Agreements and the consummation of the transactions contemplated
hereby and thereby, and the issuance of the Shares and the Conversion Shares,
have not resulted and will not result in any violation of, or conflict with, or
constitute a default under any such term or provision, or result in the creation
of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company; and there is no such violation or default or event
which, with the passage of time or giving of notice or both, would constitute a
violation or default which would materially and adversely affect the business of
the Company or any of its properties or assets.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally (and not jointly) represents and warrants
to the Company as follows:
4.1 Business and Financial Experience. Its knowledge and experience in
---------------------------------
financial and business matters are such that its is capable of evaluating the
merits and risks of its purchase of the Shares and the underlying Conversion
Stock as contemplated by this Agreement. Its financial situation is such that it
can afford to bear the economic risk of holding the Shares and the underlying
Conversion Stock for an indefinite period of time and suffer complete loss of
its investment.
4.2 Investment Intent; Blue Sky. It is acquiring the Shares and the
---------------------------
underlying Conversion Stock for investment for its own account, not as a nominee
or agent, and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the issuance of the Shares and the
underlying Conversion Stock has not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the Purchaser's investment intent and the
accuracy of the Purchaser's representations as expressed herein. The
Purchaser's address set forth on the Schedule of Purchasers attached hereto as
Exhibit A
- ---------
6
<PAGE>
represents the Purchaser's true and correct state of domicile, upon which the
Company may rely for the purpose of complying with applicable Blue Sky laws.
4.3 Rule 144. It acknowledges that the Shares and the underlying
--------
Conversion Stock must be held indefinitely unless subsequently registered under
the Securities Act or unless an exemption from such registration is available.
It is aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being effected through a "broker's transaction" or in a transaction directly
with a "market maker," and the number of shares being sold during any three-
month period not exceeding specified limitations.
4.4 No Public Market. It understands that no public market now exists for
----------------
any of the securities issued by the Company and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 Restrictions on Transfer; Restrictive Legends. It understands
---------------------------------------------
that the transfer of the Shares and the Conversion Stock, if applicable, is
restricted by applicable state and Federal securities laws and by the provisions
of the Investor Rights Agreement and the Voting Agreement, and that the
certificates representing the Shares and the Conversion Stock will be imprinted
with legends restricting transfer except in compliance therewith.
4.6 Access to Data. It has had an opportunity to discuss the Company's
--------------
business, management and financial affairs with the Company's management. It has
also had an opportunity to ask questions of officers of the Company. It
understands that such discussions, as well as any written information issued by
the Company, were intended to describe the material aspects of the Company's
business and prospects but were not a thorough or exhaustive description.
4.7 Authorization. All action on the part of the Purchaser's partners,
-------------
board of directors, and stockholders, as applicable, necessary for the
authorization, execution, delivery and performance of the Investment Agreements
by the Purchaser, the purchase of and payment for the Shares and the Conversion
Stock, if applicable, and the performance of all of the Purchaser's obligations
under the Investment Agreements has been taken or will be taken prior to the
Closing. The Investment Agreements, when executed and delivered by the
Purchaser, shall constitute valid and binding obligations of the Purchaser,
enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies; provided, however, that the Purchaser makes no
representation as to the enforceability of the indemnification provisions
contained in the Investor Rights Agreement.
4.8 Brokers or Finders. The Company has not and will not incur,
------------------
directly or indirectly, as a result of any action taken by the Purchaser, any
liability for brokerage or finders' fees or agents'
7
<PAGE>
commissions or any similar charges in connection with this Agreement or the
transactions contemplated hereby.
4.9 Tax Liability. It has reviewed with its own tax advisors the tax
-------------
consequences of the transactions contemplated by this Agreement. It relies
solely on such advisors and not on any statements or representations of the
Company or any of the Company's agents with respect to such tax consequences. It
understands that it, and not the Company, shall be responsible for its own tax
liability that may arise as a result of the transactions contemplated by this
Agreement.
4.10 Limited Operating History. It acknowledges that the Company was
-------------------------
incorporated on May 6, 1999 and has a limited operating history.
SECTION 5
CONDITIONS TO CLOSING OF THE PURCHASERS
Each Purchaser's obligation to purchase the Shares is, unless waived in
writing by the Purchaser, subject to the fulfillment as of the date of Closing
of the following conditions:
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made in Section 3 hereof by the Company shall be true and correct in
all material respects as of the date of the Closing.
5.2 Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed or complied with by the Company on or prior to the
Closing Date shall have been performed or complied with in all material
respects.
5.3 Blue Sky. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares and the underlying
Conversion Stock.
5.4 Certificate. The Certificate shall have been properly filed in the
-----------
office of the Delaware Secretary of State.
5.5 Investor Rights Agreement. The Company shall have executed and
-------------------------
delivered the Investor Rights Agreement in substantially the form attached
hereto as Exhibit D.
---------
5.6 Voting Agreement. The Company and each of the Purchasers shall
----------------
have executed and delivered the Voting Agreement in substantially the form
attached hereto as Exhibit E.
----------
5.7 Compliance Certificate. The Company shall have delivered to the
----------------------
Purchasers a certificate of the Company in substantially the form attached
hereto as Exhibit F, executed by the President of the Company, dated as of the
---------
date of the Closing and certifying to the fulfillment of the conditions
specified in Sections 5.1 and 5.2 of this Agreement.
8
<PAGE>
5.8 Board of Directors. Upon the Closing, the number of directors
------------------
constituting the Board of Directors shall be seven (7). Thereupon, the Board of
Directors shall consist of Bill Gross, Robert Kavner, Tom McGovern, Yves
Sisteron, Samuel J. Parker, Philip L. Francis and Neil Watanabe.
5.9 Legal Opinion. The Purchasers shall have received an opinion of
-------------
Wilson Sonsini Goodrich & Rosati, counsel to the Company, in substantially the
form attached hereto as Exhibit G.
---------
5.10 License Agreement. The Company and PETsMART shall have executed and
-----------------
delivered the License Agreement in substantially the form attached hereto as
Exhibit H.
- ---------
5.11 Strategic Relationship Terms. The Company and PETsMART shall have
----------------------------
executed and delivered the Strategic Relationship Terms in substantially the
form attached hereto as Exhibit I.
---------
5.12 Restricted Stock Purchase Agreements. The Company shall have executed
------------------------------------
and delivered to each of Tom McGovern and Carina Schaldach a Restricted Stock
Purchase Agreement in the form attached hereto as Exhibit J entitling them to
---------
purchase 1,043,111 and 387,283 shares of Common Stock, respectively, at a
---------
purchase price of $.20 per share.
5.13 Warrants. The Company shall have executed and delivered to (i) each
--------
of idealab! Holdings, L.L.C. and Rodale Press, Inc. a Series C Preferred Stock
Purchase Warrant to purchase 339,278 and 43,227 shares of Series C Preferred
Stock, respectively, and (ii) PETsMART a Series A Preferred Stock Purchase
Warrant to purchase 300,000 shares of Series A Preferred Stock, each in the form
attached hereto as Exhibit K.
---------
5.14 Rodale Warrant. The Company shall have executed and delivered to
--------------
Rodale Press, Inc. a Series C Stock Purchase Warrant to purchase 23,163 shares
of Series C Preferred Stock in the form attached hereto as Exhibit L.
---------
5.15 Investment. Purchasers shall have tendered, in the aggregate, at the
----------
Closing, consideration of not less than $8,000,000.
5.16 Board Observer. The Company shall have executed and delivered to
--------------
Rodale Press, Inc. a letter agreement regarding the grant of observer rights to
Rodale Press, Inc. on the Company's Board of Directors.
SECTION 6
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to sell and issue the Shares is, unless waived in
writing by the Company, subject to the fulfillment as of the date of Closing of
the following conditions:
9
<PAGE>
6.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made in Section 4 hereof by the Purchasers shall be true and correct
in all material respects as of the date of the Closing.
6.2 Covenants. All covenants, agreements, and conditions contained in
---------
this Agreement to be performed or complied with by the Purchasers on or prior to
the Closing Date shall have been performed or complied with in all material
respects.
6.3 Certificate. The Certificate shall have been filed in the office of
-----------
the Delaware Secretary of State.
6.4 Investor Rights Agreement. The Purchasers shall have executed and
-------------------------
delivered the Investor Rights Agreement in substantially the form attached
hereto as Exhibit D.
---------
6.5 Voting Agreement. The Purchasers shall have executed and delivered
----------------
the Voting Agreement in substantially the form attached hereto as Exhibit E.
---------
6.6 License Agreement. The Company and PETsMART shall have executed and
-----------------
delivered the License Agreement in substantially the form attached hereto as
Exhibit H.
- ---------
6.7 Strategic Relationship Terms. The Company and PETsMART shall have
----------------------------
executed and delivered the Strategic Relationship Terms in substantially the
form attached hereto as Exhibit I.
---------
6.8 Restricted Stock Purchase Agreements. The Tom McGovern and Carina
------------------------------------
Schaldach shall have executed and delivered to the Company a Restricted Stock
Purchase Agreement in the form attached hereto as Exhibit J entitling them to
---------
purchase 1,043,111 and 387,283 shares of Common Stock, respectively, at a
- ---------
purchase price of $.20 per share.
SECTION 7
MISCELLANEOUS
7.1 Governing Law. This Agreement shall be governed in all respects
-------------
by the internal laws of the State of California without regard to conflict of
laws provisions.
7.2 Entire Agreement; Amendment. This Agreement, the Investor Rights
---------------------------
Agreement, the Voting Agreement and the other documents delivered pursuant
hereto, including the exhibits hereto, constitute the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof, and no party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein or therein. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought.
10
<PAGE>
7.3 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to a Purchaser, to the address or fax number listed after such
Purchaser's name on the Schedule of Purchasers attached hereto as Exhibit A or
---------
at such other address as such Purchaser shall have furnished to the Company.
(b) if to the Company, to:
PETsMART.com, Inc.
130 West Union Street
Pasadena, CA 91103
Attn: Tom McGovern
Fax: (626) 535-2701
or at such other address as the Company shall have furnished to the Purchasers,
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Martin W. Korman, Esq.
Fax: (650) 493-6811
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when received if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
7.4 Delays or Omissions. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party, upon any
breach or default of another party under this Agreement, shall impair any such
right, power or remedy of such party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
11
<PAGE>
7.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all of which together
shall constitute one instrument.
7.6 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision, which shall be replaced with an enforceable provision
closest in intent and economic effect as the severed provision; provided that no
such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.
7.7 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.8 Survival of Warranties. The warranties, representations and
----------------------
covenants of the Company and the Purchasers contained in or made pursuant to
this Agreement shall survive execution and delivery of this Agreement and the
Closing for a period of one hundred eighty (180) days and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Purchasers or the Company.
7.9 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, permitted assigns, heirs, executors and administrators of
the parties hereto.
7.10 Further Assurances. Each party hereto agrees to do all acts and
------------------
things, and to make, execute and delivery such written instruments, as shall
from time to time be reasonably required to carry out the terms and provisions
of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
The foregoing agreement is hereby executed effective as of the date first
set forth above.
"COMPANY"
PETsMART.COM, INC.
/s/ Tom McGovern
- -----------------------------
Tom McGovern, Jr.
President
<PAGE>
"SERIES A PURCHASER"
PETsMART, INC.
/s/ Philip L. Francis
--------------------------------------
Philip L. Francis
President and Chief Executive Officer
<PAGE>
"SERIES B PURCHASERS"
IDEALAB! CAPITAL PARTNERS I-B, L.P.
/s/ William S. Elkus
- -----------------------------------
William S. Elkus,
Managing member, idealab! Capital Management, I, LLC,
General Partner of idealab! Capital Partners I-B, L.P.
IDEALAB! CAPITAL PARTNERS I-A, L.P.
/s/ William S. Elkus
- -----------------------------------
William S. Elkus,
Managing member, idealab! Capital Management, I, LLC,
General Partner of idealab! Capital Partners I-A, L.P.
SIMBA, LLC
By: /s/ Carina Schaldach
---------------------------------
Name Carina Schaldach
--------------------------------
Title:
------------------------------
WS INVESTMENT COMPANY 99A
By: /s/ James A. Terranova
---------------------------------
Name James A. Terranova
-------------------------------
Title: Adminstrator
------------------------------
- ------------------------------------
<PAGE>
"SERIES B PURCHASERS"
/s/ Larry W. Sonsini
- ------------------------------------
LARRY SONSINI
/s/ Martin W. Korman
- ------------------------------------
MARTIN W. KORMAN
<PAGE>
"SERIES B PURCHASERS"
GLOBAL RETAIL PARTNERS, L.P.
BY: GLOBAL RETAIL PARTNERS, INC.
By: /s/ Osamu R. Watanabe
- ------------------------------------
Name: Osamu R. Watanabe
-------------------------------
Title: Vice President
------------------------------
DLJ DIVERSIFIED PARTNERS, L.P.
BY: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: /s/ Osamu R. Watanabe
- ------------------------------------
Name: Osamu R. Watanabe
-------------------------------
Title: Vice President
------------------------------
DLJ DIVERSIFIED PARTNERS-A, L.P.
BY: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: /s/ Osamu R. Watanabe
- ------------------------------------
Name: Osamu R. Watanabe
-------------------------------
Title: Vice President
------------------------------
GRP PARTNERS, L.P.
BY: GLOBAL RETAIL PARTNERS, INC.
General Partner
By: /s/ Osamu R. Watanabe
---------------------------------
Name: Osamu R. Watanabe
-------------------------------
Title: Vice President
------------------------------
<PAGE>
"SERIES B PURCHASERS"
GLOBAL RETAIL PARTNERS FUNDING, INC.
By: /s/ Osamu R. Watanabe
---------------------------------
Name: Osamu R. Watanabe
-------------------------------
Title: Vice President
------------------------------
DLJ ESC II L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
General Partner
By: /s/ Osamu R. Watanabe
---------------------------------
Name: Osamu R. Watanabe
-------------------------------
Title: Vice President
------------------------------
<PAGE>
"SERIES B PURCHASERS"
/s/ Richard Horn
- ------------------------------------
RICK HORN
/s/ Mark Williams
- ------------------------------------
MARK WILLIAMS
/s/ M. Houlahan
- ------------------------------------
MICHAEL HOULAHAN
/s/ Tom McGovern
- ------------------------------------
TOM MCGOVERN, JR.
<PAGE>
"SERIES C PURCHASERS"
IDEALAB! HOLDINGS, L.L.C.
/s/ Marcia Goodstein
- ------------------------------------
Marcia Goodstein, Secretary
RODALE PRESS, INC.
/s/ Placido A. Corpora
- ------------------------------------
Pat Corpora, President
PORTOFINO INVESTMENTS LIMITED PARTNERSHIP I
By: /s/ David Camel
--------------------------------------
Name: David Camel
------------------------------------
Title: Vice President, General Partner
-----------------------------------
/s/ Robert Kavner
- ------------------------------------------------------
ROBERT KAVNER
/s/ Daniel Herrick
- ------------------------------------------------------
DANIEL HERRICK
/s/ Charles Gordon /s/ Dorothea M. Gordon
- ------------------------------------------------------
DOROTHEA M. AND CHARLES GORDON
/s/ Tom McGovern
- ------------------------------------------------------
TOM McGOVERN
<PAGE>
"SERIES C PURCHASERS"
/s/ Carina Schaldach
- ------------------------------------
CARINA SCHALDACH
/s/ M. Houlahan
- ------------------------------------
MIKE HOULAHAN
/s/ Kyle Hansen
- ------------------------------------
KYLE HANSEN
<PAGE>
EXHIBIT A
---------
(To Preferred Stock Purchase Agreement)
Schedule of Series A Purchasers
-------------------------------
Name and Address Number of Shares
PETsMART, Inc. 3,000,000
19601 N. 27TH Avenue
Phoenix, AZ 85027
Attn: Philip L. Francis
Phone: (623) 580-6100
Facsimile: (623) 580-6513
with a copy to:
Cooley Godward, LLP
Five Palo Alto Square
300 El Camino Real
Palo Alto, CA 94306-2155
Attn: Bob Brigham, Esq.
TOTAL 3,000,000
<PAGE>
Schedule of Series B Purchasers
-------------------------------
Name and Address Number of Shares
idealab! Capital Partners I-A, L.P. 72,000
130 West Union Street
Pasadena, CA 91103
Attn: William Elkus
Telephone: (626) 535-2882
Facsimile: (626) 535-2881
idealab! Capital Partners I-B, L.P. 378,000
130 West Union Street
Pasadena, CA 91103
Attn: William Elkus
Telephone: (626) 535-2882
Facsimile: (626) 535-2881
with a copy to:
Strategic Law Partners
333 S. Grand Avenue, Suite 3950
Los Angeles, CA 90071
Attn: James K. Baer
Telephone: (213) 617-8960
Facsimile: (213) 617-8961
Simba, L.L.C. 63,000
130 W. Union Street
Pasadena, CA 91103
Attn: Carina Schaldach
Telephone: (626) 535-2831
Facsimile: (626) 535-2701
WS Investment Company 99A 8,100
650 Page Mill Road
Palo Alto, CA 94303
Attn: Jim Terranova
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
<PAGE>
Name and Address Number of Shares
Larry Sonsini 6,450
650 Page Mill Road
Palo Alto, CA 94303
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
Martin W. Korman 450
650 Page Mill Road
Palo Alto, CA 94303
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
Rick Horn 15,000
PETsMART, Inc.
19601 N. 27TH Avenue
Phoenix, AZ 85027
Phone: (623) 580-6100
Facsimile: (623) 580-6513
Mark Williams 15,000
PETsMART, Inc.
19601 N. 27TH Avenue
Phoenix, AZ 85027
Phone: (623) 580-6100
Facsimile: (623) 580-6513
Tom McGovern, Jr. 30,000
130 W. Union Street
Pasadena, CA 91103
Telephone: (626) 535-2735
Facsimile: (626) 535-2701
Michael Houlahan 12,000
130 W. Union Street
Pasadena, CA 91103
Telephone: (626) 535-2735
Facsimile: (626) 535-2701
<PAGE>
Name and Address Number of Shares
Global Retail Partners, L.P. 769,365
277 Park Avenue, 19th Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Telephone: (212) 892-3000
Facsimile: (212) 892-7552
with a copy to:
Global Retail Partners, L.P.
2121 Avenue of the Stars, 30th Floor
Los Angeles, CA 90067
Attn: Osamu Watanabe
Telephone: (310) 282-6100
Facsimile: (310) 282-6178
DLJ Diversified Partners, L.P. 229,261
277 Park Avenue, 19th Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Telephone: (212) 892-3000
Facsimile: (212) 892-7552
with a copy to:
DLJ Diversified Partners, L.P.
277 Park Avenue, 23rd Floor
New York, NY 10172
Attn: Ivy Dodes
Telephone: (212) 892-3000
Facsimile: (212) 892-2689
<PAGE>
Name and Address Number of Shares
DLJ Diversified Partners-A, L.P. 85,137
277 Park Avenue, 19th Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Telephone: (212) 892-3000
Facsimile: (212) 892-7552
with a copy to:
DLJ Diversified Partners-A, L.P.
277 Park Avenue, 23rd Floor
New York, NY 10172
Attn: Ivy Dodes
Telephone: (212) 892-3000
Facsimile: (212) 892-2689
GRP Partners, L.P. 50,016
277 Park Avenue, 19th Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Telephone: (212) 892-3000
Facsimile: (212) 892-7552
with a copy to:
GRP Partners, L.P.
2121 Avenue of the Stars, 30th Floor
Los Angeles, CA 90067
Attn: Osamu Watanabe
Telephone: (310) 282-6100
Facsimile: (310) 282-6178
<PAGE>
Name and Address Number of Shares
Global Retail Partners Funding, Inc. 52,978
277 Park Avenue, 19th Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Telephone: (212) 892-3000
Facsimile: (212) 892-7552
with a copy to:
Global Retail Partners Funding, Inc.
2121 Avenue of the Stars, 30th Floor
Los Angeles, CA 90067
Attn: Osamu Watanabe
Telephone: (310) 282-6100
Facsimile: (310) 282-6178
DLJ ESC II L.P. 13,243
277 Park Avenue, 19th Floor
New York, NY 10172
Attn: Ed Poletti
Telephone: (212) 892-3000
Facsimile: (212) 892-7572
TOTAL 1,800,000
<PAGE>
Schedule of Series C Purchasers
-------------------------------
Name and Address Number of Shares
idealab! Holdings, L.L.C. 1,968,000
130 W. Union Street
Pasadena, CA 91103
Attn: Marcia Goodstein
Telephone: (626) 585-6900
Facsimile: (626) 535-2701
Rodale Press, Inc. 240,000
400 S. 10th St.
Emmaus, PA 18098
Attn: Pat Corpora
Telephone: (610) 967-8251
Facsimile: (610) 967-9154
with a copy to:
Gross, McGinley, LaBarre & Eaton, LLP
33 South 7th Street
P.O. Box 4060
Allentown, PA 18101
Attn: Paul A. McGinley, Esq.
Telephone: (610) 820-5450
Facsimile: (610) 820-6006
Robert Kavner 38,400
20680 Leonard Road
Saratoga, CA 95070
Telephone: (408) 867-9850
Facsimile: (408) 867-9853
Daniel Herrick 19,200
55 Eaton Mews North
London, SW1X 8LL, England
Telephone: 011 44 171 235 2736
Facsimile: 011 44 171 245 0882
Dorothea M. & Charles Gordon 14,400
1963 Golden Way
Mountain View, CA 94040
Telephone: (650) 967-5056
<PAGE>
Name and Address Number of Shares
Tom McGovern, Jr. 48,000
130 W. Union Street
Pasadena, CA 91103
Telephone: (626) 535-2735
Facsimile: (626) 535-2701
Carina Schaldach 28,800
130 W. Union Street
Pasadena, CA 91103
Telephone: (626) 535-2831
Facsimile: (626) 535-2701
Portofino Investments I Limited Partnership 19,200
301 E. Clark Avenue, Suite 700
Las Vegas, NV 89101
Attn: Ronald Smith
Telephone: (702) 878-4788
Michael Houlahan 12,000
2612 Buchanan Street
San Francisco, CA 94115
Telephone: (626) 535-2724
Facsimile: (626) 535-2701
Kyle Hansen 12,000
7206 Rockridge Drive
Huntington Beach, CA 92648
Telephone: (714) 704-1790
Facsimile: (714) 841-8979
TOTAL 2,400,000
<PAGE>
EXHIBIT B
---------
(To Preferred Stock Purchase Agreement)
Amended and Restated Certificate of Incorporation
-------------------------------------------------
<PAGE>
EXHIBIT C
---------
(To Preferred Stock Purchase Agreement)
Schedule of Exceptions
----------------------
The following are the exceptions to the representations and warranties of
PETsMART.com, Inc. (the "Company") set forth in Section 3 of the Preferred Stock
Purchase Agreement dated as of May 12, 1999 (the "Agreement") to which this is
an exhibit. All capitalized terms used and not otherwise defined herein shall
have the meanings given them in the Agreement. The section numbers below
correspond to the section numbers in the Agreement. Anything disclosed under a
section specified below that is applicable to any other section is deemed to be
disclosed under the other such sections.
None.
<PAGE>
EXHIBIT D
---------
(To Preferred Stock Purchase Agreement)
Investor Rights Agreement
-------------------------
<PAGE>
EXHIBIT E
---------
(To Preferred Stock Purchase Agreement)
Voting Agreement
----------------
<PAGE>
EXHIBIT F
---------
(To Preferred Stock Purchase Agreement)
Compliance Certificate
----------------------
<PAGE>
EXHIBIT G
---------
(To Preferred Stock Purchase Agreement)
Opinion of Wilson Sonsini Goodrich & Rosati
-------------------------------------------
<PAGE>
EXHIBIT H
---------
(To Preferred Stock Purchase Agreement)
License Agreement
-----------------
<PAGE>
EXHIBIT I
---------
(To Preferred Stock Purchase Agreement)
Strategic Relationship Terms
----------------------------
<PAGE>
EXHIBIT J
---------
(To Preferred Stock Purchase Agreement)
Restricted Stock Purchase Agreements
------------------------------------
<PAGE>
EXHIBIT K
---------
(To Preferred Stock Purchase Agreement)
Warrants
--------
<PAGE>
EXHIBIT L
---------
(To Preferred Stock Purchase Agreement)
Rodale Warrant
--------------
<PAGE>
EXHIBIT M
---------
(To Preferred Stock Purchase Agreement)
General Assignment of Assets
----------------------------
<PAGE>
EXHIBIT 10.19
================================================================================
PETsMART.COM, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
October 6, 1999
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<C> <S> <C>
SECTION 1 AUTHORIZATION AND SALE OF COMMON STOCK AND
PREFERRED STOCK
1.1 Authorization of Preferred Stock.................................. 1
1.2 Sale and Issuance of the Shares................................... 1
1.3 Separate Agreements............................................... 1
SECTION 2 CLOSING DATE; DELIVERY............................................. 2
2.1 Closing Date...................................................... 2
2.2 Delivery and Payment.............................................. 2
2.3 Subsequent Sale of Preferred Stock................................ 2
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................... 2
3.1 Organization and Standing; Certificate of Incorporation and Bylaws 3
3.2 Corporate Power................................................... 3
3.3 Subsidiaries...................................................... 3
3.4 Capitalization.................................................... 3
3.5 Authorization..................................................... 3
3.6 Proprietary Rights................................................ 4
3.7 Registration Rights............................................... 4
3.8 Governmental Consent, etc......................................... 5
3.9 Offering.......................................................... 5
3.10 Permits........................................................... 5
3.11 Compliance with Other Instruments................................. 5
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS................... 6
4.1 Business and Financial Experience................................. 6
4.2 Investment Intent; Blue Sky....................................... 6
4.3 Rule 144.......................................................... 6
4.4 No Public Market.................................................. 6
4.5 Restrictions on Transfer; Restrictive Legends..................... 6
4.6 Access to Data.................................................... 7
4.7 Authorization..................................................... 7
4.8 Brokers or Finders................................................ 7
4.9 Tax Liability..................................................... 7
4.10 Limited Operating History......................................... 7
SECTION 5 CONDITIONS TO CLOSING OF THE PURCHASERS............................ 7
5.1 Representations and Warranties Correct............................ 8
5.2 Covenants......................................................... 8
5.3 Blue Sky.......................................................... 8
5.4 Certificate....................................................... 8
5.5 Amended and Restated Investor Rights Agreement.................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
5.6 Amended and Restated Voting Agreement............................. 8
5.7 Compliance Certificate............................................ 8
5.8 Board of Directors................................................ 8
5.9 Legal Opinion..................................................... 8
5.10 Investment........................................................ 8
SECTION 6 CONDITIONS TO CLOSING OF THE COMPANY............................... 8
6.1 Representations and Warranties Correct............................ 9
6.2 Covenants......................................................... 9
6.3 Certificate....................................................... 9
6.4 Amended and Restated Investor Rights Agreement.................... 9
6.5 Amended and Restated Voting Agreement............................. 9
SECTION 7 MISCELLANEOUS...................................................... 9
7.1 Governing Law..................................................... 9
7.2 Entire Agreement; Amendment....................................... 9
7.3 Notices, etc...................................................... 9
7.4 Delays or Omissions............................................... 10
7.5 Counterparts...................................................... 10
7.6 Severability...................................................... 10
7.7 Titles and Subtitles.............................................. 11
7.8 Survival of Warranties............................................ 11
7.9 Successors and Assigns............................................ 11
7.10 Further Assurances................................................ 11
</TABLE>
-ii-
<PAGE>
PETsMART.COM, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
--------------------------------------------
This Series D Preferred Stock Purchase Agreement (this "Agreement") is made
as of October 6, 1999, by and among PETsMART.com, Inc., a Delaware corporation
(the "Company") and the purchasers of the Company's Series D Preferred Stock who
are signatories to this Agreement (the "Purchasers"). The Purchasers are listed
on Exhibit A hereto.
---------
AGREEMENT
In consideration of the mutual promises and covenants herein, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AUTHORIZATION AND SALE OF COMMON STOCK AND PREFERRED STOCK
1.1 Authorization of Preferred Stock. The Company has authorized the
--------------------------------
sale and issuance to the Purchasers of up to (a) 10,707,561 shares of its Series
D Preferred Stock, par value $0.001 per share (the "Series D Preferred" or the
"Shares"), having the rights, preferences, privileges and restrictions as set
forth in the Amended and Restated Certificate of Incorporation in substantially
the form attached hereto as Exhibit B (the "Certificate").
---------
1.2 Sale and Issuance of the Shares. Subject to the terms and conditions
-------------------------------
hereof, the Company will severally issue and sell:
(a) to the Purchasers and the Purchasers will buy from the Company up
to 10,707,561 shares at a per share purchase price of $4.67 (the "Per Share
Price"), and at the aggregate purchase price of up to $50,004,310, in the amount
of shares specified opposite the name of the Purchasers in the column designated
"Number of Shares" on Exhibit A.
---------
1.3 Separate Agreements. The Company's agreement with each of the
-------------------
Purchasers hereunder is a separate agreement, the obligations of each of the
Purchasers hereunder are several and not joint, and the sale of the Shares to
each of the Purchasers is a separate transaction.
-1-
<PAGE>
SECTION 2
CLOSING DATE; DELIVERY
2.1 Closing Date. It is anticipated that purchase and sale of the Shares
------------
hereunder shall be consummated at a closing (the" Closing") held at the offices
of Strategic Law Partners, LLP, 333 South Grand Avenue, Suite 3950, Los Angeles,
California 90071 on October ___, 1999, at 4:00 p.m., local time, or at such
other date, time and place upon which the Company and the Purchasers shall agree
(the date and time of the Closing is hereinafter referred to as the "Closing
Date").
2.2 Delivery and Payment. At the Closing, the Company will deliver to
--------------------
each Purchaser a certificate or certificates, registered in the Purchaser's
name, representing the number of Shares to be purchased by the Purchaser at the
Closing, against payment of the purchase price therefor, by (i) check payable to
the Company, (ii) by wire transfer per the Company's instructions, (iii) by any
combination of (i) and (ii) above except that with respect to idealab! Holdings,
LLC ("idealab!") one half by check or wire transfer and one half by delivery of
a 90 day promissory note, substantially in the form attached hereto as Exhibit X
hereto (the "Note"), secured by the Shares to be purchased by idealab! pursuant
to the terms of a Security Agreement substantially in the form of Exhibit Y
hereto (the "Security Agreement") and with respect to each of Global Retail
Partners, L.P., DLJ Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., GRP Partners, L.P., Global Retail Partners Funding, Inc. and DLJ ESC II
L.P. $.001 per share by check at the Closing with the balance of the purchase
price by wire transfer on or before October 13, 1999.
2.3 Subsequent Sale of Preferred Stock. If less than all of the
----------------------------------
authorized number of shares of Series D Preferred Stock are sold at the Closing,
then, subject to the terms and conditions of this Agreement, the Company may
sell up to the balance of the authorized but unissued shares of Series D
Preferred Stock to such persons as the Board of Directors of the Company may
determine at the same Per Share Price as the Shares sold at the Closing for a
period of up to 30 days from the Closing. Any such sale shall be made upon the
same terms and conditions as those contained herein, and such persons or
entities shall become parties to this Agreement, the Amended and Restated Voting
Agreement and the Amended and Restated Investor Rights Agreement (each as
defined herein), and shall have the rights and obligations of a Purchaser
hereunder or thereunder.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions (the "Schedule of
Exceptions") attached hereto as Exhibit C, the Company represents and warrants
---------
to the Purchasers that, as of the Closing Date at which the Purchasers
consummate their purchase of Shares hereunder:
-2-
<PAGE>
3.1 Organization and Standing; Certificate of Incorporation and Bylaws.
------------------------------------------------------------------
The Company is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of Delaware and is in good standing under such
laws. The Company has requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as presently
conducted and as proposed to be conducted. The Company is presently qualified
to do business as a foreign corporation in California and there is no other
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business or financial condition of the Company. The
Company has made available to counsel for the Purchasers copies of its
Certificate and Bylaws. Said copies are true, correct and complete and reflect
all amendments now in effect.
3.2 Corporate Power. The Company has all requisite legal and corporate
---------------
power and authority to execute and deliver this Agreement, the Amended and
Restated Investor Rights Agreement in substantially the form attached hereto as
Exhibit D (the "Amended and Restated Investor Rights Agreement"), the Amended
- ---------
and Restated Voting Agreement in substantially the form attached hereto as
Exhibit E (the "Voting Agreement" and, together with this Agreement and the
- ---------
Investor Rights Agreement, the "Investment Agreements"), to sell and issue the
Shares hereunder, to issue the underlying Common Stock (the "Conversion Stock")
in accordance with the provisions of the Certificate, and to carry out and
perform its obligations under the terms of the Investment Agreements.
3.3 Subsidiaries. Except as provided in the Schedule of Exceptions, the
------------
Company has no subsidiaries or affiliated companies and does not otherwise own
or control, directly or indirectly, any equity interest in any corporation,
association or business entity.
3.4 Capitalization. The authorized capital stock of the Company will,
--------------
upon the filing of the Certificate, consist of 70,000,000 shares of Common Stock
and 19,769,648 shares of Preferred Stock, 3,300,000 of which have been
designated Series A Preferred, 1,800,000 of which have been designated Series B
Preferred Stock, 2,805,770 of which have been designated Series C Preferred
Stock and 11,863,878 shares of which have been designated Series D Preferred
Stock. The Company has an aggregate of 5,466,464 shares of Common Stock
reserved for issuance under its 1999 Stock Plan (giving effect to an amendment
to the 1999 Stock Plan increasing the number of shares reserved thereunder by
2,275,000 which will be effective as of the Closing Date). Of the shares of
Common Stock reserved for issuance under the 1999 Stock Plan, options to
purchase 1,286,673 shares of Common Stock have been granted. As of the Closing
Date, the number of outstanding shares of the Company's capital stock is as set
forth on Section 3.4 of the Schedule of Exceptions. Except as set forth above
-----------
or in Section 3.4 of the Schedule of Exceptions, there are no options, warrants
or other rights to purchase or acquire any of the Company's authorized and
unissued capital stock.
3.5 Authorization. All corporate action on the part of the Company and
-------------
its directors necessary for the authorization, execution, delivery and
performance of the Investment Agreements by the Company, the authorization,
sale, issuance and delivery of the Shares and the Conversion Stock and the
performance of the Company's obligations under the Investment Agreements has
been taken or will be taken prior to the Closing. The Investment Agreements,
when executed and
-3-
<PAGE>
delivered by the Company, shall constitute valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies; provided, however, that the Company makes no representation
-------- -------
as to the enforceability of the indemnification provisions contained in the
Amended and Restated Investor Rights Agreement. The Shares, when issued in
compliance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable, and will have the rights, preferences, privileges and
restrictions described in the Certificate; the Common Stock issuable upon
conversion of the Shares has been duly and validly reserved and, when issued in
compliance with the provisions of the Certificate, will be validly issued, fully
paid and nonassessable; and the Shares and the Conversion Stock will be free of
any liens or encumbrances (assuming the Purchaser takes the Shares with no
notice thereof) other than any liens or encumbrances created by or imposed upon
the holders; provided, however, that the Shares and the Conversion Stock may be
subject to restrictions on transfer under state or federal securities laws and
restrictions set forth in the Investor Rights Agreement. The issuance of the
Shares is not subject to any preemptive rights or rights of first refusal which
have not been complied with or waived.
3.6 Proprietary Rights. The Company has title and ownership of, or full
------------------
right to use, all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and, to the Company's knowledge, without any conflict
with or infringement of the rights of others. Other than licenses for off-the-
shelf software, or as set forth on Section 3.6 of the Schedule of Exceptions,
-----------
there are no material options, licenses, or agreements of any kind relating to
the foregoing, nor is the Company bound by or a party to any options, licenses
or agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as currently conducted, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade proprietary
rights of any other person or entity. To the knowledge of the Company, none of
its employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of the Company or
that would conflict with the Company's business as currently conducted. Neither
the execution and delivery of the Investment Agreements, nor the carrying on of
the Company's business by the employees of the Company, nor the conduct of the
Company's business as currently conducted, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Company.
3.7 Registration Rights. Except as set forth in the Amended and Restated
-------------------
Investor Rights Agreement, the Company is not under any contractual obligation
to register under the
-4-
<PAGE>
Securities Act of 1933, as amended (the "Securities Act"), any of its presently
outstanding securities or any of its securities which may hereafter be issued.
3.8 Governmental Consent, etc. No consent, approval order or
-------------------------
authorization of or registration, qualification, designation, declaration or
filing with any governmental authority on the part of the Company is required in
connection with the valid execution and delivery of the Investment Agreements,
or the offer, sale or issuance of the Shares or the Conversion Stock, or the
consummation of any other transaction contemplated hereby, except (i) the filing
of the Certificate in the office of the Delaware Secretary of State prior to the
Closing and (ii) the qualification (or taking of such action as may be necessary
to secure an exemption from qualification, if available) of the offer and sale
of the Shares and the Conversion Stock under applicable Blue Sky laws, which
filings and qualifications, if required, will be accomplished in a timely
manner.
3.9 Offering. Subject to the accuracy of the Purchaser's representations
--------
in Section 4 hereof, the offer, sale and issuance of the Shares and the
Conversion Stock constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act.
3.10 Permits. The Company has all franchises, permits, licenses, and any
-------
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, or financial condition of the Company, and the Company
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. To its knowledge,
the Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
3.11 Compliance with Other Instruments. The Company is not in violation of
---------------------------------
any term of the Certificate or Bylaws, or in any respect of any term or
provision of any mortgage, indenture, contract, agreement, instrument, judgment
or decree, and to its knowledge, is not in violation of any order, statute, rule
or regulation applicable to the Company, which violation reasonably would be
expected to have a material adverse effect on the Company's business. The
execution, delivery and performance of and compliance with this Agreement, and
the other Investment Agreements and the consummation of the transactions
contemplated hereby and thereby, and the issuance of the Shares and the
Conversion Shares, have not resulted and will not result in any violation of, or
conflict with, or constitute a default under any such term or provision, or
result in the creation of, any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company; and there is no such
violation or default or event which, with the passage of time or giving of
notice or both, would constitute a violation or default which would materially
and adversely affect the business of the Company or any of its properties or
assets.
-5-
<PAGE>
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally (and not jointly) represents and warrants
to the Company as follows:
4.1 Business and Financial Experience. It is an accredited investor
---------------------------------
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act. Its knowledge and experience in financial and business matters are such
that its is capable of evaluating the merits and risks of its purchase of the
Shares and the underlying Conversion Stock as contemplated by this Agreement.
Its financial situation is such that it can afford to bear the economic risk of
holding the Shares and the underlying Conversion Stock for an indefinite period
of time and suffer complete loss of its investment.
4.2 Investment Intent; Blue Sky. It is acquiring the Shares and the
---------------------------
underlying Conversion Stock for investment for its own account, not as a nominee
or agent, and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the issuance of the Shares and the
underlying Conversion Stock has not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the Purchaser's investment intent and the
accuracy of the Purchaser's representations as expressed herein. The
Purchaser's address set forth on the Schedule of Purchasers attached hereto as
Exhibit A represents the Purchaser's true and correct state of domicile, upon
- ---------
which the Company may rely for the purpose of complying with applicable Blue Sky
laws.
4.3 Rule 144. It acknowledges that the Shares and the underlying
--------
Conversion Stock must be held indefinitely unless subsequently registered under
the Securities Act or unless an exemption from such registration is available.
It is aware of the provisions of Rule 144 promulgated under the Securities Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being effected through a "broker's transaction" or in a transaction directly
with a "market maker," and the number of shares being sold during any three-
month period not exceeding specified limitations.
4.4 No Public Market. It understands that no public market now exists for
----------------
any of the securities issued by the Company and that the Company has made no
assurances that a public market will ever exist for the Company's securities.
4.5 Restrictions on Transfer; Restrictive Legends. It understands that
---------------------------------------------
the transfer of the Shares and the Conversion Stock, if applicable, is
restricted by applicable state and Federal
-6-
<PAGE>
securities laws and by the provisions of the Amended and Restated Investor
Rights Agreement and the Amended and Restated Voting Agreement, and that the
certificates representing the Shares and the Conversion Stock will be imprinted
with legends restricting transfer except in compliance therewith.
4.6 Access to Data. It has had an opportunity to discuss the Company's
--------------
business, management and financial affairs with the Company's management. It
has also had an opportunity to ask questions of officers of the Company. It
understands that such discussions, as well as any written information issued by
the Company, were intended to describe the material aspects of the Company's
business and prospects but were not a thorough or exhaustive description.
4.7 Authorization. All action on the part of the Purchaser's partners,
-------------
board of directors, members and stockholders, as applicable, necessary for the
authorization, execution, delivery and performance of the Investment Agreements
by the Purchaser, the purchase of and payment for the Shares and the Conversion
Stock, if applicable, and the performance of all of the Purchaser's obligations
under the Investment Agreements has been taken or will be taken prior to the
Closing. The Investment Agreements, when executed and delivered by the
Purchaser, shall constitute valid and binding obligations of the Purchaser,
enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies; provided, however, that the Purchaser makes no
representation as to the enforceability of the indemnification provisions
contained in the Amended and Restated Investor Rights Agreement.
4.8 Brokers or Finders. The Company has not and will not incur, directly
------------------
or indirectly, as a result of any action taken by the Purchaser, any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or the transactions contemplated hereby.
4.9 Tax Liability. It has reviewed with its own tax advisors the tax
-------------
consequences of the transactions contemplated by this Agreement. It relies
solely on such advisors and not on any statements or representations of the
Company or any of the Company's agents with respect to such tax consequences.
It understands that it, and not the Company, shall be responsible for its own
tax liability that may arise as a result of the transactions contemplated by
this Agreement.
4.10 Limited Operating History. It acknowledges that the Company was
-------------------------
incorporated on May 6, 1999 and has a limited operating history.
SECTION 5
CONDITIONS TO CLOSING OF THE PURCHASERS
Each Purchaser's obligation to purchase the Shares is, unless waived in
writing by the Purchaser, subject to the fulfillment as of the date of Closing
of the following conditions:
-7-
<PAGE>
5.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made in Section 3 hereof by the Company shall be true and correct in
all material respects as of the date of the Closing.
5.2 Covenants. All covenants, agreements and conditions contained in this
---------
Agreement to be performed or complied with by the Company on or prior to the
Closing Date shall have been performed or complied with in all material
respects.
5.3 Blue Sky. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares and the underlying
Conversion Stock.
5.4 Certificate. The Certificate shall have been properly filed in the
-----------
office of the Delaware Secretary of State.
5.5 Amended and Restated Investor Rights Agreement. The Company shall
----------------------------------------------
have executed and delivered the Amended and Restated Investor Rights Agreement
in substantially the form attached hereto as Exhibit D.
---------
5.6 Amended and Restated Voting Agreement. The Company and each of the
-------------------------------------
Purchasers shall have executed and delivered the Amended and Restated Voting
Agreement in substantially the form attached hereto as Exhibit E.
----------
5.7 Compliance Certificate. The Company shall have delivered to the
----------------------
Purchasers a certificate of the Company executed by the President of the
Company, dated as of the date of the Closing and certifying to the fulfillment
of the conditions specified in Sections 5.1 and 5.2 of this Agreement.
5.8 Board of Directors. Upon the Closing, the number of directors
------------------
constituting the Board of Directors shall continue to be seven (7) and shall
continue to consist of Bill Gross, Robert Kavner, Tom McGovern, Yves Sisteron,
Samuel J. Parker (or successor thereto), Philip L. Francis and Neil Watanabe.
5.9 Legal Opinion. The Purchasers shall have received an opinion of
-------------
Strategic Law Partners, LLP, counsel to the Company, in substantially the form
attached hereto as Exhibit F.
---------
5.10 Investment. Purchasers shall have tendered, in the aggregate, at the
----------
Closing, consideration of not less than $25,000,000.
SECTION 6
CONDITIONS TO CLOSING OF THE COMPANY
The Company's obligation to sell and issue the Shares is, unless waived in
writing by the Company, subject to the fulfillment as of the date of Closing of
the following conditions:
-8-
<PAGE>
6.1 Representations and Warranties Correct. The representations and
--------------------------------------
warranties made in Section 4 hereof by the Purchasers shall be true and correct
in all material respects as of the date of the Closing.
6.2 Covenants. All covenants, agreements, and conditions contained in
---------
this Agreement to be performed or complied with by the Purchasers on or prior to
the Closing Date shall have been performed or complied with in all material
respects.
6.3 Certificate. The Certificate shall have been filed in the office of
-----------
the Delaware Secretary of State.
6.4 Amended and Restated Investor Rights Agreement. The Purchasers shall
----------------------------------------------
have executed and delivered the Amended and Restated Investor Rights Agreement
in substantially the form attached hereto as Exhibit D.
---------
6.5 Amended and Restated Voting Agreement. The Purchasers shall have
-------------------------------------
executed and delivered the Amended and Restated Voting Agreement in
substantially the form attached hereto as Exhibit E.
---------
SECTION 7
MISCELLANEOUS
7.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of California without regard to conflict of laws
provisions.
7.2 Entire Agreement; Amendment. This Agreement, the Amended and Restated
---------------------------
Investor Rights Agreement, the Amended and Restated Voting Agreement and the
other documents delivered pursuant hereto, including the exhibits hereto,
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.3 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to a Purchaser, to the address or fax number listed after such
Purchaser's name on the Schedule of Purchasers attached hereto as Exhibit A or
---------
at such other address as such Purchaser shall have furnished to the Company.
-9-
<PAGE>
(b) if to the Company, to:
PETsMART.com, Inc.
130 West Union Street
Pasadena, CA 91103
Attn: Tom McGovern
Fax: (626) 535-2701
or at such other address as the Company shall have furnished to the Purchasers,
with a copy to:
Strategic Law Partners, LLP
333 South Grand Avenue, Suite 3950
Los Angeles, California 90071
Attn: Bradley D. Schwartz, Esq.
Fax: (213) 621-0982
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when received if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
7.4 Delays or Omissions. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party, upon any
breach or default of another party under this Agreement, shall impair any such
right, power or remedy of such party nor shall it be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
7.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all of which together
shall constitute one instrument.
7.6 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision, which shall be replaced with an enforceable provision
closest in intent and economic effect as the severed provision; provided that no
-10-
<PAGE>
such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.
7.7 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.8 Survival of Warranties. The warranties, representations and covenants
----------------------
of the Company and the Purchasers contained in or made pursuant to this
Agreement shall survive execution and delivery of this Agreement and the Closing
for a period of one hundred eighty (180) days and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Purchasers or the Company.
7.9 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, permitted assigns, heirs, executors and administrators of
the parties hereto.
7.10 Further Assurances. Each party hereto agrees to do all acts and
------------------
things, and to make, execute and delivery such written instruments, as shall
from time to time be reasonably required to carry out the terms and provisions
of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-11-
<PAGE>
The foregoing agreement is hereby executed effective as of the date first
set forth above.
"COMPANY"
PETsMART.COM, INC.
/s/ Tom McGovern, Jr.
- -----------------------------------
Tom McGovern, Jr.
President
"PURCHASERS"
PETsMART, INC.
/s/ Philip L. Francis
- ------------------------------------
Philip L. Francis
President and Chief Executive Officer
IDEALAB! CAPITAL PARTNERS I-A, L.P.
/s/ William S. Elkus
- ------------------------------------
William S. Elkus,
Managing Member, idealab! Capital Management, I, LLC,
General Partner of idealab! Capital Partners I-A, L.P.
IDEALAB! CAPITAL PARTNERS I-B, L.P.
/s/ William S. Elkus
- -----------------------------------
William S. Elkus,
Managing Member, idealab! Capital Management, I, LLC,
General Partner of idealab! Capital Partners I-B, L.P.
<PAGE>
SIMBA, LLC
By: /s/ Carina Schaldach
-------------------------
Name: Carina Schaldach
-----------------------
Title:
----------------------
WS INVESTMENT COMPANY 99B
By: /s/ Martin W. Korman
-------------------------
Name: Martin W. Korman
-----------------------
Title: Member
----------------------
/s/ Larry W. Sonsini
- ----------------------------
LARRY SONSINI
/s/ Martin W. Korman
- ----------------------------
MARTIN W. KORMAN
/s/ Tom McGovern, Jr.
- ----------------------------
TOM MCGOVERN, JR.
/s/ Michael Houlahan
- ----------------------------
MICHAEL HOULAHAN
GLOBAL RETAIL PARTNERS, L.P.
BY: GLOBAL RETAIL PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
-------------------------
Name: Steven E. Lebow
-----------------------
Title: Chairman
----------------------
<PAGE>
DLJ DIVERSIFIED PARTNERS, L.P.
BY: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
-------------------------
Name: Steven E. Lebow
-----------------------
Title: Chairman
----------------------
DLJ DIVERSIFIED PARTNERS-A, L.P.
BY: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
-------------------------
Name: Steven E. Lebow
-----------------------
Title: Chairman
----------------------
GRP PARTNERS, L.P.
BY: GLOBAL RETAIL PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
-------------------------
Name: Steven E. Lebow
-----------------------
Title: Chairman
----------------------
GLOBAL RETAIL PARTNERS FUNDING, INC.
By: /s/ Osamu R. Watanabe
-------------------------
Name: Osamu R. Watanabe
-----------------------
Title: Vice President
----------------------
<PAGE>
DLJ ESC II L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
General Partner
By: /s/ Osamu R. Watanabe
-------------------------
Name: Osamu R. Watanabe
-----------------------
Title: Vice President
----------------------
IDEALAB! HOLDINGS, L.L.C.
By: /s/ Marcia Goodstein
-------------------------
Name: Marcia Goodstein
-----------------------
Title: Secretary
----------------------
/s/ Bradley D. Schwartz
- ----------------------------
BRADLEY D. SCHWARTZ
/s/ James K. Baer
- ----------------------------
JAMES K. BAER
BIG DOG USA, INC.
By: /s/ Andrew Feshbach
-------------------------
Name: Andrew Feshbach
-----------------------
Title: CEO
----------------------
/s/ Andrew Feshbach
- ----------------------------
ANDREW FESHBACH
<PAGE>
/s/ Anthony Wall
- ----------------------------
ANTHONY WALL
/s/ Andrew Wadhams
- ----------------------------
ANDREW WADHAMS
/s/ Douglas Nilsen
- ----------------------------
DOUGLAS NILSEN
/s/ Roberta Morris
- ----------------------------
ROBERTA MORRIS
/s/ Jeffrey Cowen
- ----------------------------
JEFFREY COWEN
/s/ David Wolf
- ----------------------------
DAVID WOLF
/s/ Siska Buitenman
- ----------------------------
SISKA BUITENMAN
SK PRIVATE INVESTMENT FUND-SERIES B
By: /s/ Thomas H. Kennedy
---------------------------------------
Name: Thomas H. Kennedy
-------------------------------------
Title: Member, Investment Committee Member
------------------------------------
<PAGE>
EXHIBIT A
---------
(To Series D Preferred Stock Purchase Agreement)
Schedule of Series D Purchasers
-------------------------------
Series D Stock Purchaser Number of Series D Shares
- ------------------------ -------------------------
PETsMART, Inc. 5,287,135
19601 N. 27/th/ Avenue
Phoenix, AZ 85027
Attn: Philip L. Francis
Phone: (623) 580-6100
Fax: (623) 580-6513
With a copy to:
- --------------
Cooley Godward, L.L.P.
Five Palo Alto Square
300 El Camino Real
Palo Alto, CA 94306-2155
Attn: Bob Brigham, Esq.
Idealab! Capital Partners I-A, L.P. 205,401
130 West Union Street
Pasadena, CA 91103
Attn: William Elkus
Phone: (626) 535-2882
Fax: (626) 535-2881
Idealab! Capital Partners I-B, L.P. 1,078,352
130 West Union Street
Pasadena, CA 91103
Attn: William Elkus
Phone: (626) 535-2882
Fax: (626) 535-2881
Simba, LLC 22,268
130 West Union Street
Pasadena, CA 91103
Attn: Carina Schaldach
Phone: (626) 535-2831
Fax: (626) 535-2701
<PAGE>
WS Investment Company 99B 3,202
650 Page Mill Road
Palo Alto, CA 94303
Attn: Jim Terranova
Phone: (650) 493-9300
Fax: (650) 493-6811
Larry Sonsini 1,067
650 Page Mill Road
Palo Alto, CA 94303
Phone: (650) 493-9300
Fax: (650) 493-6811
Martin W. Korman 1,067
650 Page Mill Road
Palo Alto, CA 94303
Phone: (650) 493-9300
Fax: (650) 493-6811
Tom McGovern, Jr. 6,356
130 West Union Street
Pasadena, CA 91103
Phone: (626) 535-2735
Fax: (626) 535-2701
Michael Houlahan 4,242
130 West Union Street
Pasadena, CA 91103
Phone: (626) 535-2735
Fax: (626) 535-2701
Global Retail Partners, L.P. 686,445
277 Park Avenue, 19/th/ Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Phone: (212) 892-3000
Fax: (212) 892-7552
<PAGE>
With a copy to:
- --------------
Global Retail Partners, L.P.
2121 Avenue of the Stars, 30/th/ Floor
Los Angeles, CA 90067
Attn: Osamu Watanabe
Phone: (310) 282-6100
Fax: (310) 282-6178
DLJ Diversified Partners, L.P. 204,551
277 Park Avenue, 19/th/ Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Phone: (212) 892-3000
Fax: (212) 892-7552
With a copy to:
- ---------------
DLJ Diversified Partners, L.P.
277 Park Avenue, 23/th/ Floor
New York, NY 10172
Attn: Ivy Dodes
Phone: (212) 892-3000
Fax: (212) 892-2689
DLJ Diversified Partners-A, L.P. 75,960
277 Park Avenue, 19/th/ Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Phone: (212) 892-3000
Fax: (212) 892-7552
With a copy to:
- ---------------
DLJ Diversified Partners-A, L.P.
277 Park Avenue, 23/th/ Floor
New York, NY 10172
Attn: Ivy Dodes
Phone: (212) 892-3000
Fax: (212) 892-2689
<PAGE>
GRP Partners, L.P. 44,625
277 Park Avenue, 19/th/ Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Phone: (212) 892-3000
Fax: (212) 892-7552
With a copy to:
- --------------
GRP Partners, L.P.
2121 Avenue of the Stars, 30/th/ Floor
Los Angeles, CA 90067
Attn: Osamu Watanabe
Phone: (310) 282-6100
Fax: (310) 282-6178
Global Retail Partners Funding, Inc. 1,576,355
277 Park Avenue, 19/th/ Floor
New York, NY 10172
Attn: Nicole Arnaboldi
Phone: (212) 892-3000
Fax: (212) 892-7552
With a copy to:
- --------------
Global Retail Partners Funding, Inc.
2121 Avenue of the Stars, 30/th/ Floor
Los Angeles, CA 90067
Attn: Osamu Watanabe
Phone: (310) 282-6100
Fax: (310) 282-6178
DLJ ESC II L.P. 11,816
277 Park Avenue, 19/th/ Floor
New York, NY 10172
Attn: Ed Poletti
Phone: (212) 892-3000
Fax: (212) 892-7572
Idealab! Holdings, L.L.C. 840,260
130 West Union Street
Pasadena, CA 91103
Attn: Marcia Goodstein
Phone: (626) 585-6900
Fax: (626) 535-2701
<PAGE>
Bradley D. Schwartz, Esq. 3,212
Strategic Law Partners LLP
333 South Grand Avenue, Suite 3950
Los Angeles, CA 90071
Phone: (213) 621-0978
Fax: (213) 621-0982
James K. Baer, Esq. 2,141
Strategic Law Partners LLP
333 South Grand Avenue, Suite 3950
Los Angeles, CA 90071
Phone: (213) 617-8960
Fax: (213) 617-8961
Big Dog USA, Inc. 535,331
121 Gray Avenue
Santa Barbara, CA 93101
Attn: General Counsel
Phone: (805) 963-8727
Fax: (805) 962-9460
Andrew Feshbach 21,414
C/O Big Dog USA, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Phone: (805) 963-8727
Fax: (805) 962-9460
Anthony Wall 12,848
C/O Big Dog USA, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Phone: (805) 963-8727
Fax: (805) 962-9460
Andrew Wadhams 12,848
C/O Big Dog USA, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Phone: (805) 963-8727
Fax: (805) 962-9460
<PAGE>
Douglas Nilsen 12,848
C/O Big Dog USA, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Phone: (805) 963-8727
Fax: (805) 962-9460
Roberta Morris 12,848
C/O Big Dog USA, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Phone: (805) 963-8727
Fax: (805) 962-9460
Jeffrey Cowen 10,707
C/O Big Dog USA, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Phone: (805) 963-8727
Fax: (805) 962-9460
David Wolf 12,848
C/O Big Dog USA, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Phone: (805) 963-8727
Fax: (805) 962-9460
Siska Buitenman 10,707
C/O Big Dog USA, Inc.
121 Gray Avenue
Santa Barbara, CA 93101
Phone: (805) 963-8727
Fax: (805) 962-9460
SK Private Investment Fund-Series B 10,707
C/O Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022-3897
Attention: Susan Dornfeld
Phone: (212) 735-3133
Fax: (213) 451-7825
<PAGE>
EXHIBIT B
---------
(To Series D Preferred Stock Purchase Agreement)
Amended and Restated Certificate of Incorporation
-------------------------------------------------
<PAGE>
EXHIBIT C
---------
(To Series D Preferred Stock Purchase Agreement)
Schedule of Exceptions
----------------------
The following are the exceptions to the representations and warranties of
PETsMART.com, Inc. (the "Company") set forth in Section 3 of the Series D
Preferred Stock Purchase Agreement dated as of October 6, 1999 (the "Agreement")
to which this is an exhibit. All capitalized terms used and not otherwise
defined herein shall have the meanings given them in the Agreement. The section
numbers below correspond to the section numbers in the Agreement. Anything
disclosed under a section specified below that is applicable to any other
section is deemed to be disclosed under the other such sections.
Section 3.4
- -----------
Capitalization Table
--------------------
<TABLE>
<CAPTION>
Security Outstanding Shares
- -------- -------------------
<S> <C>
Series A Preferred Stock 3,000,000 (13,636,364
on as converted basis)
Series B Preferred Stock 1,800,000 (1,800,000
on as converted basis)
Series C Preferred Stock 2,400,000 (8,556,040
on as converted basis)
Common Stock 2,006,283
</TABLE>
Warrants
- --------
PETsMART Series A Warrant dated May 12, 1999 exercisable into 300,000 shares of
Series A Preferred Stock (1,363,636 on as converted basis)
idealab! Series C Warrant dated May 12, 1999 exercisable into 339,278 shares of
Series C Preferred Stock (1,209,532 on as converted basis)
Rodale Series C Warrant dated May 12, 1999 exercisable into 43,227 shares of
Series C Preferred Stock (154,105 on as converted basis)
<PAGE>
Rodale Series C Warrant dated May 12, 1999 exercisable into 23,163 shares of
Series C Preferred stock (82,576 on as converted basis)
Warrant to Purchase Common Stock of PETsMART.com, Inc. dated 8/31/99 exercisable
into 840,000 shares of Common Stock
Warrant to Purchase Common Stock of Big Dog Holdings, Inc. dated 8/31/99
exercisable into 121,000 shares of Common Stock
Other Commitments
- -----------------
In addition, up to 1,156,317 shares of Series D Preferred Stock (the "Acme
Shares") is reserved for issuance in connection with proposed acquisition by the
Company of Digital Communities, Inc. dba Acmepet.com ("Digitial") and may be
issued in accordance with the terms of the Agreement and Plan of Reorganization,
dated as of August 11, 1999, by and among the Company, Digital and certain
stockholders of Digital.
Each of PETsMART, Inc., idealab! Holdings, LLC and Rodale Press, Inc. have
the right to receive or purchase shares of Common Stock of the Company upon the
occurrence of certain events pursuant to the terms of a letter agreement dated
May 12, 1999 entered into among the Company and such persons.
Section 3.6
- -----------
1. Trademark License Agreement, dated as of May 12, 1999 between PETsMART,
Inc. and PETsMART.com, Inc.
2. PETsMART/PETsMART.com, Inc. Strategic Relationship Interim Agreement, dated
as of May 12, 1999
3. Strategic Relationship Agreement dated 8/31/99 by and between Big Dog USA,
Inc., Big Dog Holdings, Inc. and PETsMART.com, Inc.
4. ECommerce Merchant Agreement dated 8/31/99 by and between Big Dog USA,
Inc., Big Dog Holdings, Inc. and PETsMART.com, Inc. (Exhibit B to Strategic
Relationship Agreement)
5. ECommerce Merchant Agreement dated 8/31/99 by and between Big Dog USA,
Inc., Big Dog Holdings, Inc. and PETsMART.com, Inc. (Exhibit C to Strategic
Relationship Agreement)
6. License Agreement dated 8/31/99 by and between Big Dog Holdings dba Big Dog
Sportswear, Big Dig USA, Inc. and PETsMART.com, Inc. and PETsMART, Inc.
<PAGE>
EXHIBIT D
---------
(To Series D Preferred Stock Purchase Agreement)
Amended and Restated Investor Rights Agreement
----------------------------------------------
<PAGE>
EXHIBIT E
---------
(To Series D Preferred Stock Purchase Agreement)
Amended and Restated Voting Agreement
-------------------------------------
<PAGE>
EXHIBIT F
---------
(To Series D Preferred Stock Purchase Agreement)
Opinion of Strategic Law Partners, LLP
--------------------------------------
<PAGE>
EXHIBIT X
---------
(To Series D Preferred Stock Purchase Agreement)
Promissory Note
---------------
<PAGE>
EXHIBIT Y
---------
(To Series D Preferred Stock Purchase Agreement)
Security Agreement
------------------
<PAGE>
EXHIBIT 10.20
=======================================================
PETsMART.COM, INC.
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
October 6, 1999
=======================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
1. Certain Definitions............................................................................................ 2
2. Restrictions on Transferability................................................................................ 4
3. Restrictive Legend............................................................................................. 4
4. Notice of Proposed Transfers................................................................................... 4
5. Registration................................................................................................... 5
5.1 Requested Registration................................................................................... 5
5.2 Company Registration..................................................................................... 7
5.3 Registration on Form S-3................................................................................. 8
5.4 Subsequent Registration Rights........................................................................... 9
5.5 Expenses of Registration................................................................................. 9
5.6 Registration Procedures.................................................................................. 9
5.7 Indemnification.......................................................................................... 11
5.8 Information by Holder.................................................................................... 13
5.9 Rule 144 Reporting....................................................................................... 13
5.10 Termination of Registration Rights....................................................................... 13
6. Financial Information Rights................................................................................... 13
7. Lockup Agreement............................................................................................... 15
8. Right of First Refusal......................................................................................... 15
9. Vesting of Employee Options.................................................................................... 16
10. Employment, Confidential Information and Invention Assignment Agreements...................................... 16
11. Transfer of Rights............................................................................................ 16
12. Waivers and Amendments........................................................................................ 17
13. Governing Law................................................................................................. 17
14. Entire Agreement.............................................................................................. 17
15. Notices, etc.................................................................................................. 17
16. Counterparts.................................................................................................. 187
17. Titles and Subtitles.......................................................................................... 187
18. Successors and Assigns........................................................................................ 18
19. Aggregation of Stock.......................................................................................... 18
20. Entire Agreement..............................................................................................
</TABLE>
-i-
<PAGE>
PETsMART.COM, INC.
AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (this "Agreement") is
made effective as of October 6, 1999, by and among PETsMART.com, Inc., a
Delaware corporation (the "Company"), the purchasers of the Company's Series D
Preferred Stock who are signatories to this Agreement (the "Purchasers") and the
Series A Purchasers (as defined herein), the Series B Purchasers (as defined
herein) and the Series C Purchasers (as defined herein).
RECITALS
A. In connection with the issuance and sale of its Series A Preferred
Stock, its Series B Preferred Stock and its Series C Preferred Stock, the
Company entered into that certain Investor Rights Agreement dated May 12, 1999
(the "Original Agreement") with the purchasers of Series A Preferred Stock (the
"Series A Purchasers"), the purchasers of Series B Preferred Stock (the "Series
B Purchasers") and the purchasers of Series C Preferred Stock (the "Series C
Purchasers").
B. The Company and the Purchasers are parties to the Series D Preferred
Stock Purchase Agreement dated as of October 6, 1999 (the "Purchase Agreement"),
whereby the Company will sell, and the Purchasers will buy, Series D Preferred
Stock of the Company.
C. The obligations of the Company and the Purchasers under the Purchase
Agreement are conditioned, among other things, upon the execution and delivery
of this Agreement by the Company and the Purchasers.
D. Section 12 of the Original Agreement provides that the consent of the
Company and the holders of a majority of the Registrable Securities (as defined
in the Original Agreement), a majority of the holders of the Series A Preferred
Stock, a majority of the holders of the Series B Preferred Stock and a majority
of the holders of the Series C Preferred Stock (provided, that Section 8 of the
Original Agreement may be amended only with the written consent of the Company
and the Qualified Purchasers (as defined in the Original Agreement) representing
a majority of the Registrable Securities then held by all of the Qualified
Purchasers (as defined in the Original Agreement) is required to amend the
Original Agreement.
-ii-
<PAGE>
E. The Company and the holders required to amend the Original Agreement
pursuant to Section 12 thereof now desire to and hereby amend and restate the
Original Agreement in its entirety as set forth below in order to add the
Purchasers as parties hereto and make certain changes to the Original Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree to amend and restate the Original Agreement in its entirety
and agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Change of Control" means the Company's sale or lease of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company for securities or consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary, unless the
stockholders of the Company immediately prior to such transaction hold at least
50% of the voting power of the surviving corporation in such a transaction.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Conversion Stock" means the Company's Common Stock (i) issued or
issuable pursuant to conversion of the Preferred Stock and (ii) issued or
issuable upon exercise of warrants granted to idealab! Holdings, L.L.C.,
PETsMART, Inc. and Rodale Press, Inc.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal rule or statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" means (i) any Series A Investor, Series B Investor, Series C
Investor or Purchaser holding Registrable Securities and (ii) any person holding
Registrable Securities to whom rights have been transferred under this
Agreement, in accordance with Section 11 hereof.
"Initiating Holders" means any Holder or Holders who, in the
aggregate, hold not less than 50% of the Registrable Securities then
outstanding.
"IPO" shall mean the Company's initial public offering pursuant to an
effective registration statement under the Securities Act covering the offer and
sale of the Company's Common Stock.
"Preferred Stock" shall mean the Company's Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock and Series D Preferred
Stock.
2
<PAGE>
"Qualified Initial Public Offering" shall mean the Company's IPO with
gross proceeds to the Company of not less than $15 million and at a minimum
offering price of $9.35 per share.
"Qualified Purchaser" shall mean (i) idealab! Holdings, L.L.C.,
PETsMART, Inc. and the Series B Purchasers and (ii) any person holding
Registrable Securities to whom rights have been transferred by idealab!
Holdings, L.L.C., PETsMART, Inc. or the Series B Purchasers under this
Agreement, in accordance with Section 11 hereof.
"Registrable Securities" means (i) the Conversion Stock and (ii) any
Common Stock of the Company issued or issuable in respect of any of the
foregoing or upon any stock split, stock dividend, recapitalization or similar
event; provided, however, that securities shall only be treated as Registrable
Securities if and so long as (x) they have not been registered or sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction and (y) the registration rights with respect to such
securities have not terminated pursuant to Section 5.10.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 5.1, 5.2 and
5.3 hereof, including, without limitation, all federal and state registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company). Registration Expenses shall also include
the fees and disbursements for one special counsel to the selling stockholders
selected by a majority of such holders, not to exceed $15,000 per registration.
"Restricted Securities" shall mean the securities of the Company
required to bear the legends set forth in Section 3 hereof.
"Rule 144" and "Rule 145" shall mean Rules 144 and 145, respectively,
promulgated under the Securities Act, or any similar federal rules thereunder,
all as the same shall be in effect at the time.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal rule or statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all fees and disbursements of
counsel for any Holder.
3
<PAGE>
2. Restrictions on Transferability. The Preferred Stock, the Conversion
-------------------------------
Stock and any other securities issued in respect of such stock upon any stock
split, stock dividend, recapitalization, merger, or similar event, shall not be
sold, assigned, transferred or pledged except upon the conditions specified in
this Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Holder or transferee will cause any
proposed purchaser, assignee, transferee, or pledgee of any such shares held by
the Holder or transferee to agree to take and hold such securities subject to
the restrictions and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing the Preferred
------------------
Stock, the Conversion Stock or any other securities issued in respect of such
stock upon any stock split, stock dividend, recapitalization, merger, or similar
event, shall (unless otherwise permitted by the provisions of Section 4 below)
be stamped or otherwise imprinted with legends in substantially the following
form (in addition to any legends required by agreement or by applicable state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE
COMPANY, SUCH TRANSFER MAY BE MADE PURSUANT TO RULE 144 OR
REGISTRATION UNDER THE ACT IS OTHERWISE UNNECESSARY IN ORDER FOR SUCH
TRANSFER TO COMPLY WITH THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCKUP
PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF A
REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH LOCKUP PERIOD IS
BINDING ON TRANSFEREES OF THESE SHARES.
Each Holder consents to the Company making a notation on its records
and giving stop transfer instructions to any transfer agent of its capital stock
in order to implement the restrictions on transfer established in this
Agreement.
4. Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Without in any way limiting the
immediately preceding sentence, no sale,
4
<PAGE>
assignment, transfer or pledge of Restricted Securities shall be made by any
holder thereof to any person unless such person shall first agree in writing to
be bound by the restrictions of this Agreement. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and, if requested by
the Company, the holder shall also provide, at such holder's expense, a written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, whereupon the holder of such Restricted
Securities shall be entitled to transfer such Restricted Securities in
accordance with the terms of the notice delivered by the holder to the Company;
provided, however, that the Company shall not request an opinion of counsel with
respect to (i) a transfer not involving a change in beneficial ownership or
involving an entity that is an affiliate (as such term is defined in Rule 405 of
the Securities Act) of a Holder, (ii) a transaction involving the distribution
without consideration of Restricted Securities by the holder to its constituent
partners or members in proportion to their ownership interests in the holder, or
(iii) a transaction involving the transfer without consideration of Restricted
Securities by an individual holder during such holder's lifetime by way of gift
or on death by will or intestacy. Each certificate evidencing the Restricted
Securities transferred as above provided shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 3 above, except that such certificate shall not bear such restrictive
legend if in the opinion of counsel for such holder and counsel for the Company
such legend is not required in order to establish compliance with any provision
of the Securities Act. Notwithstanding the foregoing, each holder of Restricted
Securities agrees that it will not request that a transfer of the Restricted
Securities be made or that the legend set forth in Section 3 be removed from the
certificate representing the Restricted Securities, solely in reliance on Rule
144(k), if as a result thereof the Company would be rendered subject to the
reporting requirements of the Exchange Act.
5. Registration.
------------
5.1 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive
------------------------
from Initiating Holders a written request that the Company effect any
registration with respect to shares of Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use commercially reasonable
efforts to effect such registration as part of a firm commitment underwritten
public offering with underwriters reasonably acceptable to the Initiating
Holders and the Company (including,
5
<PAGE>
without limitation, appropriate qualification under applicable state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request by delivering a written notice to such effect to
the Company within twenty days after the date of such written notice from the
Company.
Notwithstanding the foregoing, the Company shall not be obligated to take
any action to effect or complete any such registration pursuant to this Section
5.1:
(A) Prior to six months after the effective date of the
Company's first registered public offering of its Common Stock;
(B) Unless the requested registration would have an
aggregate offering price of all Registrable Securities sought to be registered
by all Holders, net of underwriting discounts and commissions, exceeding
$5,000,000;
(C) Following the filing of, and for 180 days
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan), provided
that the Company is actively employing in good faith commercially reasonable
efforts to cause such registration statement to become effective;
(D) After the Company has effected two (2)
registrations pursuant to this Section 5.1(a) in which the Initiating Holders
were able to sell at least 50% of the Registrable Securities sought to be
included and such registrations have each been declared or ordered effective;
(E) If the Initiating Holders are able to request a
registration on Form S-3 pursuant to Section 5.3 hereof;
(F) Within twelve (12) months after the Company has
effected such a registration pursuant to this Section 5.1(a), and such
registration has been declared or ordered effective; or
(G) If the Company shall furnish to the Initiating
Holders a certificate signed by the President of the Company (i) giving notice
of its bona fide intention to effect the filing of a registration statement with
the Commission, or (ii) stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for a registration statement to be filed in the near future. In such case, the
Company's obligation to use its commercially reasonable efforts to register,
qualify or comply under this Section 5.1(a) shall be deferred one or more times
for a period not to exceed 180 days from the receipt of the request to file such
registration by such Initiating Holder or Holders, provided that the Company may
not exercise this deferral right more than once per twelve (12) month period.
6
<PAGE>
Subject to the foregoing clauses (A) through (G), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event of a registration pursuant to Section
------------
5.1, the Company shall advise the Holders as part of the notice given pursuant
to Section 5.1(a)(i) that the right of any Holder to registration pursuant to
Section 5.1 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 5.1, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall, together with all Holders proposing to distribute their
securities through such underwriting, enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section 5.1,
if the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
may limit the Registrable Securities to be included in such registration (i) in
the case of the Company's initial public offering, to zero, and (ii) in the case
of any other offering, to an amount no less than thirty-three percent (33%) of
all shares to be included in such offering. The Company shall so advise all
Holders requesting to be included in the registration and underwriting, and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders requesting to
be included in the registration and underwriting in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by them at
the time of filing the registration statement. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. To facilitate the allocation
of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares. If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company.
5.2 Company Registration.(a) Notice of Registration. If at any time
-------------------- ----------------------
or from time to time the Company shall determine to register any of its equity
securities, either for its own account or the account of a Holder or other
holders, other than (i) a registration relating solely to employee benefit
plans, (ii) a registration relating solely to a Rule 145 transaction, or (iii) a
registration in which the only equity security being registered is Common Stock
issuable upon conversion of convertible debt securities which are also being
registered, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualifications including compliance with Blue Sky laws), and in any underwriting
involved therein, all the
7
<PAGE>
Registrable Securities specified in a written request or requests, made within
ten days after the date of such written notice from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event, the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other Holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company. Notwithstanding any other provision of this Section 5.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit in
whole or in part the Registrable Securities to be included in such registration.
The Company shall so advise all Holders requesting to be included in the
registration and underwriting, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all the Holders requesting to be included in the registration
and underwriting in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by them at the time of filing the
registration statement. To facilitate the allocation of shares in accordance
with the above provisions, the Company or the underwriters may round the number
of shares allocated to any Holder to the nearest 100 shares. If any Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 5.2
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
5.3 Registration on Form S-3. (a) Request for Registration. In
------------------------ ------------------------
case the Company shall receive from Initiating Holders a written request that
the Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities the
aggregate price to the public of which, net of underwriting discounts and
commissions, would exceed $500,000, and the Company is a registrant entitled to
use Form S-3 to register the Registrable Securities for such an offering, the
Company shall use commercially reasonable efforts to cause such Registrable
Securities to be registered for the offering on such form and to cause such
Registrable Securities to be qualified in such jurisdictions as such Holder or
Holders may reasonably request; provided, however, that the Company shall not be
required to effect more than one registration pursuant to this Section 5.3 in
any twelve (12) month period. If such offer is to be an underwritten offer, the
underwriters must be acceptable to both the Initiating Holders and the Company.
The Company shall inform the other Holders of the proposed registration and
offer them the opportunity to
8
<PAGE>
participate. In the event the registration is proposed to be part of a firm
commitment underwritten public offering, the substantive provisions of Section
5.1(b) shall be applicable to each such registration initiated under this
Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
take any action pursuant to this Section 5.3:
(i) Following the filing of, and for 180 days immediately following
the effective date of, any registration statement pertaining to securities of
the Company (other than a registration of securities in a Rule 145 transaction
or with respect to an employee benefit plan), provided that the Company is
actively employing in good faith commercially reasonable efforts to cause such
registration statement to become effective;
(ii) Within twelve (12) months after the Company has effected such a
registration pursuant to this Section 5.3(a), and such registration has been
declared or ordered effective; or
(iii) If the Company shall furnish to the Initiating Holders a
certificate signed by the President of the Company (i) giving notice of its bona
fide intention to effect the filing of a registration statement with the
Commission, or (ii) stating that, in the good faith judgment of the Board of
Directors, it would be seriously detrimental to the Company or its stockholders
for a registration statement to be filed in the near future, then the Company's
obligation to use its commercially reasonable efforts to file a registration
statement shall be deferred one or more times for a period not to exceed 180
days from the receipt of the request to file such registration by such
Initiating Holder or Holders, provided that the Company may not exercise this
deferral right more than once per twelve (12) month period.
5.4 Subsequent Registration Rights. (a) Without the consent of any holder
------------------------------
of Registrable Securities hereunder, the Company may grant to any holder of
securities of the Company registration rights inferior to those granted
hereunder.
(b) The Company shall not enter into any agreement granting any holder
or prospective holder of any securities of the Company registration rights
superior to or on a pari passu basis with the rights granted the Holders
hereunder without the written consent of the holders of a majority of the
Registrable Securities.
5.5 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with (i) two (2) registrations pursuant to Section 5.1, (ii) all
registrations pursuant to Section 5.2, and (iii) all registrations pursuant to
Section 5.3, shall be borne by the Company. Notwithstanding the foregoing, in
the event that Initiating Holders cause the Company to begin a registration
pursuant to Section 5.1, and the request for such registration is subsequently
withdrawn by the Initiating Holders (unless the withdrawal is based upon
material adverse information concerning the Company of which the Initiating
Holders were not aware at the time of such request) or such registration is not
completed due to failure to meet the net proceeds requirement set forth in such
section or is otherwise not successfully completed due to no fault of the
Company, all Holders shall be deemed to have forfeited their right to one
registration under
9
<PAGE>
Section 5.1 unless the Initiating Holders pay for, or reimburse the Company for,
the Registration Expenses incurred in connection with such withdrawn or
incomplete registration. Unless otherwise stated, all Selling Expenses relating
to securities registered on behalf of the Holders and all other registration
expenses shall be borne by the Holders of such securities pro rata on the basis
of the number of shares so registered or proposed to be so registered.
5.6 Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to this Agreement, the Company will keep each Holder
advised in writing as to the initiation of such registration and as to the
completion thereof. The Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to 120 days or until
the distribution contemplated in the registration statement has been completed;
provided, however, that such 120-day period shall be extended for a period of
time equal to the period the Holders refrain from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish such number of prospectuses (including preliminary
prospectuses) in conformity with the requirements of the Securities Act and
other documents as a Holder from time to time may reasonably request.
(d) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or on the Nasdaq Stock
Market, as the case may be, on which similar securities issued by the Company
are then listed.
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(g) Use its reasonable efforts to cause such Registrable Securities
covered by a registration statement to be registered with or approved by such
other governmental
10
<PAGE>
agencies or authorities as may be necessary to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities.
(h) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 5, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 5, if such securities are being
sold through underwriters, or, if such registration with respect to such
securities becomes effective, a letter, dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and, if
required by the independent certified public accounts, an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any.
5.7 Indemnification.(a) The Company will indemnify each Holder, each of
---------------
its officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration has been effected pursuant to this Agreement, against all expenses,
claims, losses, damages or liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by the
Company of the Securities Act, the Exchange Act, state securities laws or any
rule or regulation promulgated under such laws applicable to the Company in
connection with any such registration, and the Company will reimburse each such
Holder, each of its officers and directors, and each person controlling such
Holder, for any legal and any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating, preparing or defending
any such claim, loss, damage, liability or action, provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder or controlling person, and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration is being effected,
indemnify the Company, each of its directors and officers, other holders of the
Company's securities covered by such registration statement, each person who
controls the Company within the meaning of Section 15 of the Securities Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such
11
<PAGE>
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Holder of the Securities Act, the Exchange Act, state
securities laws or any rule or regulation promulgated under such laws applicable
to the Holder, and will reimburse the Company, such other Holders, such
directors, officers, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating or defending any such claim, loss, damage,
liability or action, but in the case of the Company or the other Holders or
their officers, directors or controlling persons, only to the extent that such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by such Holder specifically for use in such registration
statement or prospectus. Notwithstanding the foregoing, the liability of each
Holder under this subsection 5.7(b) shall be limited in an amount equal to the
public offering price of the shares sold by such Holder, unless such liability
arises out of or is based on willful misconduct or fraud by such Holder.
(c) Each party entitled to indemnification under this Section 5.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or there are separate
and different defenses; provided, that the Indemnifying Party shall remain
liable for reasonable legal expenses of one counsel for the Indemnified Party.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party (whose consent shall not be
unreasonably withheld), consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
5.8 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such
12
<PAGE>
Holder or Holders as the Company may reasonably request in writing and as shall
be required in connection with any registration referred to in this Agreement.
5.9 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company shall use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Restricted Securities, furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), a copy
of the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Holder
to sell any such securities without registration.
5.10 Termination of Registration Rights. The rights granted pursuant
----------------------------------
to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate as to any Holder
upon the earlier of (i) the date four (4) years after the effective date of the
Company's IPO and (ii) the date such Holder is able to immediately sell all
shares of Registrable Securities held or entitled to be held upon conversion by
such Holder under Rule 144 during any 90-day period.
6. Financial Information Rights(a) The Company will provide the following
----------------------------
documents to each Holder who continues to hold at least 300,000 shares of
Preferred Stock and/or Conversion Stock (as adjusted for recapitalizations,
stock combinations, stock dividends, stock splits and the like) (each such
Holder, a "Major Investor"):
(i) As soon as practicable after the end of the fiscal year
ending December 31, 1999 and each fiscal year thereafter, and in any event
within ninety (90) days after the end of each such fiscal year, consolidated
balance sheets of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of operations and consolidated
statements of cash flows and stockholders' equity of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year (except that no such comparative
data from the fiscal year ended December 31, 1998 need be provided), all in
reasonable detail and audited by independent public accountants of national
13
<PAGE>
standing selected by the Company, and a capitalization table in reasonable
detail for such fiscal year;
(ii) As soon as practicable after the end of the first,
second and third quarterly accounting periods in each fiscal year of the Company
and in any event within sixty (60) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of operations and consolidated
statements of cash flows of the Company and its subsidiaries, if any, for such
period and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (other than accompanying notes),
subject to changes resulting from year-end audit adjustments, in reasonable
detail and signed by the principal financial or accounting officer of the
Company, and a capitalization table in reasonable detail for such quarterly
period, and such other documents generally distributed or made available to the
Company's stockholders; provided, however, that the Company shall not be
obligated to provide information which the Board of Directors deems in good
faith to be proprietary or confidential; and
(iii) Such other documents generally distributed or made
available to the Company's stockholders; provided, however, that the Company
-------- -------
shall not be obligated to provide information which the Board of Directors deems
in good faith to be proprietary or confidential.
(b) For purposes of determining the minimum holdings pursuant to
this Section 6, any Holder which is a partnership or limited liability company
shall be deemed to hold any Preferred Stock originally purchased by such Holder
and subsequently distributed to constituent partners or members of such Holder,
but which have not been resold by such partners or members. If the partnership
or limited liability company is still in existence, the Company may satisfy any
obligation to distribute reports to individual partners of the partnership or
members of a limited liability company by delivering a single copy of each
report to the partnership or limited liability company as agent for the
constituent partners or members.
(c) Each Holder or transferee of rights under this Section 6
acknowledges and agrees that any information obtained pursuant to this Section 6
which may be considered nonpublic information will be maintained in confidence
by such Holder or transferee and will not be utilized by such Holder or
transferee in connection with purchases or sales of the Company's securities
except in compliance with applicable state and Federal securities laws.
(d) The covenants of the Company set forth in this Section 6
shall terminate and be of no further force or effect upon the earlier to occur
of (i) the closing of the IPO; or (ii) a Change of Control of the Company.
7. Lockup Agreement. Each Holder and transferee hereby agrees that, in
----------------
connection with any registration of any securities of the Company under the
Securities Act for the account of the Company, if so requested by any
representative of the underwriters (the "Managing Underwriter"), such Holder or
transferee shall not sell or otherwise transfer any securities of the Company
during the period specified by the Company's Board of Directors at the request
of the Managing Underwriter (the "Market Standoff Period"), with such period not
to
14
<PAGE>
exceed 180 days following the effective date of a registration statement of the
Company filed under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such Market Standoff Period. The Company shall use commercially
reasonable efforts to place similar contractual lockup restrictions on all
capital stock issued now or hereafter to officers, directors, employees and
consultants of the Company and holders of registration rights with respect to
capital stock of the Company.
8. Right of First Refusal.
----------------------
(a) The Company hereby grants to the Qualified Purchasers the right of
first refusal to purchase its Pro Rata Share of New Securities (as defined in
this Section 8) which the Company may, from time to time, propose to sell and
issue. A "Pro Rata Share," for purposes of this right of first refusal, equals
the proportion that the total number of shares of Common Stock then held by such
Qualified Purchaser plus the number of shares of Common Stock issuable upon
conversion of the Preferred Stock then held by such Qualified Purchaser bears to
the sum of the total number of shares of Common Stock then outstanding plus the
number of shares of Common Stock issuable upon exercise or conversion of all
then outstanding securities exercisable for or convertible into, directly or
indirectly, Common Stock.
(b) Except as set forth below, "New Securities" shall mean any shares
of capital stock of the Company, including Common Stock and any series of
preferred stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of Common Stock or preferred stock, and securities of
any type whatsoever that are, or may become, convertible into or exchangeable
for said shares of Common Stock or preferred stock. Notwithstanding the
foregoing, "New Securities" does not include stock issued and issuable: (i)
upon conversion of shares of Preferred Stock; (ii) to employees, consultants, or
directors pursuant to stock option, stock grant, stock purchase, or similar
plans and arrangements approved by the Board of Directors; (iii) to equipment
lessors, banks financial institutions or similar entities in a transaction
approved the Board of Directors, the principle purpose of which is other than
the raising of capital; (iv) as a dividend or other distribution; (v) in the
Company's IPO; (vi) in a merger or acquisition that is approved by the Board of
Directors; (vii) pursuant to any transaction approved by the Board of Directors
primarily for the purpose of (A) joint ventures, technology licensing or
research and development activities, (B) distribution or manufacture of the
Company's products or services, or (C) any other transactions involving
corporate partners that are primarily for purposes other than raising capital;
provided that such transaction(s) include an agreement regarding such
relationship that is entered into at the same time as the issuance of the New
Securities; (viii) if the holders of a majority of the then outstanding shares
of Series A Preferred Stock and Series B Preferred Stock, voting separately,
agree in writing that such shares shall not constitute New Securities; or (ix)
upon exercise or conversion of securities with respect to which the Qualified
Purchasers previously had an opportunity to exercise the right of first refusal
pursuant to this Section 8.
(c) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Qualified Purchaser written notice of its
intention, describing
15
<PAGE>
the amount and type of New Securities, and the price and terms upon which the
Company proposes to issue the same. Each Qualified Purchaser shall have ten (10)
days from the date of receipt of any such notice to agree to purchase up to its
respective Pro Rata Share of such New Securities for the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
(d) Beginning ten (10) days after the notice given pursuant to Section
8(c) above, the Company shall have 180 days to sell the New Securities not
elected or eligible to be purchased by Qualified Purchasers at the price and
upon the terms no more favorable to the purchasers of such securities than
specified in the Company's notice. In the event the Company has not sold all of
the New Securities within said 180 day period, the Company shall not thereafter
issue or sell any New Securities without first offering such securities in the
manner provided above.
(e) The provisions of this Section 8 will terminate and be of no
further force or effect upon the earlier to occur of: (i) the closing of the
Company's IPO, or (ii) immediately prior to a Change of Control.
9. Vesting of Employee Options. Unless otherwise agreed to by a majority
---------------------------
of the members of the Company's Board of Directors who are not then employees of
the Company, after the date hereof, options granted to employees of the Company
under the Company's 1999 Employee Stock Plan or other approved stock plans will
vest, until the option holder's employment with or service to the Company
terminates, on terms no more favorable to the employee than the following:
Twenty percent (20%) of such shares shall vest immediately upon employment and
five percent (5%) of such shares shall vest at the end of each quarter
thereafter.
10. Employment, Confidential Information and Invention Assignment
-------------------------------------------------------------
Agreements. The Company will maintain a policy requiring each person now or
- ----------
hereafter employed by it or any subsidiary with access to confidential
information to enter into an Employment, Confidential Information and Invention
Assignment Agreement substantially in a form approved by the Board of Directors.
11. Transfer of Rights. The rights granted under Sections 5, 6 and 8 of
------------------
this Agreement may be assigned to any transferee or assignee, other than a
competitor or potential competitor of the Company or PETsMART (as determined in
good faith by the Company's Board of Directors), in connection with any transfer
or assignment of Registrable Securities by the Holder, provided that: (i) such
transfer is otherwise effected in accordance with applicable securities laws and
the terms of this Agreement; (ii) such assignee or transferee would be a Major
Investor immediately following such transfer or assignment, (iii) written notice
is promptly given to the Company and (iv) such transferee or assignee agrees to
be bound by the provisions of this Agreement. Notwithstanding the foregoing,
the rights granted to the Holders hereunder may be assigned without compliance
with item (ii) above to (a) any constituent partner or member of a Holder which
is a partnership or limited liability company, or (b) any then affiliate (as
such term is defined in Rule 405 of the Securities Act) of a Holder.
16
<PAGE>
12. Waivers and Amendments. Except as otherwise provided herein,
----------------------
additional parties may be added to this Agreement, any provision of this
Agreement may be amended or the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
a majority of the Registrable Securities then outstanding, a majority of the
holders of the Series A Preferred Stock, a majority of the holders of the Series
B Preferred Stock, a majority of the holders of the Series C Preferred Stock and
a majority of the holders of the Series D Preferred Stock. Notwithstanding the
foregoing, Section 8 may be amended only with the written consent of the Company
and the Qualified Purchasers representing a majority of the Registrable
Securities then held by all of the Qualified Purchasers. Any amendment or
waiver effected in accordance with Section 5.4 or Section 12, as applicable,
shall be binding upon each Purchaser, Holder of Registrable Securities at the
time outstanding, each future holder of any of such securities, and the Company.
13. Governing Law. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of California without regard to conflict of laws
provisions.
14. Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and Agreement among the parties regarding the matters set forth
herein. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto.
15. Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to a Holder, at such Holder's address as set forth in Exhibit
A, or at such other address as such Holder shall have furnished to the Company.
(b) if to the Company, to:
130 West Union Street
Pasadena, California 91103
Attn: Tom McGovern
Fax: (626) 535-2701
or at such other address as the Company shall have furnished to
the Holders, with a copy to:
Strategic Law Partners, LLP
333 S. Grand Avenue
Suite 3950
Los Angeles, California 90071
Attn: Bradley D. Schwartz, Esq.
Fax: (213) 621-0982
17
<PAGE>
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original and all of which together shall
constitute one instrument.
17. Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
18. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
19. Aggregation of Stock. For the purpose of determining the availability
--------------------
of any rights hereunder, any shares of Series B Preferred Stock, or Common Stock
into which such Series B Preferred Stock is converted, held by entities which
control, are controlled by or are under common control with another entity shall
be aggregated.
20. Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding between the parties with regard to the subject matter hereof. The
Original Agreement is hereby amended and restated in its entirety by this
Agreement, and the Company and the parties hereto agree that this Agreement
shall supersede and replace the rights and obligations of the parties and the
Company under the Original Agreement.
[Remainder of page intentionally left blank]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
"COMPANY"
PETsMART.COM, INC.
/s/ Tom McGovern, Jr.
----------------------------
Tom McGovern, Jr.
President
"SERIES A PURCHASER"
PETsMART, INC.
By: /s/ Phillip L. Francis
------------------------
Philip L. Francis
President and Chief Executive Officer
"SERIES B PURCHASERS"
IDEALAB! CAPITAL PARTNERS I-A, L.P.
/s/ William S. Elkus
----------------------------
William S. Elkus,
Managing Member, idealab! Capital Management, I, LLC,
General Partner of idealab! Capital Partners I-A, L.P.
1
<PAGE>
IDEALAB! CAPITAL PARTNERS I-B, L.P.
/s/ William S. Elkus
----------------------------
William S. Elkus,
Managing Member, idealab! Capital Management, I, LLC,
General Partner of idealab! Capital Partners I-B, L.P.
GLOBAL RETAIL PARTNERS, L.P.
BY: GLOBAL RETAIL PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
-------------------------
Name: Steven E. Lepow
-----------------------
Title: Chairman
----------------------
DLJ DIVERSIFIED PARTNERS, L.P.
BY: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
-------------------------
Name: Steven E. Lebow
-----------------------
Title: Chairman
----------------------
DLJ DIVERSIFIED PARTNERS-A, L.P.
BY: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
-------------------------
Name: Steven E. Lebow
-----------------------
Title: Chairman
----------------------
2
<PAGE>
GRP PARTNERS, L.P.
BY: GLOBAL RETAIL PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
------------------------
Name: Steven E. Lebow
----------------------
Title: Chairman
---------------------
GLOBAL RETAIL PARTNERS FUNDING, INC.
By: /s/ Osamu R. Watanabe
------------------------
Name: Osamu R. Watanabe
----------------------
Title: Vice President
--------------------
DLJ ESC II L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
General Partner
By: /s/ Osamu R. Watanabe
------------------------
Name: Osamu R. Watanabe
----------------------
Title: Vice President
--------------------
"SERIES C PURCHASERS"
IDEALAB! HOLDINGS, L.L.C.
By: /s/ Marcia Goodstein
------------------------
Name: Marcia Goodstein
----------------------
Title: Secretary
--------------------
3
<PAGE>
"SERIES D PURCHASERS"
PETsMART, INC.
/s/ Philip L. Francis
---------------------------
Philip L. Francis
President and Chief Executive Officer
IDEALAB! CAPITAL PARTNERS I-A, L.P.
/s/ William S. Elkus
---------------------------
William S. Elkus,
Managing Member, idealab! Capital Management, I, LLC,
General Partner of idealab! Capital Partners I-A, L.P.
IDEALAB! CAPITAL PARTNERS I-B, L.P.
/s/ William S. Elkus
---------------------------
William S. Elkus,
Managing Member, idealab! Capital Management, I, LLC,
General Partner of idealab! Capital Partners I-B, L.P.
SIMBA, LLC
By: /s/ Carina Schalvach
------------------------
Name: Carina Schalvach
----------------------
Title:_____________________
4
<PAGE>
WS INVESTMENT COMPANY 99B
By: /s/ Marin W. Korman
------------------------
Name: Marin W. Korman
----------------------
Title: Member
---------------------
/s/ Larry Sonsini
---------------------------
LARRY SONSINI
/s/ Martin W. Korman
---------------------------
MARTIN W. KORMAN
/s/ Tom McGovern, Jr.
---------------------------
TOM MCGOVERN, JR.
/s/ Michael Houlahan
---------------------------
MICHAEL HOULAHAN
GLOBAL RETAIL PARTNERS, L.P.
BY: GLOBAL RETAIL PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
------------------------
Name: Steven E. Lebow
----------------------
Title: Chairman
---------------------
DLJ DIVERSIFIED PARTNERS, L.P.
BY: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
------------------------
Name: Steven E. Lebow
----------------------
Title: Chairman
---------------------
5
<PAGE>
DLJ DIVERSIFIED PARTNERS-A, L.P.
BY: DLJ DIVERSIFIED PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
------------------------
Name: Steven E. Lebow
----------------------
Title: Chairman
---------------------
GRP PARTNERS, L.P.
BY: GLOBAL RETAIL PARTNERS, INC.
General Partner
By: /s/ Steven E. Lebow
------------------------
Name: Steven E. Lebow
----------------------
Title: Chairman
---------------------
GLOBAL RETAIL PARTNERS FUNDING, INC.
By: /s/ Osamu R. Watanabe
------------------------
Name: Osamu R. Watanabe
----------------------
Title: Vice President
---------------------
DLJ ESC II L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
General Partner
By: /s/ Osamu R. Watanabe
------------------------
Name: Osamu R. Watanabe
----------------------
Title: Vice President
---------------------
6
<PAGE>
IDEALAB! HOLDINGS, L.L.C.
By: /s/ Marcia Goodstein
-----------------------
Name: Marcia Goodstein
---------------------
Title: Secretary
--------------------
/s/ Bradley D. Schwartz
--------------------------
BRADLEY D. SCHWARTZ
/s/ James Baer
--------------------------
JAMES K. BAER
BIG DOG USA, INC.
By: /s/ AF
-----------------------
Name: Andrew Feshbach
---------------------
Title: CEO
--------------------
/s/ AF
--------------------------
ANDREW FESHBACH
/s/ Anthony Wall
--------------------------
ANTHONY WALL
/s/ Andrew Wadhams
--------------------------
ANDREW WADHAMS
/s/ Douglas Nilsen
--------------------------
DOUGLAS NILSEN
7
<PAGE>
/s/ Roberta Morris
---------------------------------------
ROBERTA MORRIS
/s/ Jeffrey Cowen
---------------------------------------
JEFFREY COWEN
/s/ David Wolf
--------------------------------------
DAVID WOLF
/s/ Siska Buitenman
---------------------------------------
SISKA BUITENMAN
SK PRIVATE INVESTMENT FUND - SERIES B
By: /s/ Thomas H. Kennedy
------------------------------------
Name: Thomas H. Kennedy
----------------------------------
Title: Member, Investment Committee
---------------------------------
8
<PAGE>
EXHIBIT 10.21
EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS WARRANT MAY NOT BE TRANSFERRED AND THE
SHARES OF COMMON STOCK ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO
THE SHARES UNDER SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION, QUALIFICATION OR OTHER
SUCH ACTIONS ARE NOT REQUIRED UNDER ANY SUCH LAWS. THE OFFERING OF THIS SECURITY
HAS NOT BEEN REVIEWED OR APPROVED BY ANY STATE'S SECURITIES ADMINISTRATOR.
No. 4 Warrant to Purchase 830,000 Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE
COMMON STOCK
of
PETsMART.COM, INC.
THIS CERTIFIES THAT, for value received, Big Dog USA, Inc. or its Permitted
Transferee ("Holder") is entitled, subject to the terms set forth below, to
purchase from PETsMART.com, Inc., a Delaware corporation (the "Company"), Eight
Hundred Thirty Thousand (830,000) shares of the Common Stock (the "Common
Stock") of the Company, as of the date hereof (the "Warrant Issue Date"), upon
surrender hereof, at the principal office of the company referred to below, with
the subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
---------
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, for the Common Stock of the Company, and any warrants delivered in
substitution or exchange therefor as provided herein.
<PAGE>
This Warrant is issued in connection with the transactions described in
that certain Strategic Relationship Agreement between the Company, Holder and
Big Dogs Holdings, Inc., of even date herewith (the "SRA"). The exercise of
this Warrant is subject to certain provisions of the SRA. In accordance with
Section 11.2, 15 and 26.6 of the SRA, which sections are specifically
- -------------------------
incorporated herein by this reference, this Warrant may be (i) amended by the
Company and the number of shares into which this Warrant is exercisable may be
reduced by the Company based upon the performance goals set forth therein or
(ii) cancelled.
1. Term of Warrant. Subject to the terms and conditions set forth
---------------
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending at the earlier of (i) three
years from the date of a firm commitment underwritten initial public offering of
capital stock by the Company ("IPO"), and (ii) 5:00 p.m., Pacific time, on the
fifth anniversary of the date of this Warrant Issue Date, and shall be void
thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
--------------
exercised shall be 205,000 shares of Common Stock at $8.88 per share, 205,000
shares of Common Stock at $17.75 per share, 210,000 shares of Common Stock at
$26.63 per share and 210,000 shares of Common Stock at $35.50 per share (each
such group of shares of Common Stock that are purchasable upon exercise of this
Warrant at a particular price level is referred to as a "Tranche"), each as
adjusted from time to time pursuant to Section 11 hereof.
----------
3. Exercise of Warrant.
-------------------
(a) The purchase rights represented by this Warrant are exercisable
by the Holder in whole or in part, at any time, or from time to time,
during the term hereof as described in Section 1 above, by the surrender of
---------
this Warrant and the Notice of Exercise annexed hereto duly completed and
executed on behalf of the Holder, at the office of the Company (or such
other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books
of the Company), upon payment:
(i) in cash or by check acceptable to the Company,
2
<PAGE>
(ii) by cancellation by the Holder of indebtedness or other
obligations of the Company to the Holder (at the option of the
Company), or
(iii) by a combination of (i) and (ii) (at the option of the
Company), of the purchase price of the shares to be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common
Stock issuable upon such exercise shall be treated for all purposes as the
holder of record of such shares as of the close of business on such date.
As promptly as practicable on or after such date and in any event within
ten (10) business days thereafter, the Company at its expense shall issue
and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of shares issuable upon such
exercise.
(c) Notwithstanding any provisions herein to the contrary, if the
fair market value of one share of Common Stock is greater than the Exercise
Price of a particular Tranche (at the date of calculation as set forth
below), in lieu of exercising this Warrant with respect to such Tranche for
cash, the Holder or the Company may require that the Holder receive shares
equal to the value (as determined below) of this Warrant with respect to
such Tranche(s) being cancelled (or the portion thereof being cancelled) by
surrender of this Warrant at the principal office of the Company together
with the properly endorsed Notice of Exercise and notice of such election
in which event the company shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued to the Holder
Y = the number of shares of Common Stock purchasable under a
particular Tranche of the Warrant or, if only a portion of a
Tranche of the Warrant is being exercised, the portion of the
3
<PAGE>
particular Tranche of the Warrant being cancelled (at the date
of such calculation)
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation)
B = Exercise Price for a particular Tranche (as adjusted to the date
of such calculation)
For purposes of the above calculation, fair market value of one share of Common
Stock shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the Company's
Common Stock at the time of such exercise, the fair market value per share shall
be the product of (i) the average of the closing bid and asked prices of the
Common Stock quoted in the Over-The-Counter Market Summary or the last reported
sale price of the Common Stock or the closing price quoted on the NASDAQ
National Market or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall Street
Journal for the five (5) trading days prior to the date of determination of fair
market value and (ii) the number of shares of Common Stock at the time of such
exercise. Notwithstanding the foregoing, in the event the Warrant is exercised
in connection with the Company's initial public offering of Common Stock, the
fair market value per share shall be the per share offering price to the public
of the Company's initial public offering.
4. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of any
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
4
<PAGE>
6. Rights of Stockholders. Subject to Sections 9 and 11 of this Warrant,
---------------------- -----------------
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value, or change of stock to no par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meeting, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised as
provided herein.
7. Transfer of Warrant.
--------------------
(a) Warrant Register. The Company will maintain a register (the
---------------
"Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change its
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to
such Holder as shown on the Warrant Register and at the address shown on
the Warrant Register. Until this Warrant is transferred on the Warrant
Register of the Company, the Company may treat the Holder as shown on the
Warrant Register as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to the Holder,
-------------
appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 7(a) above, issuing the Common Stock then issuable
------------
upon the exercise of this Warrant, exchanging this Warrant, replacing this
Warrant, or any or all of the foregoing. Thereafter any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at
the office of such agent.
(c) Transferability and Nonnegotiability of Warrant. This Warrant
-----------------------------------------------
may not be transferred or assigned in whole or in part except as set forth
below. Except as set forth below, upon the transfer of this Warrant, this
Warrant shall be null and void ab initio. Notwithstanding the foregoing,(i)
---------
5
<PAGE>
this Warrant may be transferred to any company merging with or acquiring
substantially all of the assets of Holder subject to Section 26.6 of the
SRA, and (ii) warrants to purchase up to 70,000 shares may be transferred
to employees of Holder other than Andrew Feshbach or Fred Kayne (a
"Permitted Transferee") and in each instance after compliance with all
-----
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are
requested by the Company). Subject to the provisions of this Warrant
described herein and compliance with the Securities Act of 1933, as amended
(the "Act"), title to this Warrant may be transferred by endorsement to a
Permitted Transferee (by the Holder executing the Assignment Form annexed
hereto) and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of this
-----------------------------------
Warrant for exchange, properly endorsed on the Assignment Form and subject
to the provisions of this Warrant with respect to compliance with the Act
and with the limitations on assignments and transfers contained in this
Section 7, the Company at its expense shall promptly issue to or on the
---------
order of the Holder a new warrant or warrants of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable
transfer taxes) may direct, for the number of shares issuable upon exercise
hereof.
(e) Compliance with Securities Laws.
-------------------------------
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be
issued upon exercise hereof are being acquired solely for the Holder's
own account and not as a nominee for any other party, and for
investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Common Stock to be issued
upon exercise hereof except under circumstances that will not result
in a violation of the Act or any state securities laws. Upon exercise
of this Warrant, the Holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the
shares of Common Stock so purchased are being acquired solely for the
Holder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
6
<PAGE>
(ii) The shares of Common Stock issued upon exercise hereof shall
be stamped or imprinted with a legend in substantially the following
form (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. SUCH SECURITIES AND ANY SECURITIES ISSUED HEREUNDER OR
THEREUNDER MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT AND APPLICABLE LAWS. COPIES OF THE WARRANT
AGREEMENT COVERING THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO
THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
8. Reservation of Stock. The Company covenants that during the term this
--------------------
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of the
Warrant. The Company further represents and covenants that all shares that may
be issued upon the exercise of this Warrant, all as set forth herein, will be
duly and validly authorized, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously or otherwise specified
herein). The Company agrees that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the exercise of this Warrant. The capitalization of the
Company is as set forth on Schedule A hereto.
9. Notices.
-------
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company
----------
shall issue a certificate signed by its Chief Financial Officer setting
forth, in
7
<PAGE>
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first-class mail, postage prepaid) to the Holder of this
Warrant.
(b) In case:
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon
the exercise of this Warrant) for the purpose of entitling them to
receive any dividend or other distribution, or any right to subscribe
for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each case, the Company will mail or cause to be mailed to
the Holder or Holders a notice specifying, as the case may be, (A) the
date on which a record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (B) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time,
if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the
exercise of this Warrant) shall be entitled to exchange their shares
of Common Stock (or such other stock or securities) for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 15 days prior to the
date therein specified.
8
<PAGE>
(c) All such notices, advices and communications shall be deemed to
have been received (i) in the case of personal delivery, on the date of
such delivery and (ii) in the case of mailing, on the third business day
following the date of such mailing.
10. Amendments.
----------
(a) Any term of this Warrant may be amended or waived with the
written consent of the Company and the Holders of Warrants representing not
less than fifty-one percent (51%) of the shares of Common Stock issuable
upon exercise of any and all outstanding Warrants.
(b) No waivers of, or exceptions to, any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The Exercise Price and the number of shares purchasable
-----------
hereunder are subject to adjustment from time to time as follows:
(a) Merger, Sale of Assets, etc. If at any time while this Warrant,
---------------------------
or any portion hereof, is outstanding and unexpired there shall be:
(i) a reorganization (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided
for herein),
(ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity,
or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger
into other property, whether in the form of securities, cash, or
otherwise, or
(iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person,
9
<PAGE>
then, as a part of such reorganization, merger, consolidation, sale or
transfer, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other
securities or property of the successor entity resulting from such
reorganization, merger, consolidation, sale or transfer that a holder
of the shares deliverable upon exercise of this Warrant would have
been entitled to receive in such reorganization, consolidation,
merger, sale or transfer if this Warrant had been exercised
immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this
Section 11. The foregoing provisions of this Section 11(a) shall
---------- -------------
similarly apply to successive reorganizations, consolidations,
mergers, sales and transfers and to the stock or securities of any
other entity that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the holder hereof
for shares or other securities in connection with any such transaction
is in a form other than cash or marketable securities, then the value
of such consideration shall be determined in good faith by the
Company's Board of Directors. In all events, appropriate adjustment
(as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Warrant shall be
applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon
exercise of this Warrant.
(b) Reclassification, etc. If the Company, at any time while this
---------------------
Warrant, or any portion hereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the
securities as to which purchase rights under this Warrant exist into the
same or a different number of securities of any other class or classes,
this Warrant shall thereafter represent the right to acquire such number
and kind of securities as would have been issuable as the result of such
change with respect to the securities as would have been issuable as the
result of such change with respect to the securities that were subject to
the purchase rights under this Warrant immediately prior to such
reclassification or other change and the Exercise Price
10
<PAGE>
therefor shall be appropriately adjusted, all subject to further adjustment
as provided in this Section 11.
----------
(c) Split, Subdivision or Combination of Shares. If the Company at
-------------------------------------------
any time while this Warrant, or any portion hereof remains outstanding and
unexpired shall split, subdivide or combine the securities as to which
purchase rights under this Warrant exist, into a different number of
securities of the same class, the Exercise Price for such securities shall
be proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(d) Adjustments for Dividends in Stock or Other Securities or
---------------------------------------------------------
Property. If while this Warrant, or any portion hereof, remains outstanding
--------
and unexpired, the holders of the securities as to which purchase rights
under this Warrant exist at the time shall have received, or, on or after
the record date fixed for the determination of eligible stockholders, shall
have become entitled to receive, without payment therefor, other or
additional stock or other securities or property (other than cash) of the
Company by way of dividend, then in each case, this Warrant shall represent
the right to acquire, in addition to the number of shares of the security
receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional
stock or other securities or property (other than cash) of the Company that
such holder would hold on the date of such exercise had it been the holder
of record of the security receivable upon exercise of this Warrant on the
date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all
other additional stock available by it as aforesaid during such period,
giving effect to all adjustments called for during such period by the
provisions of this Section 11.
----------
(e) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment pursuant to this Section 11, the Company at its
----------
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each Holder of this Warrant
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request, at any time, of any such Holder,
furnish or cause to be furnished to such Holder a like certificate setting
forth:
11
<PAGE>
(i) such adjustments and readjustments;
(ii) the Exercise Price at the time in effect; and
(iii) the number of shares and the amount, if any, of other
property that at the time would be received upon the exercise of the
Warrant.
(f) No Impairment. The Company will not, by any voluntary action,
-------------
avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section
-------
11 and in the taking of all such action as may be necessary or appropriate
--
in order to protect the rights of the Holder of this Warrant against
impairment.
12. "Market Stand-Off" Agreement. Each Holder hereby agrees that, during
----------------------------
the period of duration (up to, but not excluding, 180 days) specified by the
Company and an underwriter of Common Stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period,
except to the extent such securities are included in such registered offering
which may be promulgated in the future, or a registration relating solely to an
SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated
in the future.
13. Miscellaneous.
-------------
(a) Governing Law. THIS WARRANT AND ALL ACTS AND TRANSACTIONS
-------------
PURSUANT HERETO AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL
BE GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW.
(b) Attorney's Fees. If any action at law or in equity (including
--------------
arbitration) is necessary to enforce or interpret the terms of this
Warrant, the
12
<PAGE>
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
IN WITNESS WHEREOF, PETsMART.com, Inc. has caused this Warrant to be executed by
its officers hereunto duly authorized.
Dated: October 19, 1999
HOLDER: Big Dog USA, Inc. PETsMART.COM, INC.
/s/ Andrew Feshback /s/ Tom McGovern
- --------------------------- --------------------------------
By: Andrew Feshback By: Tom McGovern
------------------------ -----------------------------
Title: CEO Title: Chief Executive Officer
--------------------- --------------------------
13
<PAGE>
NOTICE OF EXERCISE
To: PETsMART.com, Inc.
The undersigned hereby irrevocably, subject to the terms and conditions
contained in the attached Warrant, (A) elects to purchase _____ shares of Common
Stock of PETsMART.com, Inc., pursuant to the provisions of Section 3(a) of the
------------
attached Warrant, and tenders herewith payment of the purchase price for such
shares in full, or (B) as required by the Company, elects to exercise this
Warrant for the purchase of _____ shares of Common Stock, pursuant to the
provisions of Section 3(c) of the attached Warrant.
------------
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and the undersigned will not offer, sell or otherwise
dispose of any such shares of Common Stock except under circumstances that will
not result in a violation of the Securities Act of 1933, as amended, or any
applicable state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.
_________________________________
(Name)
_________________________________
(Name)
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
________________________________
(Name)
_____________________________ ________________________________
(Date) (Name)
14
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below the attached Warrant,
together with all of the rights of the undersigned under the Warrant, with
respect to the number of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
and does hereby irrevocably constitute and appoint ____________ Attorney to make
such transfer on the books of PETsMART.com, Inc., maintained for the purpose,
with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the securities to be issued upon exercise
hereof are being acquired for investment and that the Assignee will not offer,
sell or otherwise dispose of this Warrant or any securities to be issued upon
exercise hereof except (i) under circumstances which will not result in
violation of the Securities Act of 1933, as amended, or any state securities
laws and (ii) in accordance with the terms of the Warrant. Further, the Assignee
has acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the securities so purchased are being acquired for investment and
not with a view toward distribution or resale.
Dated:_____________________
________________________________
Signature of Holder
Note: The above signature should
correspond exactly with the name on
the face of the attached Warrant.
15
<PAGE>
EXHIBIT 10.22
THIS WARRANT AND ANY SHARES OF SERIES A PREFERRED STOCK ISSUED UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
WARRANT EVIDENCED HEREBY IS TRANSFERABLE ONLY PURSUANT TO SECTION 5(a) HEREOF.
No. WA-1 PETsMART.COM, INC. May 12, 1999
SERIES A PREFERRED STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, PETsMART, Inc.
(and, with its permitted transferees, the "Holder"), is entitled, upon the terms
and subject to the conditions hereinafter set forth, to acquire from
PETsMART.com, Inc. (the "Company"), in whole or from time to time in part, up to
300,000 fully paid and nonassessable shares of Series A Preferred Stock, par
value $0.001 per share, of the Company ("Warrant Stock") at a purchase price per
share equal to $16.667 per share of Series A Preferred Stock (the "Exercise
Price"). Such number of shares, type of security and Exercise Price are subject
to adjustment as provided herein, and all references to "Warrant Stock" and
"Exercise Price" herein shall be deemed to include any such adjustment or series
of adjustments.
1. Exercise of Warrant
(a) Expiration Time. The term "Expiration Time" means the earliest to
---------------
occur of the following: (i) immediately prior to the closing of an IPO (as
defined below); or (ii) immediately prior to the closing of a Change of Control
Transaction (as defined below); or (iii) 11:59 p.m., Pacific Time, on the date
18 months from the date hereof. As used herein, "IPO" shall mean the first firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933, as amended (the "Securities Act"); a "Change
of Control Transaction" shall mean the Company's sale or lease of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company for securities or consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary, unless the
stockholders of the Company immediately prior to the transaction hold at least
50% of the voting power of the surviving corporation in such a transaction.
(b) Exercise Procedure. The purchase rights represented by this
------------------
Warrant are exercisable, in whole or in part, at any time and from time to time
at or after the date hereof and at or prior to the Expiration Time, by the
surrender of this Warrant and the Notice of Exercise form attached hereto duly
executed to the office of the Company at 130 West Union Street, Pasadena, CA
91103 (or such other office or agency of the Company as it may designate by
notice in writing to the
1
<PAGE>
registered holder hereof at the address of such holder appearing on the books of
the Company), and upon payment of the Exercise Price for the shares thereby
purchased by (i) wire transfer or certified bank check payable to the order of
the Company, in an amount, payable in United States dollars, equal to the
purchase price of the shares thereby purchased or (ii) exercise of the
Conversion Right set forth in Section 1(d); whereupon the Holder shall be
entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased, and a new
Warrant in substantially identical form for the purchase of that number of
shares of Warrant Stock equal to the difference, if any, between the number of
shares of Warrant Stock subject hereto and the number of shares of Warrant Stock
as to which this Warrant is so exercised.
(c) Minimum Exercise. The Holder shall purchase a minimum of 1,000
----------------
shares of Warrant Stock upon any exercise hereunder.
(d) Conversion Right. In addition to and without limiting the rights
----------------
of the Holder under the terms of this Warrant, immediately prior to the closing
of an IPO or immediately prior to the closing of a Change of Control
Transaction, the Holder shall have the right to convert this Warrant or any
portion thereof into shares of Series A Preferred Stock prior to the Expiration
Time (the "Conversion Right"). Upon exercise of the Conversion Right with
respect to the number of shares of Warrant Stock that are exercisable pursuant
to this Warrant, the Company shall deliver to the Holder (without payment by the
Holder of the Exercise Price or any cash or other consideration) that number of
shares of fully paid and nonassessable Series A Preferred Stock equal to the
quotient obtained by dividing (i) the Fair Market Value (as defined in Section
2) of the aggregate number of shares of Warrant Stock exercisable pursuant to
this Warrant on the date of conversion, which value shall be equal to (A) the
aggregate Fair Market Value of the shares of Warrant Stock on the date of
conversion less (B) the aggregate Exercise Price of the shares of Warrant Stock
immediately prior to the exercise of the Conversion Right by (ii) the Fair
Market Value of one share of Series A Preferred Stock on the date of conversion.
2. Issuance of Shares; No Fractional Shares or Scrip
Certificates for shares of Warrant Stock purchased hereunder shall be
delivered to the Holder promptly after the date on which this Warrant shall have
been exercised in accordance with the terms hereof. The Company hereby
represents and warrants that all shares of Warrant Stock which may be issued
upon the exercise of this Warrant have been duly authorized and will, upon such
exercise, be duly and validly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
holder of the Warrant Stock). The Company agrees that the shares so issued shall
be and shall for all purposes be deemed to have been issued as of the close of
business on the date on which this Warrant shall have been exercised in
accordance with the terms hereof. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon the exercise of this Warrant,
an amount equal to such fraction multiplied by the Fair Market Value of a share
of Warrant Stock on the date of exercise shall be paid in cash or check to the
holder of this Warrant. "Fair Market Value" shall mean (i) the fair market value
as determined in good faith by the Board of Directors of the Company or (ii) in
the event of an IPO, the Fair Market Value shall equal the initial public
offering price of the Company's Common Stock multiplied by 4.5454.
2
<PAGE>
3. Charges, Taxes and Expenses
The Holder shall pay all issue and transfer taxes and other incidental
expenses in respect of the issuance of certificates for shares of Warrant Stock
upon the exercise of this Warrant, and such certificates shall be issued in the
name of the Holder.
4. No Rights as a Stockholder
This Warrant does not entitle the Holder to any voting rights or other
rights as a stockholder of the Company prior to the exercise hereof.
5. Restrictions on Transfer; Lock-Up
(a) Restrictions on Warrant. This Warrant is not transferable, except
-----------------------
to affiliates of the Warrantholder, whether by sale, pledge or other
disposition, voluntarily or by operation of law or otherwise to any competitor
of PETsMART, Inc. or of the Company (as determined in good faith by the Board of
Directors of the Company) without the prior written consent of the Company,
which consent may be withheld in the Company's sole discretion. Any transfer in
violation hereof shall be void and the Warrant shall terminate immediately upon
any such purported transfer.
(b) Restrictions on Transfer of Warrant Stock. In no event will the
-----------------------------------------
Holder make a disposition of the Warrant Stock unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the Securities Act provisions relating to
sale of an unregistered security has been taken, or (B) an exemption from the
registration requirements of the Securities Act is available. Notwithstanding
the foregoing, the restrictions imposed upon the transferability of the Warrant
Stock shall terminate as to any particular share of Warrant Stock when (1) such
security shall have been sold without registration in compliance with Rule 144
under the Securities Act, or (2) a letter shall have been issued to the Holder
at its request by the staff of the Securities and Exchange Commission or a
ruling shall have been issued to the Holder at its request by such Commission
stating that no action shall be recommended by such staff or taken by such
Commission, as the case may be, if such security is transferred without
registration under the Securities Act in accordance with the conditions set
forth in such letter or ruling and such letter or ruling specifies that no
subsequent restrictions on transfer are required, or (3) such security shall
have been registered under the Securities Act and sold by the Holder in
accordance with such registration.
(c) Lock-Up. In the event of any registration of the Company's
-------
securities, the Holder will not, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of the Warrant Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Warrant Stock, whether or not any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of such Warrant
3
<PAGE>
Stock, in cash or otherwise, without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time (not to exceed
180 days) from the effective date of such registration as may be requested by
the Company or such managing underwriters.
(d) Restrictive Legends. The certificates representing the Warrant
-------------------
Stock and any securities of the Company issued with respect thereto shall be
imprinted with legends restricting transfer except in compliance with the terms
hereof and with applicable Federal and state securities laws.
6. Exchange and Registry of Warrant
The Company shall maintain at the office or agency referred to in Section
1(b) a registry showing the name and address of the registered holder of this
Warrant. This Warrant may be surrendered for exercise in accordance with its
terms at such office or agency of the Company, and the Company shall be entitled
to rely in all respects upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company will execute and deliver to the Holder, in lieu thereof, a
new Warrant in substantially identical form.
8. Saturdays, Sundays and Holidays
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday in the United States or the State of California, then such
action may be taken or such right may be exercised on the next succeeding
business day.
9. Adjustment to Number and Type of Securities and Exercise Price
The type and number of securities of the Company issuable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as set forth
below:
(a) Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
----------------------------------------------------------------
etc. The Exercise Price and the number and type of securities and/or other
- ----
property issuable upon exercise of this Warrant shall be appropriately and
proportionately adjusted to reflect any stock dividend, stock split, combination
of shares, reclassification, recapitalization or other similar event affecting
the number or character of outstanding shares of Warrant Stock or underlying
common stock, so that the number and type of securities and/or other property
issuable upon exercise of this Warrant shall be equal to that which would have
been issuable with respect to the number of shares of Warrant Stock subject
hereto at the time of such event, had such shares of Warrant Stock then been
outstanding.
4
<PAGE>
(b) Adjustment for Reorganization, Consolidation, Merger, etc. In
----------------------------------------------------------
case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, the Holder, on exercise
hereof at any time after the consummation or effective date of such
Reorganization shall receive, in lieu of the Warrant Stock issuable on such
exercise prior to the date of such Reorganization, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon the date of such Reorganization if the Holder had exercised this
Warrant immediately prior thereto.
(c) Certificate as to Adjustments. In case of any adjustment in the
-----------------------------
Exercise Price or number and type of securities issuable on the exercise of this
Warrant, the Company will promptly give written notice thereof to the Holder in
the form of a certificate, certified and confirmed by an officer of the Company,
setting forth such adjustment and showing in reasonable detail the facts upon
which such adjustment is based.
10. Representations and Covenants of the Holder.
The Holder represents and covenants to the Company as follows:
(a) Investment Purpose. This Warrant and the Warrant Stock will be
------------------
acquired for investment for the Holder's own account, and not as a nominee or
agent and not with a view to the distribution of any part thereof. The Holder
further represents that it does not have any contract, undertaking agreement or
arrangement with any person to sell, transfer or grant participation to such
person, or to any third person, with respect to this Warrant.
(b) Private Issue. The Holder understands (i) that the Warrant and
-------------
the Warrant Stock issuable upon exercise of this Warrant are not registered
under the Securities Act, or qualified under applicable state securities laws on
the ground that the issuance of this Warrant will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Sales of Series A Preferred Stock. The Holder represents and
---------------------------------
warrants that the Holder is familiar with the provisions of Rule 144 promulgated
under the Securities Act which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer) in a non-public offering subject
to the satisfaction of certain conditions, including, among other things: (i)
the availability of certain public information about the Company; (ii) the
resale occurring not less than one year after the party has purchased, and made
full payment for, within the meaning of Rule 144, the securities to be sold; and
(iii) in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as such term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable. The
Holder acknowledges that in the event the applicable requirements of Rule 144
are not met, registration under the Securities Act or compliance
5
<PAGE>
with another exemption from regis-tration will be required for any disposition
of the Series A Preferred Stock issuable upon exercise of this Warrant.
(d) No Public Market. The Holder understands that no public market
----------------
now exists for any of the securities issued by the Company and that a public
market may never exist for the Series A Preferred Stock.
(e) Financial Risk. The Holder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(f) Receipt of Information. The Holder has received and reviewed this
----------------------
Warrant; it, its attorney and its accountant have had access to, and an
opportunity to review all documents and other materials requested of, the
Company; it and they have been given an opportunity to ask any and all questions
of, and receive answers from, the Company concerning the terms and conditions of
this Warrant and to evaluate the suitability of an investment in this Warrant;
and, in evaluating the suitability of an investment in this Warrant; it and they
have not relied upon any representations or other information (whether oral or
written) other than as set forth herein.
11. Notices of Record Date, etc.
In the event of:
(a) any taking by the Company of a record of the holders of Series A
Preferred Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution,
(b) an IPO, or
(c) a Change of Control Transaction;
then and in each such event the Company will mail to the Holder a notice
specifying, if then known, (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and if known stating
the amount and character of such dividend, distribution or right, (ii) the date
on which the IPO is anticipated to close, or (iii) the anticipated date on which
any Change of Control Transaction is to take place, and if known the time, if
any is to be fixed, as to which the holders of record of Series A Preferred
Stock shall be entitled to exchange their shares for securities or other
property deliverable on such Change of Control Transaction. Such notice shall be
delivered to the Holder at least ten (10) days prior to the date therein
specified.
12. Governing Law
This Warrant shall be governed by and construed in accordance with the laws
of the State of California applicable to contracts made and to be performed
wholly within such state.
6
<PAGE>
13. Complete Agreement and Modifications
This Warrant and any documents referred to herein or executed
contemporaneously herewith constitute the Company's and the Holder's entire
agreement with respect to the subject matter hereof and supersede all
agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a writing
signed by the Company and the Holder.
14. Authorization
All corporate action on the part of the Company and its directors necessary
for the authorization, execution, delivery and performance of the Warrant by the
Company and the authorization, sale, issuance and delivery of the Warrant Stock.
The Warrant, when executed and delivered by the Company, shall constitute valid
and binding obligations of the Company, enforceable in accordance with its
terms. The Warrant Stock, when issued in compliance with the provisions of this
Warrant, will be validly issued, fully paid and nonassessable, and will have the
rights, preferences, privileges and restrictions described in the Company's
Amended and Restated Certificate of Incorporation (the "Certificate"); the
common stock issuable upon conversion of the Warrant Stock has been duly and
validly reserved and, when issued in compliance with the provisions of the
Certificate, will be validly issued, fully paid and nonassessable; and the
Warrant Stock and the common stock issued upon conversion thereof will be free
of any liens or encumbrances (assuming the Warrantholder takes the Warrant Stock
with no notice thereof) other than any liens or encumbrances created by or
imposed on the Warrantholders; provided, however, that the Warrant Stock and the
common stock issuable upon conversion thereof may be subject to restrictions on
transfer under state or federal securities laws and restrictions.
15. Governmental Consent
No consent, approval order or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with offer, sale
or issuance of the Warrant Stock or the common stock issued upon conversion
thereof, or the consummation of any other transaction contemplated hereby,
except the qualification (or taking of such action as may be necessary to secure
an exemption from qualification, if available) of the offer and sale of the
Warrant Stock and the common stock issued upon conversion thereof under
applicable Blue Sky laws, which filings and qualifications, if required, will be
accomplished in a timely manner.
16. Notices
Except as otherwise provided herein, all notices under this Warrant shall
be in writing and shall be delivered by personal service, facsimile, courier
service promising overnight delivery or certified mail (if such service is not
available, then by first class mail), postage prepaid. Notices shall be
addressed as follows:
7
<PAGE>
If to the Holder: PETsMART, Inc.
19601 N. 27th Avenue
Phoenix, AZ 85027
Attention: President and Chief Executive Officer
Phone: (602) 580-6100
With a copy to: Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306-2155
Attention: Robert J. Brigham, Esq.
Phone: (650) 843-5000
If to the Company: PETsMART.com, Inc.
130 West Union Street
Pasadena, CA 91103
Phone: (626) 535-2835
Fax: (626) 535-2701
Attention: Chief Executive Officer
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Phone: (650) 493-9300
Fax: (650) 493-6811
Attention: Martin W. Korman, Esq.
17. Waivers Strictly Construed
With regard to any power, remedy or right provided herein or otherwise
available to any party hereunder (i) no waiver or extension of time shall be
effective unless expressly contained in a writing signed by the waiving party;
and (ii) no alteration, modification or impairment shall be implied by reason of
any previous waiver, extension of time, delay or omission in exercise, or other
indulgence.
18. Severability
The validity, legality or enforceability of the remainder of this Warrant
shall not be affected even if one or more of its provisions shall be held to be
invalid, illegal or unenforceable in any respect.
* * *
8
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this
Warrant to be executed by their duly authorized representatives.
PETsMART.COM, INC.
a Delaware corporation
By: /s/ Tom McGovern
-------------------------------------
Tom McGovern, Jr.
President
PETsMART, INC.
By: /s/ Philip L. Francis
-------------------------------------
Philip L. Francis
President and Chief Executive Officer
NOTICE OF EXERCISE
To: PETsMART.com, Inc., a Delaware corporation
(1) The undersigned hereby elects to purchase __________ shares of Series A
Preferred Stock of PETsMART.com, Inc., a Delaware corporation, pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full.
(2) The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, except in
compliance with applicable Federal and state securities laws.
(3) The undersigned accepts such shares subject to the restrictions on
transfer set forth in the attached Warrant.
Holder:_________________________________
______________ By:_____________________________________
(Date)
Name:___________________________________
Title:__________________________________
9
<PAGE>
EXHIBIT 10.23
THIS WARRANT AND ANY SHARES OF SERIES C PREFERRED STOCK ISSUED UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
WARRANT EVIDENCED HEREBY IS TRANSFERABLE ONLY PURSUANT TO SECTION 5(a) HEREOF.
No. WC-1 PETsMART.COM, INC. May 12, 1999
SERIES C PREFERRED STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, idealab!
Holdings, L.L.C. (and, with its permitted transferees, the "Holder"), is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
acquire from PETsMART.com, Inc. (the "Company"), in whole or from time to time
in part, up to 339,278 fully paid and nonassessable shares of Series C Preferred
Stock, par value $0.001 per share, of the Company ("Warrant Stock") at a
purchase price per share equal to $13.07 per share of Series C Preferred Stock
(the "Exercise Price"). Such number of shares, type of security and Exercise
Price are subject to adjustment as provided herein, and all references to
"Warrant Stock" and "Exercise Price" herein shall be deemed to include any such
adjustment or series of adjustments.
1. Exercise of Warrant
(a) Expiration Time. The term "Expiration Time" means the earliest to
---------------
occur of the following: (i) immediately prior to the closing of an IPO (as
defined below); or (ii) immediately prior to the closing of a Change of Control
Transaction (as defined below); or (iii) 11:59 p.m., Pacific Time, on the date
18 months from the date hereof. As used herein, "IPO" shall mean the first firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933, as amended (the "Securities Act"); a "Change
of Control Transaction" shall mean the Company's sale or lease of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company for securities or consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary, unless the
stockholders of the Company immediately prior to the transaction hold at least
50% of the voting power of the surviving corporation in such a transaction.
(b) Exercise Procedure. The purchase rights represented by this
------------------
Warrant are exercisable, in whole or in part, at any time and from time to time
at or after the date hereof and at or prior to the Expiration Time, by the
surrender of this Warrant and the Notice of Exercise form attached hereto duly
executed to the office of the Company at 130 West Union Street, Pasadena, CA
91103 (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company), and upon payment of the Exercise Price
for the shares thereby purchased by (i) wire transfer or certified bank check
payable to the order of the Company, in an amount, payable in United States
dollars, equal to the purchase price of the shares thereby purchased or (ii)
-1-
<PAGE>
exercise of the Conversion Right set forth in Section 1(d); whereupon the Holder
shall be entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased, and a new
Warrant in substantially identical form for the purchase of that number of
shares of Warrant Stock equal to the difference, if any, between the number of
shares of Warrant Stock subject hereto and the number of shares of Warrant Stock
as to which this Warrant is so exercised.
(c) Minimum Exercise. The Holder shall purchase a minimum of 1,000
----------------
shares of Warrant Stock upon any exercise hereunder.
(d) Conversion Right. In addition to and without limiting the rights
----------------
of the Holder under the terms of this Warrant, immediately prior to the closing
of an IPO or immediately prior to the closing of a Change of Control
Transaction, the Holder shall have the right to convert this Warrant or any
portion thereof into shares of Series C Preferred Stock prior to the Expiration
Time (the "Conversion Right"). Upon exercise of the Conversion Right with
respect to the number of shares of Warrant Stock that are exercisable pursuant
to this Warrant, the Company shall deliver to the Holder (without payment by the
Holder of the Exercise Price or any cash or other consideration) that number of
shares of fully paid and nonassessable Series C Preferred Stock equal to the
quotient obtained by dividing (i) the Fair Market Value (as defined in Section
2) of aggregate shares of Warrant Stock exercisable pursuant to this Warrant on
the date of conversion, which value shall be equal to (A) the aggregate Fair
Market Value of the shares of Warrant Stock on the date of conversion less (B)
the aggregate Exercise Price of the shares of Warrant Stock immediately prior to
the exercise of the Conversion Right by (ii) the Fair Market Value of one share
of Series C Preferred Stock on the date of conversion.
2. Issuance of Shares; No Fractional Shares or Scrip
Certificates for shares of Warrant Stock purchased hereunder shall be
delivered to the Holder promptly after the date on which this Warrant shall have
been exercised in accordance with the terms hereof. The Company hereby
represents and warrants that all shares of Warrant Stock which may be issued
upon the exercise of this Warrant have been duly authorized and will, upon such
exercise, be duly and validly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
holder of the Warrant Stock). The Company agrees that the shares so issued
shall be and shall for all purposes be deemed to have been issued as of the
close of business on the date on which this Warrant shall have been exercised in
accordance with the terms hereof. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon the exercise of this Warrant,
an amount equal to such fraction multiplied by the Fair Market Value of a share
of Warrant Stock on the date of exercise shall be paid in cash or check to the
holder of this Warrant. "Fair Market Value" shall mean (i) the fair market
value as determined in good faith by the Board of Directors of the Company, or
(ii) in the event of an IPO, the Fair Market Value shall equal the initial
public offering price of the Company's Common Stock multiplied by 3.5650.
3. Charges, Taxes and Expenses
The Holder shall pay all issue and transfer taxes and other incidental
expenses in respect of the issuance of certificates for shares of Warrant Stock
upon the exercise of this Warrant, and such certificates shall be issued in the
name of the Holder.
-2-
<PAGE>
4. No Rights as a Stockholder
This Warrant does not entitle the Holder to any voting rights or other
rights as a stockholder of the Company prior to the exercise hereof.
5. Restrictions on Transfer; Lock-Up
(a) Restrictions on Warrant. This Warrant is not transferable, except
-----------------------
to affiliates of Holder, whether by sale, pledge or other disposition,
voluntarily or by operation of law or otherwise to any competitor of Pittsburgh
or of the Company (as determined in good faith by the Board of Directors of the
Company) without the prior written consent of the Company, which consent may be
withheld in the Company's sole discretion. Any transfer in violation hereof
shall be void and the Warrant shall terminate immediately upon any such
purported transfer.
(b) Restrictions on Transfer of Warrant Stock. In no event will the
-----------------------------------------
Holder make a disposition of the Warrant Stock unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the Securities Act provisions relating to
sale of an unregistered security has been taken, or (B) an exemption from the
registration requirements of the Securities Act is available. Notwithstanding
the foregoing, the restrictions imposed upon the transferability of the Warrant
Stock shall terminate as to any particular share of Warrant Stock when (1) such
security shall have been sold without registration in compliance with Rule 144
under the Securities Act, or (2) a letter shall have been issued to the Holder
at its request by the staff of the Securities and Exchange Commission or a
ruling shall have been issued to the Holder at its request by such Commission
stating that no action shall be recommended by such staff or taken by such
Commission, as the case may be, if such security is transferred without
registration under the Securities Act in accordance with the conditions set
forth in such letter or ruling and such letter or ruling specifies that no
subsequent restrictions on transfer are required, or (3) such security shall
have been registered under the Securities Act and sold by the Holder in
accordance with such registration.
(c) Lock-Up. In the event of any registration of the Company's
-------
securities, the Holder will not, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of the Warrant Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Warrant Stock, whether or not any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of such Warrant Stock, in cash or otherwise, without the prior written consent
of the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters.
(d) Restrictive Legends. The certificates representing the Warrant
-------------------
Stock and any securities of the Company issued with respect thereto shall be
imprinted with legends restricting transfer except in compliance with the terms
hereof and with applicable Federal and state securities laws.
-3-
<PAGE>
6. Exchange and Registry of Warrant
The Company shall maintain at the office or agency referred to in Section
1(b) a registry showing the name and address of the registered holder of this
Warrant. This Warrant may be surrendered for exercise in accordance with its
terms at such office or agency of the Company, and the Company shall be entitled
to rely in all respects upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company will execute and deliver to the Holder, in lieu thereof, a
new Warrant in substantially identical form.
8. Saturdays, Sundays and Holidays
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday in the United States or the State of California, then such
action may be taken or such right may be exercised on the next succeeding
business day.
9. Adjustment to Number and Type of Securities and Exercise Price
The type and number of securities of the Company issuable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as set forth
below:
(a) Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
---------------------------------------------------------------
etc. The Exercise Price and the number and type of securities and/or other
- ---
property issuable upon exercise of this Warrant shall be appropriately and
proportionately adjusted to reflect any stock dividend, stock split, combination
of shares, reclassification, recapitalization or other similar event affecting
the number or character of outstanding shares of Warrant Stock or underlying
common stock, so that the number and type of securities and/or other property
issuable upon exercise of this Warrant shall be equal to that which would have
been issuable with respect to the number of shares of Warrant Stock subject
hereto at the time of such event, had such shares of Warrant Stock then been
outstanding.
(b) Adjustment for Reorganization, Consolidation, Merger, etc. In case
---------------------------------------------------------
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, the Holder, on exercise
hereof at any time after the consummation or effective date of such
Reorganization shall receive, in lieu of the Warrant Stock issuable on such
exercise prior to the date of such Reorganization, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon the date of such Reorganization if the Holder had exercised this
Warrant immediately prior thereto.
(c) Certificate as to Adjustments. In case of any adjustment in the
-----------------------------
Exercise Price or number and type of securities issuable on the exercise of this
Warrant, the Company will promptly give
-4-
<PAGE>
written notice thereof to the Holder in the form of a certificate, certified and
confirmed by an officer of the Company, setting forth such adjustment and
showing in reasonable detail the facts upon which such adjustment is based.
10. Representations and Covenants of the Holder.
The Holder represents and covenants to the Company as follows:
(a) Investment Purpose. This Warrant and the Warrant Stock will be
------------------
acquired for investment for the Holder's own account, and not as a nominee or
agent and not with a view to the distribution of any part thereof. The Holder
further represents that it does not have any contract, undertaking agreement or
arrangement with any person to sell, transfer or grant participation to such
person, or to any third person, with respect to this Warrant.
(b) Private Issue. The Holder understands (i) that the Warrant and
-------------
the Warrant Stock issuable upon exercise of this Warrant are not registered
under the Securities Act, or qualified under applicable state securities laws on
the ground that the issuance of this Warrant will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Sales of Series C Preferred Stock. The Holder represents and
---------------------------------
warrants that the Holder is familiar with the provisions of Rule 144 promulgated
under the Securities Act which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer) in a non-public offering subject
to the satisfaction of certain conditions, including, among other things: (i)
the availability of certain public information about the Company; (ii) the
resale occurring not less than one year after the party has purchased, and made
full payment for, within the meaning of Rule 144, the securities to be sold; and
(iii) in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as such term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable. The
Holder acknowledges that in the event the applicable requirements of Rule 144
are not met, registration under the Securities Act or compliance with another
exemption from registration will be required for any disposition of the Series C
Preferred Stock issuable upon exercise of this Warrant.
(d) No Public Market. The Holder understands that no public market
----------------
now exists for any of the securities issued by the Company and that a public
market may never exist for the Series C Preferred Stock.
(e) Financial Risk. The Holder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(f) Receipt of Information. The Holder has received and reviewed this
----------------------
Warrant; it, its attorney and its accountant have had access to, and an
opportunity to review all documents and other materials requested of, the
Company; it and they have been given an opportunity to ask any and all questions
of, and receive answers from, the Company concerning the terms and conditions of
this Warrant and to evaluate the suitability of an investment in this Warrant;
and, in evaluating the suitability of an investment in
-5-
<PAGE>
this Warrant; it and they have not relied upon any representations or other
information (whether oral or written) other than as set forth herein.
11. Notices of Record Date, etc.
In the event of:
(a) any taking by the Company of a record of the holders of Series C
Preferred Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution,
(b) an IPO, or
(c) a Change of Control Transaction;
then and in each such event the Company will mail to the Holder a notice
specifying, if then known, (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and if known stating
the amount and character of such dividend, distribution or right, (ii) the date
on which the IPO is anticipated to close, or (iii) the anticipated date on which
any Change of Control Transaction is to take place, and if known the time, if
any is to be fixed, as to which the holders of record of Series C Preferred
Stock shall be entitled to exchange their shares for securities or other
property deliverable on such Change of Control Transaction. Such notice shall
be delivered to the Holder at least ten (10) days prior to the date therein
specified.
12. Governing Law
This Warrant shall be governed by and construed in accordance with the laws
of the State of California applicable to contracts made and to be performed
wholly within such state.
13. Complete Agreement and Modifications
This Warrant and any documents referred to herein or executed
contemporaneously herewith constitute the Company's and the Holder's entire
agreement with respect to the subject matter hereof and supersede all
agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the Company and the Holder.
14. Authorization
All corporate action on the part of the Company and its directors necessary
for the authorization, execution, delivery and performance of the Warrant by the
Company, the authorization, sale, issuance and delivery of the Warrant Stock.
The Warrant, when executed and delivered by the Company, shall constitute valid
and binding obligations of the Company, enforceable in accordance with its
terms. The Warrant Stock, when issued in compliance with the provisions of this
Warrant, will be validly issued, fully paid and nonassessable, and will have the
rights, preferences, privileges and restrictions described in the Company's
Amended and Restated Certificate of Incorporation (the "Certificate"); the
common stock issuable upon conversion of the Warrant Stock has been duly and
validly reserved and, when issued in compliance with the provisions of the
Certificate, will be validly issued, fully paid and nonassessable; and the
Warrant Stock and the common stock issued upon conversion thereof will be free
of any liens or encumbrances (assuming the
-6-
<PAGE>
Warrantholder takes the Warrant Stock with no notice thereof) other than any
liens or encumbrances created by or imposed on the Warrantholders; provided,
however, that the Warrant Stock and the common stock issuable upon conversion
thereof may be subject to restrictions on transfer under state or federal
securities laws and restrictions.
15. Governmental Consent
No consent, approval order or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with offer, sale
or issuance of the Warrant Stock or the common stock issued upon conversion
thereof, or the consummation of any other transaction contemplated hereby,
except the qualification (or taking of such action as may be necessary to secure
an exemption from qualification, if available) of the offer and sale of the
Warrant Stock and the common stock issued upon conversion thereof under
applicable Blue Sky laws, which filings and qualifications, if required, will be
accomplished in a timely manner.
16. Notices
Except as otherwise provided herein, all notices under this Warrant shall
be in writing and shall be delivered by personal service, facsimile, courier
service promising overnight delivery or certified mail (if such service is not
available, then by first class mail), postage prepaid. Notices shall be
addressed as follows:
If to the Holder: idealab! Holdings, L.L.C.
130 West Union Street
Pasadena, CA 91103
Attention: Marcia Goodstein
Phone: (626) 535-2775
Fax: (626) 535-2701
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry Sonsini, Esq.
Phone: (650) 493-9300
Fax: (650) 493-6811
If to the Company: PETsMART.com, Inc.
130 West Union Street
Pasadena, CA 91103
Attention: Chief Executive Officer
Phone: (626) 535-2835
Fax: (626) 535-2701
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Martin W. Korman, Esq.
Phone: (650) 493-9300
-7-
<PAGE>
Fax: (650) 493-6811
17. Waivers Strictly Construed
With regard to any power, remedy or right provided herein or otherwise
available to any party hereunder (i) no waiver or extension of time shall be
effective unless expressly contained in a writing signed by the waiving party;
and (ii) no alteration, modification or impairment shall be implied by reason of
any previous waiver, extension of time, delay or omission in exercise, or other
indulgence.
18. Severability
The validity, legality or enforceability of the remainder of this Warrant
shall not be affected even if one or more of its provisions shall be held to be
invalid, illegal or unenforceable in any respect.
* * *
-8-
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be executed by their duly authorized representatives.
PETsMART.COM, INC.,
a Delaware corporation
/s/ Tom McGovern
----------------
Tom McGovern, Jr., President
IDEALAB! HOLDINGS, L.L.C.
/s/ Marcia Goodstein
--------------------
Marcia Goodstein, Secretary
[Signature Page to idealab! Warrant]
-9-
<PAGE>
NOTICE OF EXERCISE
To: PETsMART.com, Inc., a Delaware corporation
(1) The undersigned hereby elects to purchase __________ shares of Series C
Preferred Stock of Petsmart.com, Inc., a Delaware corporation, pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full.
(2) The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, except in
compliance with applicable Federal and state securities laws.
(3) The undersigned accepts such shares subject to the restrictions on
transfer set forth in the attached Warrant.
Holder:___________________________________________
________________ By:_______________________________________________
(Date)
Name:_____________________________________________
Title:____________________________________________
-10-
<PAGE>
EXHIBIT 10.24
THIS WARRANT AND ANY SHARES OF SERIES C PREFERRED STOCK ISSUED UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
WARRANT EVIDENCED HEREBY IS TRANSFERABLE ONLY PURSUANT TO SECTION 5(a) HEREOF.
No. WC-2 PETsMART.COM, INC. May 12, 1999
SERIES C PREFERRED STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Rodale Press,
Inc. (and, with its permitted transferees, the "Holder"), is entitled, upon the
terms and subject to the conditions hereinafter set forth, to acquire from
PETsMART.com, Inc. (the "Company"), in whole or from time to time in part, up to
43,227 fully paid and nonassessable shares of Series C Preferred Stock, par
value $0.001 per share, of the Company ("Warrant Stock") at a purchase price per
share equal $13.07 per share of Series C Preferred Stock (the "Exercise Price").
Such number of shares, type of security and Exercise Price are subject to
adjustment as provided herein, and all references to "Warrant Stock" and
"Exercise Price" herein shall be deemed to include any such adjustment or series
of adjustments.
1. Exercise of Warrant
(a) Expiration Time. The term "Expiration Time" means the earliest to
---------------
occur of the following: (i) immediately prior to the closing of an IPO (as
defined below); or (ii) immediately prior to the closing of a Change of Control
Transaction (as defined below); or (iii) 11:59 p.m., Pacific Time, on the date
18 months from the date hereof. As used herein, "IPO" shall mean the first firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933, as amended (the "Securities Act"); a "Change
of Control Transaction" shall mean the Company's sale or lease of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company for securities or consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary, unless the
stockholders of the Company immediately prior to the transaction hold at least
50% of the voting power of the surviving corporation in such a transaction.
(b) Exercise Procedure. The purchase rights represented by this
------------------
Warrant are exercisable, in whole or in part, at any time and from time to time
at or after the date hereof and at or prior to the Expiration Time, by the
surrender of this Warrant and the Notice of Exercise form attached hereto duly
executed to the office of the Company at 130 West Union Street, Pasadena, CA
91103 (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company), and upon payment of the Exercise Price
for the shares thereby purchased by (i) wire transfer or certified bank check
payable to the order of the Company, in an amount, payable in United States
dollars, equal to the purchase price of the shares thereby purchased or (ii)
<PAGE>
exercise of the Conversion Right set forth in Section 1(d); whereupon the
Holder shall be entitled to receive from the Company a stock certificate in
proper form representing the number of shares of Warrant Stock so purchased,
and a new Warrant in substantially identical form for the purchase of that
number of shares of Warrant Stock equal to the difference, if any, between the
number of shares of Warrant Stock subject hereto and the number of shares of
Warrant Stock as to which this Warrant is so exercised.
(c) Minimum Exercise. The Holder shall purchase a minimum of 1,000
----------------
shares of Warrant Stock upon any exercise hereunder.
(d) Conversion Right. In addition to and without limiting the
----------------
rights of the Holder under the terms of this Warrant, immediately prior to the
closing of an IPO or immediately prior to the closing of a Change of Control
Transaction, the Holder shall have the right to convert this Warrant or any
portion thereof into shares of Series C Preferred Stock prior to the Expiration
Time (the "Conversion Right"). Upon exercise of the Conversion Right with
respect to the number of shares of Warrant Stock that are exercisable pursuant
to this Warrant, the Company shall deliver to the Holder (without payment by the
Holder of the Exercise Price or any cash or other consideration) that number of
shares of fully paid and nonassessable Series C Preferred Stock equal to the
quotient obtained by dividing (i) the Fair Market Value (as defined in Section
2) of the aggregate number of shares of Warrant Stock exercisable pursuant to
this Warrant on the date of conversion, which value shall be equal to (A) the
aggregate Fair Market Value of the shares of Warrant Stock on the date of
conversion less (B) the aggregate Exercise Price of the shares of Warrant Stock
immediately prior to the exercise of the Conversion Right by (ii) the Fair
Market Value of one share of Series C Preferred Stock on the date of conversion.
2. Issuance of Shares; No Fractional Shares or Scrip
Certificates for shares of Warrant Stock purchased hereunder shall be
delivered to the Holder promptly after the date on which this Warrant shall have
been exercised in accordance with the terms hereof. The Company hereby
represents and warrants that all shares of Warrant Stock which may be issued
upon the exercise of this Warrant have been duly authorized and will, upon such
exercise, be duly and validly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
holder of the Warrant Stock). The Company agrees that the shares so issued
shall be and shall for all purposes be deemed to have been issued as of the
close of business on the date on which this Warrant shall have been exercised in
accordance with the terms hereof. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon the exercise of this Warrant,
an amount equal to such fraction multiplied by the Fair Market Value of a share
of Warrant Stock on the date of exercise shall be paid in cash or check to the
holder of this Warrant. "Fair Market Value" shall mean (i) the fair market
value as determined in good faith by the Board of Directors of the Company or
(ii) in the event of an IPO, the Fair Market Value shall equal the initial
public offering price of the Company's Common Stock multiplied by 3.5650.
3. Charges, Taxes and Expenses
<PAGE>
The Holder shall pay all issue and transfer taxes and other incidental
expenses in respect of the issuance of certificates for shares of Warrant Stock
upon the exercise of this Warrant, and such certificates shall be issued in the
name of the Holder.
4. No Rights as a Stockholder
This Warrant does not entitle the Holder to any voting rights or other
rights as a stockholder of the Company prior to the exercise hereof.
5. Restrictions on Transfer; Lock-Up
(a) Restrictions on Warrant. This Warrant is not transferable,
-----------------------
except to affiliates of the Warrantholder, whether by sale, pledge or other
disposition, voluntarily or by operation of law or otherwise to any competitor
of Pittsburgh or of the Company (as determined in good faith by the Board of
Directors of the Company) without the prior written consent of the Company,
which consent may be withheld in the Company's sole discretion. Any transfer in
violation hereof shall be void and the Warrant shall terminate immediately upon
any such purported transfer.
(b) Restrictions on Transfer of Warrant Stock. In no event will the
-----------------------------------------
Holder make a disposition of the Warrant Stock unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the Securities Act provisions relating to
sale of an unregistered security has been taken, or (B) an exemption from the
registration requirements of the Securities Act is available. Notwithstanding
the foregoing, the restrictions imposed upon the transferability of the Warrant
Stock shall terminate as to any particular share of Warrant Stock when (1) such
security shall have been sold without registration in compliance with Rule 144
under the Securities Act, or (2) a letter shall have been issued to the Holder
at its request by the staff of the Securities and Exchange Commission or a
ruling shall have been issued to the Holder at its request by such Commission
stating that no action shall be recommended by such staff or taken by such
Commission, as the case may be, if such security is transferred without
registration under the Securities Act in accordance with the conditions set
forth in such letter or ruling and such letter or ruling specifies that no
subsequent restrictions on transfer are required, or (3) such security shall
have been registered under the Securities Act and sold by the Holder in
accordance with such registration.
(c) Lock-Up. In the event of any registration of the Company's
-------
securities, the Holder will not, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of the Warrant Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Warrant Stock, whether or not any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of such Warrant Stock, in cash or otherwise, without the prior written consent
of the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters.
<PAGE>
(d) Restrictive Legends. The certificates representing the Warrant
-------------------
Stock and any securities of the Company issued with respect thereto shall be
imprinted with legends restricting transfer except in compliance with the terms
hereof and with applicable Federal and state securities laws.
6. Exchange and Registry of Warrant
The Company shall maintain at the office or agency referred to in Section
1(b) a registry showing the name and address of the registered holder of this
Warrant. This Warrant may be surrendered for exercise in accordance with its
terms at such office or agency of the Company, and the Company shall be entitled
to rely in all respects upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company will execute and deliver to the Holder, in lieu thereof, a
new Warrant in substantially identical form.
8. Saturdays, Sundays and Holidays
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday in the United States or the State of California, then such
action may be taken or such right may be exercised on the next succeeding
business day.
9. Adjustment to Number and Type of Securities and Exercise Price
The type and number of securities of the Company issuable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as set forth
below:
(a) Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
----------------------------------------------------------------
etc. The Exercise Price and the number and type of securities and/or other
- ----
property issuable upon exercise of this Warrant shall be appropriately and
proportionately adjusted to reflect any stock dividend, stock split, combination
of shares, reclassification, recapitalization or other similar event affecting
the number or character of outstanding shares of Warrant Stock or underlying
common stock, so that the number and type of securities and/or other property
issuable upon exercise of this Warrant shall be equal to that which would have
been issuable with respect to the number of shares of Warrant Stock subject
hereto at the time of such event, had such shares of Warrant Stock then been
outstanding.
(b) Adjustment for Reorganization, Consolidation, Merger, etc. In
----------------------------------------------------------
case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, the Holder, on exercise
hereof at any time after the consummation or effective date of such
Reorganization, shall receive, in lieu of the Warrant Stock issuable on such
exercise prior to the date of such Reorganization, the stock and other
securities and property (including cash) to which
<PAGE>
the Holder would have been entitled upon the date of such Reorganization if the
Holder had exercised this Warrant immediately prior thereto.
(c) Certificate as to Adjustments. In case of any adjustment in the
-----------------------------
Exercise Price or number and type of securities issuable on the exercise of this
Warrant, the Company will promptly give written notice thereof to the Holder in
the form of a certificate, certified and confirmed by an officer of the Company,
setting forth such adjustment and showing in reasonable detail the facts upon
which such adjustment is based.
10. Representations and Covenants of the Holder.
The Holder represents and covenants to the Company as follows:
(a) Investment Purpose This Warrant and the Warrant Stock will be
------------------
acquired for investment for the Holder's own account, and not as a nominee or
agent and not with a view to the distribution of any part thereof. The Holder
further represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person, or to any third person, with respect to this Warrant.
(b) Private Issue The Holder understands (i) that the Warrant and
-------------
the Warrant Stock issuable upon exercise of this Warrant are not registered
under the Securities Act, or qualified under applicable state securities laws on
the ground that the issuance of this Warrant will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Sales of Series C Preferred Stock The Holder represents and
---------------------------------
warrants that the Holder is familiar with the provisions of Rule 144 promulgated
under the Securities Act which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer) in a non-public offering subject
to the satisfaction of certain conditions, including, among other things: (i)
the availability of certain public information about the Company; (ii) the
resale occurring not less than one year after the party has purchased, and made
full payment for, within the meaning of Rule 144, the securities to be sold; and
(iii) in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as such term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable. The
Holder acknowledges that in the event the applicable requirements of Rule 144
are not met, registration under the Securities Act or compliance with another
exemption from registration will be required for any disposition of the Series C
Preferred Stock issuable upon exercise of this Warrant.
(d) No Public Market The Holder understands that no public market
----------------
now exists for any of the securities issued by the Company and that a public
market may never exist for the Series C Preferred Stock.
(e) Financial Risk The Holder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
<PAGE>
(f) Receipt of Information The Holder has received and reviewed this
----------------------
Warrant; it, its attorney and its accountant have had access to, and an
opportunity to review all documents and other materials requested of, the
Company; it and they have been given an opportunity to ask any and all questions
of, and receive answers from, the Company concerning the terms and conditions of
this Warrant and to evaluate the suitability of an investment in this Warrant;
and, in evaluating the suitability of an investment in this Warrant; it and they
have not relied upon any representations or other information (whether oral or
written) other than as set forth herein.
11. Notices of Record Date, etc.
In the event of:
(a) any taking by the Company of a record of the holders of Series C
Preferred Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution,
(b) an IPO, or
(c) a Change of Control Transaction;
then and in each such event the Company will mail to the Holder a notice
specifying, if then known, (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and if known stating
the amount and character of such dividend, distribution or right, (ii) the date
on which the IPO is anticipated to close, or (iii) the anticipated date on which
any Change of Control Transaction is to take place, and if known the time, if
any is to be fixed, as to which the holders of record of Series C Preferred
Stock shall be entitled to exchange their shares for securities or other
property deliverable on such Change of Control Transaction. Such notice shall
be delivered to the Holder at least ten (10) days prior to the date therein
specified.
12. Governing Law
This Warrant shall be governed by and construed in accordance with the laws
of the State of California applicable to contracts made and to be performed
wholly within such state.
13. Complete Agreement and Modifications
This Warrant and any documents referred to herein or executed
contemporaneously herewith constitute the Company's and the Holder's entire
agreement with respect to the subject matter hereof and supersede all
agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the Company and the Holder.
14. Authorization
All corporate action on the part of the Company and its directors necessary
for the authorization, execution, delivery and performance of the Warrant by the
Company, and the authorization, sale, issuance and delivery of the Warrant Stock
has been taken. The Warrant, when executed and delivered by the Company, shall
constitute valid and binding obligations of the Company, enforceable in
accordance with its terms. The Warrant Stock, when issued in compliance with the
provisions of this Warrant, will be validly
<PAGE>
issued, fully paid and nonassessable, and will have the rights, preferences,
privileges and restrictions described in the Company's Amended and Restated
Certificate of Incorporation (the "Certificate"); the common stock issuable upon
conversion of the Warrant Stock has been duly and validly reserved and, when
issued in compliance with the provisions of the Certificate, will be validly
issued, fully paid and nonassessable; and the Warrant Stock and the common stock
issued upon conversion thereof will be free of any liens or encumbrances
(assuming the Warrantholder takes the Warrant Stock with no notice thereof)
other than any liens or encumbrances created by or imposed on the
Warrantholders; provided, however, that the Warrant Stock and the common stock
issuable upon conversion thereof may be subject to restrictions on transfer
under state or federal securities laws and restrictions.
15. Governmental Consent
No consent, approval, order or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with offer, sale
or issuance of the Warrant Stock or the common stock issued upon conversion
thereof, or the consummation of any other transaction contemplated hereby,
except the qualification (or taking of such action as may be necessary to secure
an exemption from qualification, if available) of the offer and sale of the
Warrant Stock and the common stock issued upon conversion thereof under
applicable Blue Sky laws, which filings and qualifications, if required, will be
accomplished in a timely manner.
16. Notices
Except as otherwise provided herein, all notices under this Warrant shall
be in writing and shall be delivered by personal service, facsimile, courier
service promising overnight delivery or certified mail (if such service is not
available, then by first class mail), postage prepaid. Notices shall be
addressed as follows:
If to the Holder: Rodale Press, Inc.
400 S. 10th Street
Emmaus, PA 18098
Attention: President
Phone: (610) 967-8251
Fax: (610) 967-9154
With a copy to: Gross, McGinley, LaBarre & Eaton, LLP
33 South 7th Street
P.O. Box 4060
Allentown, PA 18101
Attention: Paul A. McGinley, Esq.
Phone: (610) 820-5450
Fax: (610) 820-6006
If to the Company: PETsMART.com, Inc.
130 West Union Street
Pasadena, CA 91103
Attention: Chief Executive Officer
Phone: (626) 535-2835
Fax: (626) 535-2701
<PAGE>
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Martin W. Korman, Esq.
Phone: (650) 493-9300
Fax: (650) 493-6811
17. Waivers Strictly Construed
With regard to any power, remedy or right provided herein or otherwise
available to any party hereunder (i) no waiver or extension of time shall be
effective unless expressly contained in a writing signed by the waiving party;
and (ii) no alteration, modification or impairment shall be implied by reason of
any previous waiver, extension of time, delay or omission in exercise, or other
indulgence.
18. Severability
The validity, legality or enforceability of the remainder of this Warrant
shall not be affected even if one or more of its provisions shall be held to be
invalid, illegal or unenforceable in any respect.
* * *
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be executed by their duly authorized representatives.
PETsMART.COM, INC.
a Delaware corporation
/s/ Tom McGovern
---------------------------------
Tom McGovern, President
RODALE PRESS, INC.
/s/ Placido A. Corpora
---------------------------------
Pat Corpora, President
NOTICE OF EXERCISE
To: PETsMART.com, Inc., a Delaware corporation
(1) The undersigned hereby elects to purchase __________ shares of Series C
Preferred Stock of PETsMART.com, Inc., a Delaware corporation, pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full.
(2) The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof
<PAGE>
and that the undersigned has no present intention of distributing or reselling
such shares, except in compliance with applicable Federal and state securities
laws.
(3) The undersigned accepts such shares subject to the restrictions on
transfer set forth in the attached Warrant.
Holder:____________________________________
_______________ By:________________________________________
(Date)
Name:______________________________________
Title:_____________________________________
<PAGE>
EXHIBIT 10.25
THIS WARRANT AND ANY SHARES OF SERIES C PREFERRED ISSUED UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE
BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE AFFECTED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE WARRANT
EVIDENCED HEREBY IS TRANSFERABLE ONLY PURSUANT TO SECTION 5 HEREOF.
No. WC-3 PETsMART.COM, INC. May 12, 1999
SERIES C PREFERRED STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, Rodale Press,
Inc. ("Rodale"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to acquire from PETsMART.com, Inc. (the "Company"), in
whole or from time to time in part, up to 23,163 fully paid and nonassessable
shares of Series C Preferred Stock, par value $0.001 per share, of the Company
("Warrant Stock") at a purchase price per share of $1.67 (the "Exercise Price").
Such number of shares, type of security and Exercise Price are subject to
adjustment as provided herein, and all references to "Warrant Stock" and
"Exercise Price" herein shall be deemed to include any such adjustment or series
of adjustments.
1. Exercise of Warrant
(a) Expiration Time. The term "Expiration Time" means the earliest to
---------------
occur of the following: (i) immediately prior to the closing of an IPO (as
defined below); or (ii) immediately prior to the closing of a Change of Control
Transaction (as defined below); or (iii) 11:59 p.m., Pacific Time, on the date
five years from the date hereof. As used herein, "IPO" shall mean the first firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933, as amended (the "Securities Act"); a "Change
of Control Transaction" shall mean the Company's sale or lease of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company for securities or consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary, unless the
stockholders of the Company immediately prior to such transaction hold at least
50% of the voting power of the surviving corporation in such a transaction.
(b) Exercise Procedure. The purchase rights represented by this
------------------
Warrant are exercisable, in whole or in part, at any time and from time to time
at or after the date hereof and at or prior to the Expiration Time, by the
surrender of this Warrant and the Notice of Exercise form attached hereto duly
executed to the office of the Company at 130 West Union Street, Pasadena, CA
91103 (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company), and upon payment of the Exercise Price
for the shares thereby purchased (by wire transfer or by certified bank check
payable to the order of the Company, in an amount, payable in United States
dollars, equal to the purchase price of the shares thereby purchased);
1
<PAGE>
whereupon the holder of this Warrant shall be entitled to receive from the
Company a stock certificate in proper form representing the number of shares of
Warrant Stock so purchased, and a new Warrant in substantially identical form
for the purchase of that number of shares of Warrant Stock equal to the
difference, if any, between the number of shares of Warrant Stock subject hereto
and the number of shares of Warrant Stock as to which this Warrant is so
exercised.
(c) Minimum Exercise. The holder shall purchase a minimum of 1,000
----------------
shares of Warrant Stock upon any exercise hereunder.
(d) Conversion Right. In addition to and without limiting the rights
----------------
of the Holder under the terms of this Warrant, the Holder shall have the right
to convert this Warrant or any portion thereof into shares of Series C Preferred
Stock prior to the Expiration Time (the "Conversion Right"). Upon exercise of
the Conversion Right with respect to the number of shares of Warrant Stock that
are exercisable pursuant to this Warrant, the Company shall deliver to the
Holder (without payment by the Holder of the Exercise Price or any cash or other
consideration) that number of shares of fully paid and nonassessable Series C
Preferred Stock equal to the quotient obtained by dividing (i) the Fair Market
Value (as defined in Section 2) of the aggregate number of shares of Warrant
Stock exercisable pursuant to this Warrant on the date of conversion, which
value shall be equal to (A) the aggregate Fair Market Value of the shares of
Warrant Stock on the date of conversion less (B) the aggregate Exercise Price of
the shares of Warrant Stock immediately prior to the exercise of the Conversion
Right by (ii) the Fair Market Value of one share of Series C Preferred Stock on
the date of conversion.
2. Issuance of Shares; No Fractional Shares or Scrip
Certificates for shares of Warrant Stock purchased hereunder shall be
delivered to the holder hereof promptly after the date on which this Warrant
shall have been exercised in accordance with the terms hereof. The Company
hereby represents and warrants that all shares of Warrant Stock which may be
issued upon the exercise of this Warrant have been duly authorized and will,
upon such exercise, be duly and validly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
holder of the Warrant Stock). The Company agrees that the shares so issued
shall be and shall for all purposes be deemed to have been issued as of the
close of business on the date on which this Warrant shall have been exercised in
accordance with the terms hereof. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon the exercise of this Warrant,
an amount equal to such fraction multiplied by the Fair Market Value of a share
of Warrant Stock on the date of exercise shall be paid in cash or check to the
holder of this Warrant. Fair Market Value shall mean (i) the fair market value
as determined in good faith by the Board of Directors of the Company or (ii) in
the event of an IPO, the Fair Market Value shall equal the initial public
offering price of the Company's Common Stock multiplied by 3.5650.
3. Charges, Taxes and Expenses
The holder shall pay all issue and transfer taxes and other incidental
expenses in respect of the issuance of certificates for shares of Warrant Stock
upon the exercise of this Warrant, and such certificates shall be issued in the
name of the holder of this Warrant.
2
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4. No Rights as a Stockholder
This Warrant does not entitle the holder hereof to any voting rights or
other rights as a stockholder of the Company prior to the exercise hereof.
5. Restrictions on Transfer; Lock-Up
(a) Restrictions on Warrant. This Warrant is not transferable except
-----------------------
to affiliates of the Warrantholder, whether by sale, pledge or other
disposition, voluntarily or by operation of law or otherwise without the prior
written consent of the Company, which consent may be withheld in the Company's
sole discretion. Any transfer in violation hereof shall be void and the Warrant
shall terminate immediately upon any such purported transfer.
(b) Restrictions on Transfer of Warrant Stock. In no event will the
-----------------------------------------
holder make a disposition of the Warrant Stock unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the Securities Act provisions relating to
sale of an unregistered security has been taken, or (B) an exemption from the
registration requirements of the Securities Act is available. Notwithstanding
the foregoing, the restrictions imposed upon the transferability of the Warrant
Stock shall terminate as to any particular share of Warrant Stock when (1) such
security shall have been sold without registration in compliance with Rule 144
under the Securities Act, or (2) a letter shall have been issued to the holder
at its request by the staff of the Securities and Exchange Commission or a
ruling shall have been issued to the holder at its request by such Commission
stating that no action shall be recommended by such staff or taken by such
Commission, as the case may be, if such security is transferred without
registration under the Securities Act in accordance with the conditions set
forth in such letter or ruling and such letter or ruling specifies that no
subsequent restrictions on transfer are required, or (3) such security shall
have been registered under the Securities Act and sold by the holder thereof in
accordance with such registration.
(c) Lock-Up. In the event of any registration of the Company's
-------
securities, the holder will not, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of the Warrant Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Warrant Stock, whether or not any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of such Warrant Stock, in cash or otherwise, without the prior written consent
of the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters.
(d) Restrictive Legends. The certificates representing the Warrant
-------------------
Stock and any securities of the Company issued with respect thereto shall be
imprinted with legends restricting transfer except in compliance with the terms
hereof and with applicable Federal and state securities laws.
3
<PAGE>
6. Exchange and Registry of Warrant
The Company shall maintain at the office or agency referred to in Section
1(b) hereof a registry showing the name and address of the registered holder of
this Warrant. This Warrant may be surrendered for exercise in accordance with
its terms at such office or agency of the Company, and the Company shall be
entitled to rely in all respects upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company will execute and deliver to the holder, in lieu thereof, a
new Warrant in substantially identical form.
8. Saturdays, Sundays and Holidays
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday in the United States or the State of California, then such
action may be taken or such right may be exercised on the next succeeding
business day.
9. Adjustment to Number and Type of Securities and Exercise Price
The type and number of securities of the Company issuable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as set forth
below:
(a) Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
---------------------------------------------------------------
etc. The Exercise Price and the number and type of securities and/or other
- ---
property issuable upon exercise of this Warrant shall be appropriately and
proportionately adjusted to reflect any stock dividend, stock split, combination
of shares, reclassification, recapitalization or other similar event affecting
the number or character of outstanding shares of Warrant Stock or underlying
common stock, so that the number and type of securities and/or other property
issuable upon exercise of this Warrant shall be equal to that which would have
been issuable with respect to the number of shares of Warrant Stock subject
hereto at the time of such event, had such shares of Warrant Stock then been
outstanding.
(b) Adjustment for Reorganization, Consolidation, Merger, etc. In
---------------------------------------------------------
case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, the holder of this
Warrant, on exercise hereof at any time after the consummation or effective date
of such Reorganization, shall receive, in lieu of the Warrant Stock issuable on
such exercise prior to the date of such Reorganization, the stock and other
securities and property (including cash) to which such holder would have been
entitled upon the date of such Reorganization if such holder had exercised this
Warrant immediately prior thereto.
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<PAGE>
(c) Certificate as to Adjustments. In case of any adjustment in the
-----------------------------
Exercise Price or number and type of securities issuable on the exercise of this
Warrant, the Company will promptly give written notice thereof to the holder of
this Warrant in the form of a certificate, certified and confirmed by an officer
of the Company, setting forth such adjustment and showing in reasonable detail
the facts upon which such adjustment is based.
10. Representations and Covenants of Rodale
Rodale represents and covenants to the Company as follows:
(a) Investment Purpose This Warrant and the Warrant Stock will be
------------------
acquired for investment for Rodale' own account, and not as a nominee or agent
and not with a view to the distribution of any part thereof. Rodale further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person, or to any third person, with respect to this Warrant.
(b) Private Issue Rodale understands (i) that the Warrant and the
-------------
Warrant Stock issuable upon exercise of this Warrant are not registered under
the Securities Act, or qualified under applicable state securities laws, on the
ground that the issuance of this Warrant will be exempt from the registration
and qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on the representations set forth in this Section
10.
(c) Sales of Series C Preferred Stock Rodale represents and warrants
---------------------------------
that Rodale is familiar with the provisions of Rule 144 promulgated under the
Securities Act which, in substance, permits limited public resale of "restricted
securities" acquired, directly or indirectly, from the issuer thereof (or from
an affiliate of such issuer) in a non-public offering subject to the
satisfaction of certain conditions, including, among other things: (i) the
availability of certain public information about the Company; (ii) the resale
occurring not less than one year after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and
(iii) in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as such term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable. Rodale
acknowledges that in the event the applicable requirements of Rule 144 are not
met, registration under the Securities Act or compliance with another exemption
from registration will be required for any disposition of the Series C Preferred
Stock issuable upon exercise of this Warrant.
(d) No Public Market Rodale understands that no public market now
----------------
exists for any of the securities issued by the Company and that a public market
may never exist for the Series C Preferred Stock.
(e) Financial Risk Rodale has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(f) Receipt of Information Rodale has received and reviewed this
----------------------
Warrant; it, its attorney and its accountant have had access to, and an
opportunity to review all documents and other materials requested of, the
Company; it and they have been given an opportunity to ask any and all questions
of, and receive answers from, the Company concerning the terms and conditions of
this Warrant and to
5
<PAGE>
evaluate the suitability of an investment in this Warrant; and, in evaluating
the suitability of an investment in this Warrant, it and they have not relied
upon any representations or other information (whether oral or written) other
than as set forth herein.
11. Notices of Record Date, etc.
In the event of:
(a) any taking by the Company of a record of the holders of Series C
Preferred Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution,
(b) an IPO, or
(c) a Change of Control Transaction;
then and in each such event the Company will mail to the holder hereof a notice
specifying, if then known, (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and if known stating
the amount and character of such dividend, distribution or right, (ii) the date
on which the IPO is anticipated to close, or (iii) the anticipated date on which
any Change of Control Transaction is to take place, and if known the time, if
any is to be fixed, as to which the holders of record of Series C Preferred
Stock shall be entitled to exchange their shares for securities or other
property deliverable on such Change of Control Transaction. Such notice shall
be delivered to the holder hereof at least ten (10) days prior to the date
therein specified.
12. Governing Law
This Warrant shall be governed by and construed in accordance with the laws
of the State of California applicable to contracts made and to be performed
wholly within such state.
13. Complete Agreement and Modifications
This Warrant and any documents referred to herein or executed
contemporaneously herewith constitute the Company's and Rodale's entire
agreement with respect to the subject matter hereof and supersede all
agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the Company and the holder of this Warrant.
14. Authorization
All corporate action on the part of the Company and its directors necessary
for the authorization, execution, delivery and performance of the Warrant by the
Company, the authorization, sale, issuance and delivery of the Warrant Stock.
The Warrant, when executed and delivered by the Company, shall constitute valid
and binding obligations of the Company, enforceable in accordance with its
terms. The Warrant Stock, when issued in compliance with the provisions of this
Warrant, will be validly issued, fully paid and nonassessable, and will have the
rights, preferences, privileges and restrictions described in the Company's
Amended and Restated Certificate of Incorporation (the "Certificate"); the
common stock issuable upon conversion of the Warrant Stock has been duly and
validly reserved and, when issued in compliance with the provisions of the
Certificate, will be validly issued, fully paid and nonassessable; and the
Warrant Stock and the common stock issued upon conversion thereof will be free
of any liens or encumbrances (assuming the
6
<PAGE>
Warrantholder takes the Warrant Stock with no notice thereof) other than any
liens or encumbrances created by or imposed on the Warrantholders; provided,
however, that the Warrant Stock and the common stock issuable upon conversion
thereof may be subject to restrictions on transfer under state or federal
securities laws and restrictions.
15. Governmental Consent
No consent, approval order or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with offer, sale
or issuance of the Warrant Stock or the common stock issued upon conversion
thereof, or the consummation of any other transaction contemplated hereby,
except the qualification (or taking of such action as may be necessary to secure
an exemption from qualification, if available) of the offer and sale of the
Warrant Stock and the common stock issued upon conversion thereof under
applicable Blue Sky laws, which filings and qualifications, if required, will be
accomplished in a timely manner.
16. Notices
Except as otherwise provided herein, all notices under this Warrant shall
be in writing and shall be delivered by personal service, facsimile, courier
service promising overnight delivery or certified mail (if such service is not
available, then by first class mail), postage prepaid. Notices shall be
addressed as follows:
If to Rodale: Rodale Press, Inc.
400 S. 10th Street
Emmaus, PA 18098
Attention: President
Phone: (610) 967-8251
Fax: (610) 967-9154
With a copy to: Gross, McGinley, LaBarre & Eaton, LLP
33 South 7th Street
P.O. Box 4060
Allentown, PA 18101
Attention: Paul A. McGinley, Esq.
Phone: (610) 820-5450
Fax: (610) 820-6006
If to the Company: PETsMART.com, Inc.
130 West Union Street
Pasadena, CA 91103
Attention: Chief Executive Officer
Phone: (626) 535-2835
Fax: (626) 535-2701
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Martin W. Korman, Esq.
Phone: (650) 493-9300
Fax: (650) 493-6811
7
<PAGE>
17. Waivers Strictly Construed
With regard to any power, remedy or right provided herein or otherwise
available to any party hereunder (i) no waiver or extension of time shall be
effective unless expressly contained in a writing signed by the waiving party;
and (ii) no alteration, modification or impairment shall be implied by reason of
any previous waiver, extension of time, delay or omission in exercise, or other
indulgence.
18. Severability
The validity, legality or enforceability of the remainder of this Warrant
shall not be affected even if one or more of its provisions shall be held to be
invalid, illegal or unenforceable in any respect.
* * *
8
<PAGE>
IN WITNESS WHEREOF, the Company and Rodale have caused this Warrant to be
executed by their duly authorized representatives.
PETsMART.COM, INC.,
a Delaware corporation
By: /s/ Tom McGovern
----------------
Tom McGovern, Jr., President
RODALE PRESS, INC.
By: /s/ Placido A. Corpora
----------------------
Pat Corpora, President
9
<PAGE>
NOTICE OF EXERCISE
To: PETsMART.com, Inc., a Delaware corporation
(1) The undersigned hereby elects to purchase __________ shares of Series C
Preferred Stock of PETsMART.com, Inc., a Delaware corporation, pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full.
(2) The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares, except in
compliance with applicable Federal and state securities laws.
(3) The undersigned accepts such shares subject to the restrictions on
transfer set forth in the attached Warrant.
Holder:_____________________________________
__________________________ By: _______________________________________
(Date)
Name:_______________________________________
Title:______________________________________
10
<PAGE>
EXHIBIT 10.26
MARKETING AGREEMENT
This Marketing Agreement ("Agreement") is made effective as of the
31st day of December, 1999 (the "Effective Date") by and between PETsMART, Inc.,
a Delaware corporation having its address at 19601 N. 27th Avenue, Phoenix, AZ
85027, and its affiliates ("PETsMART"), and PETsMART.com, Inc., a Delaware
corporation having its address at 35 Hugus Alley, Suite 210, Pasadena, CA 91103
("PETsMART.com").
Recitals
A. PETsMART and PETsMART.com wish to collaborate to market companion-animal-
related products to consumers and to make related information available to
consumers online via an e-commerce website to be operated by PETsMART.com.
B. PETsMART and PETsMART.com desire to jointly market their products through
means including (but not limited to) co-branded advertising, cross-marketing of
the physical and online stores, in-store promotions, affinity programs, and
mailing lists.
C. PETsMART and PETsMART.com also wish to provide each other access to
information to facilitate PETsMART.com's online content about PETsMART's
physical stores.
D. PETsMART and PETsMART.com have previously entered into a Trademark License
Agreement dated May 12, 1999 (the "Trademark Agreement"), pursuant to which
PETsMART will license the use of the PETsMART trademark and the petsmart.com
domain name to PETsMART.com, and are concurrently entering into a Merchandising,
Procurement, Distribution, and Fulfillment Agreement and a Web and Content
Hosting Agreement.
Now, Therefore, the parties agree as follows:
1. Definitions.
1.1 "Net Sales" means all revenue received by PETsMART.com, net of
shipping costs, tax, and returns.
1.2 "Online", whether capitalized or not, means, without limitation, over
the Internet, world wide web (www), commercial online services (e.g., AOL), and
interactive broadcast (e.g., WebTV).
<PAGE>
1.3 "PETsMART Catalog Fulfillment Center" means PETsMART's catalog
fulfillment enter, located at 1989 Transit Way, Brockport, New York 14420, or
any other catalog fulfillment center operated by PETsMART in the future.
1.4 "PETsMART Forward Distribution Centers" means PETsMART's distribution
centers other than the PETsMART Catalog Fulfillment Center, whether currently
existing or opened during the Term, that primarily provide deliveries of
consumable products to PETsMART retail stores.
1.5 "PETsMART Products" means any non-equine product then carried by
PETsMART in its retail stores or made available through its existing consumer
catalogs and which PETsMART has the right to sell to PETsMART.com. "PETsMART
Products" includes products sold under national brands, PETsMART's corporate
brands and any other brands, but specifically excludes equine products.
1.6 "PETsMART.com URL" refers to the http://www.petsmart.com internet
-----------------------
address.
1.7 "PETsMART.com Website" means the user interface, functionality and
content made available on pages under the PETsMART.com URL.
1.8 "SKU" means a stock-keeping unit of any product.
1.9 "PETsMART Competitor" means any national competitive brand (including
pet specialty retailers such as PETCO, grocers such as Safeway, discount chains
such as Wal-Mart, warehouse clubs such as Sam's Club or Price Costco, and the
like, but not including independently operated small boutique brands such as
Three Dog Bakery). "PETsMART Competitor" also includes catalog competitors such
as Doctors Foster & Smith.
2. Exclusivity. Subject to the terms of this Section 2, PETsMART.com will
operate and maintain the PETsMART.com Website for the online sale of companion-
animal-related products and the PETsMART.com Website will be the exclusive
online exemplification of PETsMART's existing physical stores.
2.1 Sale of Products. In addition to selling PETsMART Products online,
and subject to the provisions of Section 2.5 ("No PETsMART.com Catalogs Or
Physical Stores"), PETsMART.com will be able to sell PETsMART Products via other
mutually agreed channels (including catalogues, provided that any such
catalogues do not include any telephone number for PETsMART.com and direct the
reader solely to the PETsMART.com Website) so long as the overall objective is
to actually promote online sales.
<PAGE>
2.2 Products Offered. PETsMART.com may sell both PETsMART Products and
products which are not PETsMART Products; provided, however, that PETsMART.com
may not sell products that carry the brand name(s) of PETsMART Competitors, or
are purchased from PETsMART Competitors.
2.3 PETsMART Products To Be Majority Of SKUs. PETsMART.com will make
commercially reasonable efforts to ensure that PETsMART Products constitute the
majority (fifty percent (50%) or more) of SKUs on the PETsMART.com Website
(excluding "Direct From Vendor Shipments"), provided PETsMART makes at least
90% of the products distributed through its PETsMART Catalog Fulfillment Center
or PETsMART Forward Distribution Centers products available to PETsMART.com for
sale on the PETsMART.com Site. For purposes of this Section 2.3, "Direct From
Vendor Shipments" means those product SKUs offered on the PETsMART.com Website
but as a rule shipped from the original manufacturer, or by distributors in
those lines of business where distributors are the norm (e.g., books), directly
to the consumer (i.e., never physically passing through the PETsMART Catalog
Fulfillment Center or any PETsMART Forward Distribution Center). Subject to the
foregoing and to Section 2.2 ("Products Offered"), PETsMART.com will determine
its own product selection and will set its own price for any products that it
sells. In the event that PETsMART does not make 90% of such inventory available
as set forth above, PETsMART.com's obligation to ensure that 50% of its SKUs are
comprised of PETsMART Products shall be reduced in proportion to the amount of
PETsMART's shortfall.
(a) If any such audit shows that PETsMART Products do not constitute
the majority of SKUs on the PETsMART.com Website, the Relationship Managers
shall promptly meet to discuss the reason(s) that the PETsMART Products do not
constitute the majority of SKUs on the PETsMART.com Website, and to develop a
plan for how PETsMART.com can increase the sales of PETsMART Products from the
PETsMART.com Website. The Relationship Managers will meet weekly to exchange
information concerning PETsMART.com's progress against this plan until
PETsMART.com is able to demonstrate that PETsMART Products have, during the
preceding quarter, constituted the majority of SKUs on the PETsMART.com Website.
2.4 PETsMART Online Activities. PETsMART will not market, advertise, or
sell companion-animal-related products online. Notwithstanding the foregoing,
PETsMART:
(a) acknowledges that the R.C. Steele companion-animal-related
products e-commerce business (rcsteele.com) will be operated by PETsMART.com;
(b) may continue to promote and sell equine products online through
its existing e-commerce businesses (e.g., nationalbridle.com and
------------------
statelinetack.com), and such other equine-product e-commerce business(es) as
- -----------------
PETsMART may commence; and
<PAGE>
(c) may promote and sell companion-animal-related products online
directly to businesses (e.g., through any e-commerce business based on its Pet
Professional Direct (formerly known as Groomer Direct) catalog). PETsMART
agrees to take commercially reasonable steps (such as the steps performed in
connection with its business-to-business catalog operations) to confirm that a
business to which it sells products is indeed a business.
(d) As set forth in, and subject to the conditions of, Section 2.2
("PETsMART Activities") of the Merchandising and Distribution Agreement,
PETsMART reserves the right to commence e-commerce businesses as online
representations of its current Pet Professional Direct (formerly Groomer
Direct), Wiese, and National Bridle catalogs. Nothing in this Agreement
precludes PETsMART from providing procurement, distribution and fulfillment,
customer support, third-party website administration, and other services
("Enumerated Services") on an outsourced basis to third parties selling
companion-animal-related products online, (i) so long as such products or
services are not marketed to consumers using the PETsMART trademark and do not
include any PETsMART corporate or private-label brands, (ii) and provided
PETsMART does not provide such Enumerated Services to any online retailer of
companion-animal-related products whose total SKUs of companion-animal-related
products exceeds 30% of its total number of SKUs offered for sale to consumers
under the auspices of its Corporate identity (e.g., PETsMART could not provide
the Enumerated Services to Buy.com if 30% or more of Buy.com's total SKU's
offered to consumers from any Buy.com entity (such as any buy.home.com,
buy.travel.com, buy.books.com) consists of companion-animal-related products);
and (iii) provided PETsMART shall not provide the Enumerated Services to any of
the following direct competitors of PETsMART.com: Pets.com, Petopia.com,
Petstore.com, Allpets.com, Petco.com, Petwarehouse.com, Petplanet.com, and
online grocery stores whose primary business is food (i.e., 90% or more of its
revenues are derived from food sales), such as Webvan.com and Webgrocer.com.
Notwithstanding the foregoing, PETsMART may provide the Enumerated Services to
its existing clients as of the Effective Date of this Agreement. PETsMART
agrees to use reasonable best efforts to assist in introducing any such third
party to PETsMART.com to provide PETsMART.com the opportunity to negotiate with
such party to enter into a relationship with PETsMART.com to integrate the third
party's online offering into the Website. PETsMART also reserves the right to
place online advertisements with third parties to promote its physical retail
locations and/or catalogs.
2.5 No PETsMART.com Catalogs Or Physical Stores. PETsMART.com will not
own or operate, directly or indirectly, any catalogs (other than advertising
catalogues) or physical retail stores which sell companion-animal-related
products, nor will PETsMART.com sell companion-animal-related products for
resale in any catalogs or physical stores operated by third parties.
PETsMART.com reserves the right to place advertisements and/or operate in-store
promotions with third party retail locations and/or catalogs provided such
entities are not PETsMART Competitors and/or whose businesses are not focused on
the supplying of companion-animal products.
<PAGE>
3. Relationship Managers. PETsMART and PETsMART.com will each appoint an
individual to serve as Relationship Manager.
3.1 Identity. The parties' initial Relationship Managers are listed on
Exhibit A ("Relationship Managers") to this Agreement, and each party may change
its Relationship Manager by providing written notice to the other party of the
new Relationship Manager.
3.2 Responsibilities. The Relationship Managers will administer and
coordinate such provisions of this Agreement and any amendments hereto as
specified in this Agreement. Each Relationship Manager will serve as the primary
point of contact for the other party on non-technical matters referenced herein.
The responsibilities of the Relationship Managers include, without limitation,
development of an annual joint marketing plan (which will include detailed plans
regarding co-branding of marketing collateral, affinity programs, mailings, and
additional activities such as joint promotions, information sharing, or special
offers), each party will incur in identifying the costs, implementing such
marketing plan and meeting at least once per quarter thereafter either by
telephone or, if in person, in Arizona or California, to discuss joint marketing
activities pursuant to this Agreement, to identify and resolve any problems and
further to coordinate the joint marketing activities and relationship of the
parties (including, but not limited to, through development and implementation
of subsequent annual joint marketing plans and activities) pursuant to this
Agreement, all with the purpose of cooperation and mutual value creation.
Pricing or cost sharing for these marketing activities will be agreed in advance
through the Relationship Managers.
3.3 Deadlines. The Relationship Managers will develop the first joint
marketing plan by March l, 2000, and will update the joint marketing plan by
March l of each subsequent year during the term of this Agreement.
4. Co-Branding of Marketing Collateral/Specific Placements. PETsMART and
PETsMART.com will co-brand advertising or marketing collateral (exclusive of
PETsMART's catalogs) and will carry out such co-branding placements, dedicating
significant time or space (as applicable) to promote the other's name, products,
and services, as determined by the Relationship Managers, with detailed plans
set forth in the joint marketing plan and subject to the costs set forth
therein.
5. Cross-Promotion. PETsMART and PETsMART.com will engage in such cross-
promotion activities as the following, which activities will be mutually agreed
upon by the parties through their respective Relationship Managers in accord
with the applicable annual joint marketing plans: (i) Online Promotion of
physical PETsMART stores and service through online promotions and links; (ii)
in-store promotion of PETsMART.com using signage, collateral materials and/or
other cross promotional marketing materials; and (iii) affinity programs that
may enable customers of each party to redeem benefits in both retail and online
channels.
<PAGE>
6. Mailing Lists. Each party will manage its own mailing lists and will have
no obligation to provide the other party with direct access to such lists.
However, to the extent permitted by applicable law and as mutually agreed upon
by the parties through their respective Relationship Managers as to the content,
costs and logistics of such mailings, the parties may undertake cross-
promotional mailings to the customers on their respective mailing lists.
Notwithstanding the foregoing, PETsMART will not be obligated to include its
equine business(es), third-party catalog, and/or business to business mailing
lists in cross-promotional mailings on behalf of PETsMART.com.
7. Records and Reports.
7.1 Access to Information. For purposes of merchandise planning, each
party will have access to the other party's movement data, such as individual
product velocities and movement, subject to the confidentiality obligations set
forth below at Section 15 ("Confidential Information").
7.2 Monthly Reports. Within fifteen (15) days after the end of each
month, PETsMART.com will provide PETsMART with a report for that month setting
forth the number of PETsMART Product SKUs sold by PETsMART.com, the revenue from
such sales, and the total number of, and revenue from sales of, all product SKUs
sold by PETsMART.com.
8. Payment.
8.1 Coop Advertising Program Participation. Beginning calendar year 2000,
PETsMART.com shall have the right to participate in PETsMART's coop advertising
program for its vendors, wherein PETsMART promotes the sale of the program
participants in its general advertising and marketing materials ("Coop
Advertising Program").
(a) Payment by PETsMART.com to participate in the Coop Advertising
Program in calendar year 2000. If PETsMART.com elects to participate in the
Coop Advertising Program for calendar year 2000, it shall pay PETsMART [*]
of [*].
(b) Election by PETsMART.com to participate in the Coop Advertising
Program. Beginning PETsMART's fiscal year 2001 and thereafter in each PETsMART
fiscal year of the Term, if PETsMART.com desires to participate in the Coop
Advertising Program it shall adhere to the following procedure:
(i) Within [*] days after the end of the PETsMART fiscal year,
the parties shall mutually agree upon [*] that PETsMART.com must pay
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
PETsMART in order to participate in the Coop Advertising Program for the
following PETsMART fiscal year.
(ii) Within [*] business days after the parties agree upon such
percentage for participation in the program, PETsMART.com shall notify PETsMART
of its desire and intention to participate in the Coop Advertising Program, or
election not to participate, and shall make the applicable payments in accord
with the payment schedule that PETsMART imposes upon the other Coop Advertising
Program participants.
8.2 Credit of Coop Advertising program Revenue by PETsMART to
PETsMART.com. Beginning in PETsMART's fiscal calendar year 2000, PETsMART shall
provide a credit to PETsMART.com on its purchases of merchandise from PETsMART
of Coop Advertising Program participant's merchandise. [*] Such credit will be
given in the month following the month in which coop revenue is received by
PETsMART. Notwithstanding the foregoing, at the end of the fiscal year, PETsMART
may adjust the credit for any month in the immediately preceding fiscal year to
accurately reflect the total coop revenue received.
9. Payment for Marketing Services. Each party will invoice the other for any
services described herein and provided hereunder on or before the [*] day after
the end of the month in which the services were rendered and the invoiced party
shall pay such invoice on or before the tenth day after receipt of such invoice.
10. Taxes.
(a) Indemnity. In the case of the distribution of promotional property
by a party to this Agreement (the "Indemnitee") for the benefit of the other
party to this Agreement (the "Indemnitor") pursuant to the terms of this
Agreement, the Indemnitor shall be liable for, and shall indemnify, defend, and
hold harmless Indemnitee from and against, all "Indemnifiable Taxes," as defined
in this Section 10(a). For the purposes of this Section 10, "Taxes" shall mean
all taxes (other than taxes based on income), fees, duties, and other
governmental charges (including any taxes, fees, duties, or other governmental
charges imposed on a third party that Indemnitee is required to withhold or
collect) and any interest, additions to tax, or penalties related thereto. For
the purposes of this Section 10, "Indemnifiable Taxes" shall mean all Taxes
incurred with respect to the acquisition, holding, or distribution of property
pursuant to this Agreement and all reasonable out-of-pocket attorneys' fees and
other reasonable out-of-pocket expenses, including court costs, associated with
the resolution of any Contest (as defined below) with respect to such Taxes.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
(b) Notice. If Indemnitee is made aware as part of an audit or other
administrative proceeding related to Taxes (a "Contest"), that a taxing
authority is asserting a claim for Indemnifiable Taxes, then Indemnitee shall
promptly notify Indemnitor of such claim in writing.
(c) Control. Indemnitee shall permit Indemnitor, at Indemnitor's own
cost and expense, to control that portion of the Contest related to
Indemnifiable Taxes; provided, however, that Indemnitor's control must not
unreasonably interfere with the remaining portion of the Contest. In the event
that Indemnitor does not reasonably contest the imposition of Taxes on
Indemnitee, Indemnitee may assume control of the portion of the Contest
attributable to Indemnifiable Taxes at Indemnitor's reasonable expense.
Indemnitor may re-assume control of that portion of the Contest related to
Indemnifiable Taxes at any time.
(d) Settlement. Indemnitee shall not settle or otherwise compromise
any portion of a Contest related to Indemnifiable Taxes without the prior
written consent of Indemnitor, which consent shall not be unreasonably withheld.
Indemnitor must inform Indemnitee of all terms of any proposed settlement prior
to settling that portion of the Contest related to Indemnifiable Taxes and, if
Indemnitee objects to Indemnitor entering into such settlement, Indemnitor shall
pay to Indemnitee the amount that would be payable by Indemnitor under this
Section 10 if such settlement were entered into, and upon payment of such
amount, any liability of Indemnitor under this Section 10 shall terminate for
the portion of the Indemnifiable Taxes that would have been settled.
(e) Consistency. Indemnitee shall not take any position that
Indemnifiable Taxes may be due and owing without the prior consent of Indemnitor
which consent may not be unreasonably withheld. Indemnitee shall not take any
action that could result in any taxing authority asserting a claim subject to
indemnification hereunder. For purposes of this Section 10(e), a position or
action shall not be a breach of this section unless such action or position is
(i) part of a course of conduct, (ii) a significantly frequent practice, or
(iii) intentional.
(f) Powers of Attorney. Indemnitee shall execute any powers-of-
attorney or similar documents necessary for Indemnitor to control the portion of
a Contest related to Indemnifiable Taxes.
(g) Information. Indemnitor shall promptly notify Indemnitee of
material developments in that portion of a Contest that is controlled by
Indemnitor.
(h) Cooperation. Indemnitor and Indemnitee shall provide, or cause to
be provided, to each other, the assistance of officers, employees,
representatives and affiliates, or such assistance as may reasonably be
requested by the other party in connection with the portion of the Contest
related to Indemnifiable Taxes. The requesting party shall reimburse the other
party for the reasonable out-of-pocket cost of such other party making the
assistance of such per-
<PAGE>
sons available. The parties shall use reasonable best efforts to make available
persons no longer employed. Indemnitor and Indemnitee shall retain, or cause to
be retained, for so long as any taxable year in which this Agreement is in
effect shall remain open for adjustments, any records or information related to
Indemnifiable Taxes; provided however, that Indemnitee shall not be required to
retain, or cause to be retained, records and information that Indemnitor
maintains in the ordinary course of Indemnitor's operations. Indemnitee shall,
in the case of any particular calendar year, be responsible for costs of
retaining any records or information related to Indemnifiable Taxes for the ten
year period following such calendar year and, thereafter, any such costs shall
be borne equally by each of Indemnitee and Indemnitor. With reasonable notice,
any records or information so retained shall be made available to the requesting
party in a commercially reasonable manner. The requesting party shall reimburse
the other party for such party's reasonable out-of-pocket costs, including
without limitation, copying costs, reasonably incurred in making such records or
information available. In addition, the requesting party shall enter into
reasonable non-disclosure and use agreements that limit the use of the records
and the information contained therein by the requesting party to use only in the
particular Contest.
(i) Non-Compliance. If Indemnitee fails to comply substantially with
any of the provisions set forth in this Section 10, Indemnitor shall be relieved
of any obligation under this Section 10 to the extent of any actual prejudice
suffered by Indemnitor as a result of such failure.
(j) Change of Tax Law. In the event of a "Change in Tax Law", the
parties hereto agree to negotiate in good faith to amend this Section 10, on a
basis consistent with the overall economic substance of this Agreement, to take
into account such Change in Tax Law. For purposes of this Agreement, a "Change
in Tax Law" shall mean any change in or amendment to the laws, treaties,
regulations, or rulings of any relevant taxing jurisdiction which is proposed
and becomes effective on or after the date of this Agreement.
11. Audit Right. Each party will have the right, during normal business hours
and upon at least thirty (30) days' prior notice, to have a nationally
recognized independent accounting firm selected by and reasonably acceptable to
the other party audit the other party's records related to payments due under
this Agreement in order to verify that each party has paid to the other party
the correct amounts due under this Agreement and has complied with Section 2.3
("PETsMART Products to be a Majority of SKUs") and Section 8.1(a), 8.1(b) and
8.2 ("Coop Advertising Program and Payment"). Any such audit will be conducted
at the auditing party's expense and no more than once in any twelve month period
during the term of this Agreement. Any confidential information of the audited
party disclosed to the auditing party or to the independent accounting firm in
the course of the audit will be subject to the confidentiality terms set forth
in Section 15 ("Confidential Information") of this Agreement.
<PAGE>
12. Late Payment. Each party will pay interest on late payments at the rate of
one and one half percent (1.5%) per month or the highest interest rate allowed,
whichever is lower.
13. Warranty. Each party warrants (a) that all advertising and promotional
material created by it or on its behalf and distributed pursuant to this
Agreement will not (i) infringe on any third party's copyright, patent,
trademark, trade secret or other proprietary rights, or right of publicity or
privacy; (ii) be defamatory or trade libelous; (iii) be pornographic or obscene;
or (iv) contain viruses, Trojan horses, time bombs, cancelbots or other similar
harmful or deleterious programming routines; and (b) that its activities
hereunder on behalf of the other party will not violate any law, statute,
ordinance or regulation, including (without limitation) laws against spamming
and laws relating to privacy of consumer information.
14. Indemnity.
14.1 Mutual Indemnity. Subject to the provisions of Section 10 ("Taxes")
above, in the event that any third-party claim, action, suit or proceeding
arises resulting from a party's acts, omissions or misrepresentations under this
Agreement (including, without limitation, breach of the warranty contained in
Section 13 ("Warranty")), that party (the "Indemnifying Party") shall defend and
hold harmless the other party (the "Indemnified Party") against any such claim,
action, suit or proceeding. Subject to Section 14.2 ("Mechanics of Indemnity"),
the Indemnifying Party shall indemnify the Indemnified Party for all losses,
damages, liabilities and all reasonable expenses and costs incurred by the
Indemnified Party as a result of a final judgment entered against the
Indemnified Party in any such claim, action, suit or proceeding.
14.2 Mechanics of Indemnity. The Indemnifying Party's obligations are
conditioned upon the Indemnified Party (a) giving the Indemnifying Party prompt
written notice of any claim, action, suit or proceeding for which the
Indemnified Party is seeking indemnity; (b) granting control of the defense and
settlement to the Indemnifying Party; and (c) reasonably cooperating with the
Indemnifying Party at the Indemnifying Party's expense.
15. Confidential Information.
15.1 Disclosure Of Confidential Information. Each party (the "Disclosing
Party") may from time to time during the term of this Agreement disclose to the
other party (the "Receiving Party") certain information regarding the Disclosing
Party's business, including technical, marketing, financial, employees,
planning, and other confidential or proprietary information ("Confidential
Information"). The Disclosing Party will mark all Confidential Information in
tangible form as "confidential" or "proprietary" or with a similar legend. The
Disclosing Party will identify all Confidential Information disclosed orally as
confidential at the time of disclosure and provide a written summary of such
Confidential Information to the Receiving Party within thirty (30) days after
such oral disclosure. Regardless of whether so marked or identified, how-
<PAGE>
ever, any information that the Receiving Party knew or should have known, under
the circumstances, was considered confidential or proprietary by the Disclosing
Party, will be considered Confidential Information of the Disclosing Party.
15.2 Protection of Confidential Information. The Receiving Party will not
use any Confidential Information of the Disclosing Party for any purpose not
expressly permitted by this Agreement, and will disclose the Confidential
Information of the Disclosing Party only to those employees or contractors of
the Receiving Party who have a need to know such Confidential Information for
purposes of this Agreement and who are under a duty of confidentiality no less
restrictive than the Receiving Party's duty hereunder. The Receiving Party will
protect the Disclosing Party's Confidential Information from unauthorized use,
access, or disclosure in the same manner as the Receiving Party protects its own
confidential or proprietary information of a similar nature and with no less
than reasonable care.
15.3 Exceptions. The Receiving Party's obligations under Section 15.2
("Protection of Confidential Information") with respect to any Confidential
Information of the Disclosing Party will terminate if and when the Receiving
Party can document that such information: (a) was already known to the Receiving
Party at the time of disclosure by the Disclosing Party; (b) was disclosed to
the Receiving Party by a third party who had the right to make such disclosure
without any confidentiality restrictions; (c) is or through no fault of the
Receiving Party has become generally available to the public; or (d) is
independently developed by the Receiving Party without access to, or use of, the
Disclosing Party's Confidential Information. In addition, the Receiving Party
will be allowed to disclose Confidential Information of the Disclosing Party to
the extent that such disclosure is (i) approved in writing by the Disclosing
Party, (ii) necessary for the Receiving Party to enforce its rights under this
Agreement in connection with a legal proceeding; or (iii) required by law or by
the order of a court or similar judicial or administrative body, provided that
the Receiving Party notifies the Disclosing Party of such required disclosure
promptly and in writing and cooperates with the Disclosing Party, at the
Disclosing Party's reasonable request and expense, in any lawful action to
contest or limit the scope of such required disclosure.
15.4 Return of Confidential Information. The Receiving Party will return
to the Disclosing Party or destroy all Confidential Information of the
Disclosing Party in the Receiving Party's possession or control promptly upon
the written request of the Disclosing Party on the earlier of the expiration or
termination of this Agreement. At the Disclosing Party's request, the Receiving
Party will certify in writing that it has fully complied with its obligations
under this Section 15.
15.5 Confidentiality of Agreement. Neither party will disclose any
financial or payment terms of the Agreement to anyone other than its attorneys,
accountants and other professional advisors under a duty of confidentiality
except as required by law, pursuant to a mutually
<PAGE>
agreeable press release, or in connection with a proposed merger, financing or
sale of such party's business, provided that any third party to whom the terms
of this Agreement are to be disclosed signs a confidentiality agreement
reasonably satisfactory to the other party to this Agreement.
16. Dispute Resolution. PETsMART and PETsMART.com are implementing this
Agreement in good faith. However, should either party believe that the other
party is in breach of this Agreement, the parties shall attempt in good faith to
resolve any dispute arising out of or relating thereto promptly by negotiations.
All negotiations at all levels pursuant to this Section 16 are confidential and
shall be treated as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence and state rules of evidence. Each party shall bear
its own expenses.
16.1 Notice And Cure. Either party may give the other party written notice
of any breach. The party so notified shall then have thirty (30) days to cure
the breach. If the party so notified does not effect a cure to the notifying
party's satisfaction, the Relationship Managers shall, within the following
fifteen (15) days, confer in good faith for the purpose of satisfactorily
resolving the breach. In the event that the Relationship Managers are unable to
resolve the dispute within the following fifteen (15) days, the Chief Executive
Officers of the parties shall, within the next fifteen (15) day period, confer
in good faith for the purposes of satisfactorily resolving the breach.
16.2 Mediation. If a resolution satisfactory to the notifying party is not
achieved within the above thirty-day period, the parties agree promptly to
submit the dispute to a non-binding one-day mediation session held in San
Francisco, California through Judicial Arbitration & Mediation
Services/Endispute, Inc. ("JAMS"), under the then-existing JAMS Rules of
Practice and Procedure, by a mediator jointly selected by the parties or, if no
agreement can be promptly reached on the selection of a mediator, then by a
mediator selected through the procedures for selecting a mediator set forth in
such rules. The mediation session shall take place no later than thirty (30)
days from the appointment of a mediator. If the mediation is unsuccessful in
resolving the dispute, either party may then take whatever actions it deems
appropriate, including, without limitation, seeking judicial relief, and/or
terminating this Agreement.
16.3 Arbitration. PETsMART and PETsMART.com are implementing this Agreement
in good faith. However, should either party believe that the other party is in
breach of this Agreement, the parties shall attempt in good faith to resolve any
dispute arising out of or relating thereto promptly by negotiations. All
negotiations at all levels pursuant to this Section 16 are confidential and
shall be treated as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence and state rules of evidence. Each party shall bear
its own expenses in connection with such negotiations.
<PAGE>
(a) Arbitrators. No later than March 15, 2000, the parties will
jointly select a list of at least three, and no more than six, arbitrators (the
"Panel") from whom arbitrator(s) shall be selected to resolve any disputes.
(b) In General. If a resolution satisfactory to the Non-Breaching
Party is not achieved pursuant to Section 16.2, the parties agree promptly to
submit the dispute to binding arbitration before an arbitrator selected from the
Panel, such arbitration to be held in the city of the defending party's home
offices under the then-existing rules for commercial disputes of the American
Arbitration Association. Each party irrevocably submits to the jurisdiction and
venue set forth in this Section 16.3.
17. Term and Termination.
17.1 Term. The initial term shall commence on the Effective Date of this
Agreement, and, unless earlier terminated, shall expire on the fifth anniversary
of the Effective Date of this Agreement (the "Initial Term") and shall
thereafter automatically continue for two successive one-year terms unless
either party provides notice of non-renewal at least sixty (60) days before the
expiration of the then-current term (which may be the Term or a successor term).
This Agreement shall automatically expire on the final day of the second renewal
term.
17.2 Termination for Breach. Either party shall have the right to
terminate this Agreement in the event the other party materially breaches any
term of this Agreement and fails to cure such breach in the course of the
dispute resolution procedures set forth above at Section 16 ("Dispute
Resolution").
17.3 Effect of Termination.
(a) Survival. Sections l ("Definitions"), 13 ("Warranty"), 14
("Indemnity"), 15 ("Confidential Information"), 16 ("Dispute Resolution"), 17
("Term and Termination"), and 18 ("General Provisions") shall survive
termination of this Agreement.
(b) Return of Marketing Material. If, upon the expiration or
termination of this Agreement for any reason, either party to this Agreement is
in possession of marketing material of the other party as a result of the joint
marketing and other activities undertaken pursuant to this Agreement, such
material shall be returned to the applicable party within ten (10) business days
following such expiration or termination.
18. General Provisions.
18.1 Governing Law and Venue. This Agreement will be governed and
construed in accordance with the laws of the State of California as applied to
contracts between California
<PAGE>
residents performed entirely within California without giving effect to
principles of conflicts of laws.
18.2 Force Majeure. Any party's delay in the performance of any duties or
obligations under this Agreement (except the payment of money owed) will not be
considered a breach of this Agreement if such delay is caused by a labor
dispute, shortage of materials, fire, earthquake, flood or any other event
beyond the control of the party, provided that the party uses reasonable
efforts, under the circumstances, (a) to notify the other party of the
circumstances causing the delay and (b) to resume performance as soon as
possible.
18.3 Notices. Any notices given under this Agreement shall be in writing
and shall be delivered to the addresses set forth below the signatures of the
parties or at such other address as the party shall specify in writing. Notices
shall be deemed effectively given: (a) upon five (5) days after being sent by
certified or registered mail, postage prepaid, return receipt requested; (b)
upon the next business day after being sent overnight by U.S. Express Mail or by
a major U.S. express document courier; or (c) upon receipt of confirmation
following transmission by a facsimile machine.
18.4 Subcontracting. Each party may perform its obligations pursuant to
Section 6 ("Mailing Lists") through the use of independent contractors;
provided, however, that neither party shall be relieved of its obligations under
this Agreement by the use of such contractors.
18.5 No Assignment. Either party to this Agreement may assign this
Agreement to a successor entity in the event of a merger or other reorganization
in which it is not the survivor or to a third party which purchases all or
substantially all of its assets. Except as set forth above at Section 18.4
("Subcontracting"), neither party can assign its rights or delegate its
obligations without the prior written consent of the other party in its sole
discretion. Any assignment or delegation in violation of this Section shall be
void and of no effect. No assignment or delegation pursuant to this Section
will expand the rights or obligations of the parties.
18.6 Severability; Waiver. If any provision of this Agreement is held to
be invalid or unenforceable for any reason, the remaining provisions will
continue in full force and effect without being impaired or invalidated in any
way. The parties agree to replace any invalid provision with a valid provision
which most closely approximates the intent and economic effect of the invalid
provision. The waiver by any party of a breach of any provision of this
Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach.
18.7 Headings. Headings used in this Agreement are for reference purposes
only and in no way define, limit, construe or describe the scope, intent, or
extent of the section or in any way affect this Agreement.
<PAGE>
18.8 Independent Contractors; No Agency. The parties to this Agreement are
independent contractors, and no agency, partnership, joint venture, or employee-
employer is intended or created by this Agreement. Neither party is the agent
of the other, and neither party shall have the power to obligate or bind the
other party. Personnel supplied by each party shall work exclusively for that
party, and shall not, for any purpose, be considered employees or agents of the
other party, and each party assumes full responsibility for the acts of
personnel supplied by it while performing services hereunder and, with regard to
any personnel supplied by it, each party shall be solely responsible for their
supervision, direction and control, compensation, benefits, and taxes.
18.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be taken together and deemed to be one instrument.
18.10 Entire Agreement. This Agreement, including the Exhibits attached
hereto, sets forth the entire understanding and agreement between the parties
regarding the subject matter of this Agreement, and supersedes any and all oral
or written agreements or understandings between the parties as to that subject
matter. It may changed only by a writing signed by both parties. Neither party
is relying upon any warranties, representations, assurances, or inducements not
expressly set forth herein.
In Witness Whereof, each of the parties hereto have executed this Agreement
as of the date first written above.
PETsMART.com: PETsMART:
/s/ Tom McGovern /s/ Philip L. Francis
- ---------------- ----------------------------
By: Tom McGovern By: Philip L. Francis
Title: President and Chief Title: President and CEO
Executive Officer Address: 19601 North 27th Ave.
Address: 35 Hugus Alley, Suite 210 Phoenix, AZ 85207
Pasadena, CA 91103 Fax: (623) 580-6513
Fax: (626) 817-7101
List of Exhibits:
A - Relationship Managers
<PAGE>
Relationship Managers
PETsMART, Inc. - Mr. Ken Banks
PETsMART.com, Inc. - Mr. Michael Houlahan
<PAGE>
EXHIBIT 10.27
PETsMART.com JOINT MARKETING PLAN
YEAR 2000 PLANS
1. Scope. In accordance with the Marketing Agreement between PETsMART, Inc.
(PETsMART) and PETsMART.com, Inc. (PETsMART.com), this plan outlines the
specific plans to promote PETsMART.com in PETsMART's advertising, promotional
materials and its stores.
2. Co-Branding of Marketing Collateral. For the fees set forth below in
Section 5 ("Payment"), PETsMART will co-brand all advertising or marketing
collateral (exclusive of PETsMART's catalogs), dedicating significant time or
space (as applicable) to promote PETsMART.com's name, products, and services as
follows:
2.1 PETsMART will use reasonable efforts to ensure that the PETsMART.com
URL is prominently mentioned in:
. in each print advertisement placed by or on behalf of PETsMART;
. in each pay or free television spot advertisement of [*] or more;
. all in-store and/or catalog cash register receipts for [*] per year;
. in-store collateral and signage for [*] per year.
2.2 PETsMART will use it's reasonable efforts to ensure that PETsMART.com
is allowed:
. to place a marketing message on the PETsMART store shopping bags for [*]
per year. During such time PETsMART.com will be the exclusive
advertiser on the bags;
. to use [*] page of advertising copy (including graphics) for PETsMART.com
messages in freestanding newspaper advertising inserts for [*] printings
(at PETsMART.com's choice). Such freestanding advertising inserts must be
at least [*] page in size for this provision to apply.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
3. Cross-Promotion. For the fees set forth below in Section 5 ("Payment"),
and more specifically, in Section 5.2 ("Payment For Cross-Promotion"), PETsMART
and PETsMART.com will engage in the following cross-promotional activities:
3.1 PETsMART will provide PETsMART.com with access and ability, as
necessary, to run in-store promotions in the PETsMART retail stores for the
PETsMART.com Website (e.g., to distribute collateral, host contents, etc.), in
all current and future PETsMART retail store locations (not including any retail
stores operated by PETsMART under a different brand (e.g., "Sporting Dog")).
3.2 PETsMART will provide in-store assistance in execution, set-up and
distribution of the PETsMART.com marketing material.
4. Affinity Programs. For the fees set forth below in Section 5 ("Payment"),
PETsMART and PETsMART.com will develop shared customer benefits and customer
loyalty programs, which shall include the ability by customers to redeem
benefits in both retail and online channels. Allocation of costs for
administering the programs (as opposed to development of the programs) will be
determined by the Relationship Managers, with the intention of allocating costs
in proportion to the value received by each party.
5. Payment.
5.1 In consideration of the above services, PETsMART.com will pay PETsMART
[*] payable in accordance with Section 9 of the marketing agreement.
5.2 Payment for Cross-Promotion. PETsMART.com shall bear the cost of
[*] related to in-store cross-promotions. In the event that PETsMART pays
expenses on behalf of PETsMART.com in connection with such cross-promotion
activity, PETsMART.com shall reimburse PETsMART [*] which PETsMART.com shall pay
in accordance with Section 9 of the Marketing Agreement.
6. Annual Renewal. The terms of this annual plan remain in effect in
subsequent years until the Relationship Managers agree the successive plan to in
writing.
AGREED AND ACCEPTED
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
PETsMART.com PETsMART
Relationship Manager: Relationship Manager:
/s/ Michael Houlahan /s/ Ken Banks
- --------------------------- ------------------------------
By: Michael Houlahan By: Ken Banks
Title: Title:
Add: 35 Hugus Alley, Suite 210 Add: 19601 North 27th Avenue
Pasadena, CA 91103 Phoenix, AZ 85207
Fax: (626) 817-7101 Fax: (623) 580-6513
<PAGE>
EXHIBIT 10.28
PETsMART JOINT MARKETING PLAN
YEAR 2000 PLANS
1. Scope. In accordance with the Marketing Agreement between PETsMART, Inc.
(PETsMART) and PETsMART.com, Inc. (PETsMART.com), this plan outlines the
specific plans to promote PETsMART in PETsMART.com's advertising, promotional
materials and its website.
2. Online Co-Branding. For the fees set forth below in Section 5 ("Payment"),
PETsMART.com will ensure that PETsMART stores are prominently mentioned
throughout the PETsMART.com Website. Without limiting the foregoing, PETsMART
and PETsMART.com agree to the following specific advertising guidelines:
a. Retail Stores Trailer. PETsMART.com will provide superimposed text
with an advertising message about PETsMART retail stores in [*];
b. Store Locator. PETsMART.com will provide an on-line store locator that
will be accessible directly from the site's home page (Note: maintenance of the
locations and cost of third party mapping software such as mapquest will be the
responsibility and cost of PETsMART stores.); and
c. On-site Promotion of PETsMART Stores. PETsMART.com will provide
PETsMART's retail stores with prominent presence throughout the Website;
including making available access of systems to dispense store coupons (system
and maintenance is PETsMART's responsibility).
3. Package. Subject to PETsMART.com's [*] pursuant to the Distribution And
Fulfillment Agreement.
4. Affinity Programs. For the fees set forth below in Section 5 ("Payment"),
PETsMART and PETsMART.com will develop shared customer benefits and customer
loyalty programs, which shall include the ability by customers to redeem
benefits in both retail and online channels. Allocation of costs for
administering the programs (as opposed to development of the programs) will be
determined by the Relationship Managers, with the intention of allocating costs
in proportion to the value received by each party.
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
5. Payment.
5.1 In consideration of the above services, PETsMART will pay PETsMART.com
[*] payable in accordance with Section 9 of the Marketing Agreement.
6. Annual Renewal. The terms of this annual plan remain in effect in
subsequent years until the Relationship Managers agree the successive plan to in
writing.
AGREED AND ACCEPTED
PETsMART.com PETsMART
Relationship Manager: Relationship Manager:
/s/ Michael Houlahan /s/ Ken Banks
- ------------------------------- -------------------------------
By: Michael Houlahan By: Ken Banks
Title: Title:
Add: 35 Hugus Alley, Suite 210 Add: 19601 North 27th Avenue
Pasadena, CA 91103 Phoenix, AZ 85207
Fax: (626) 817-7101 Fax: (623) 580-6513
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.29
WEB AND CONTENT HOSTING AGREEMENT
This Web And Content Hosting Agreement (the "Agreement") is made
effective as of the 31/st/ day of December, 1999 (the "Effective Date"), by and
between PETsMART, Inc., a Delaware corporation having its address at 19601 N.
27th Avenue, Phoenix, AZ 85027, and its affiliates ("PETsMART") and
PETsMART.com, Inc., a Delaware corporation having its address at 35 Hugus Alley,
Suite 210, Pasadena, CA 91103 ("PETsMART.com").
Recitals
A. PETsMART wishes to make available PETsMART information online via an e-
commerce website to be operated by PETsMART.com.
B. PETsMART desires to engage the services of PETsMART.com to host PETsMART's
non-e-commerce information on the PETsMART.com Website and potentially to host
PETsMART's e-commerce business(es), including State Line Tack
(statelinetack.com).
C. PETsMART and PETsMART.com have previously entered into a Trademark License
Agreement dated May 12, 1999 (the "Trademark Agreement"), pursuant to which
PETsMART will license the use of the PETsMART trademark and the PETsMART.com
domain name to PETsMART.com, and are concurrently entering into a Marketing
Agreement, and a Distribution and Fulfillment Agreement.
Now, Therefore, the parties agree as follows:
1. Definitions.
1.1 "Domain Name" means the domain name "PETsMART.com" and such other
domain name as may be specified by PETsMART from time to time, and, unless
otherwise specified, the domain name "statelinetack.com".
1.2 "Hosting Services" means the services set forth in Section 3
("PETsMART.com Hosting Services").
1.3 "Intellectual Property Rights" means any and all now known or
hereafter known tangible and intangible (a) rights associated with works of
authorship throughout the universe, including but not limited to copyrights,
moral rights, and mask-works, (b) trademark and trade name rights and similar
rights, (c) trade secret rights, (d) patents, designs, algorithms and other
industrial property rights, (e) all other intellectual and industrial property
rights (of every kind and nature throughout the universe and however designated)
(including logos, "rental" rights and rights to remuneration), whether arising
by operation of law, contract, license, or oth-
<PAGE>
erwise, and (f) all registrations, initial applications, renewals, extensions,
continuations, divisions or reissues hereof now or hereafter in force (including
any rights in any of the foregoing).
1.4 "PETsMART Content" means all text, copy, editorial, images, pictures,
sound, graphics, video and other data supplied by PETsMART to PETsMART.com
pursuant to Sections 2.1 ("Delivery of Initial Content"), 3.2(a) ("Hosting of
PETsMART Corporate Content and PETsMART Additional Content"), or 3.3(a)
("Hosting of PETsMART E-Commerce Websites"), as such materials may be modified
from time to time. "PETsMART Content" specifically includes "PETsMART Corporate
Content" and "PETsMART Additional Content", as defined below, as well as content
related to PETsMART's operation of the PETsMART E-Commerce Websites as hosted by
PETsMART.com. "PETsMART Content" specifically excludes text, pictures, sound,
graphics, video, and other data created by PETsMART.com for use in the online
sale of pet-related products at the PETsMART.com e-commerce website.
(a) "PETsMART Corporate Content" means all PETsMART Content related to
PETsMART's corporate, public relations, recruiting, financial and investor
relations material, public services information, retail store information (such
as addresses, phone numbers and hours of operation), vendor information and
communications, and other related non-e-commerce material.
(b) "PETsMART Additional Content" means all PETsMART Content related
to PETsMART's store-related promotions (including but not limited to store
locator and related information, Humane Society locator information, and
announcements regarding PETsMART charities, including adoption and Pets 911),
store events (including but not limited to announcements promoting adoptions at
the stores, in-store specials, or other events), coupons for in-store
redemption, in-store vet and grooming services (including online booking of vet
and grooming services offered in PETsMART's physical stores), and other
promotional material that PETsMART desires to disseminate via pages on the
PETsMART.com Website.
1.5 "PETsMART E-Commerce Website" means an e-commerce website operated by
PETsMART, and specifically excludes the PETsMART.com E-Commerce Website operated
by PETsMART.com. PETsMART currently operates one PETsMART E-Commerce Website
based on its catalog operations (specifically, statelinetack.com), PETsMART
explicitly reserves the right to commence e-commerce businesses as online
representations of its current Pet Professional Direct (formerly Groomer
Direct), Wiese, and National Bridle catalogs. Nothing in this Agreement
precludes PETsMART from providing procurement, distribution and fulfillment,
customer support, third-party website administration, and other services
("Enumerated Services") on an outsourced basis to third parties selling
companion-animal-related products online, (i) so long as such products or
services are not marketed to consumers using the PETsMART trade mark and do not
include any PETsMART corporate or private-label brands, (ii) and provided
PETsMART does not provide such Enumerated Services to any online retailer of
compan ion-animal-related products whose total SKUs of companion-animal-related
products exceeds 30% of its total number of SKUs offered for sale to consumers
under the auspices of its Corpo-
<PAGE>
rate identity (e.g., PETsMART could not provide the Enumerated Services to
Buy.com if 30% or more of Buy.com's total SKU's offered to consumers from any
Buy.com entity (such as any buy.home.com, buy.travel.com, buy.books.com)
consists of companion-animal-related products; and (iii) provided PETsMART shall
not provide the Enumerated Services to any of the following direct competitors
of PETsMART.com: Pets.com, Petopia.com, Petstore.com, Allpets.com, Petco.com,
Petwarehouse.com, Petplanet.com, and online grocery stores whose primary
business is food (i.e., 90% or more of its revenues are derived from food
sales), such as Webvan.com and Webgrocer.com. Notwithstanding the foregoing,
PETsMART may provide the Enumerated Services to its existing clients as of the
Effective Date of this Agreement. PETsMART agrees to use reasonable best efforts
to assist in introducing any such third party to PETsMART.com to provide
PETsMART.com the opportunity to negotiate with such party to enter into a
relationship with PETsMART.com to integrate the third party's online offering
into the Website. PETsMART also reserves the right to place online
advertisements with third parties to promote its physical retail locations
and/or catalogs.
1.6 "PETsMART Pages" means a designated, prominently identified area
available directly from the home page within the PETsMART.com Website.
1.7 "PETsMART.com Servers" shall mean the PETsMART.com servers and
associated software used by PETsMART.com for the PETsMART.com Website.
1.8 "Property" means the following: (1) that equipment existing as of May
12, 1999 in which PETsMART has invested for the purpose of developing its then-
existing and planned website; (2) any internally developed content or software
incorporated into or used by PETsMART as of May 12, 1999, for developing,
maintaining or running its then-existing or planned website; (3) licenses to
third-party software incorporated into or used by PETsMART as of May 12, 1999,
for developing, maintaining or running its then-existing or planned website; (4)
interest in works by third-party designers and other service contractors
incorporated into or used by PETsMART as of May 12, 1999, for developing,
maintaining or running its then-existing or planned website; (5) all rights in
other PETsMART agreements listed in Exhibit A ("List of Property"); (6) any of
the foregoing related to the R.C. Steele on-line business rcsteele.com
------------
(PETsMART's existing online companion-animal-related e-commerce business); and
(7) a royalty free, non-exclusive worldwide right to use the PETsMART Content on
the PETsMart.com website for the duration of the Trademark Agreement. Without
limiting the foregoing, PETsMART shall retain all liability for any claims
pertaining to debts or obligations that fully accrued prior to May 12, 1999
and/or arising from its license, use and/or other activities prior to May 12,
1999 in connection with the Property before its transfer to PETsMART.com.
1.9 "Website" means the user interface, functionality and content made
available on pages under the Domain Names.
2. PETsMART.com Website Development.
<PAGE>
2.1 Delivery of Initial Content. PETsMART shall deliver to PETsMART.com
all Content that PETsMART intends for and desires PETsMART.com to incorporate
into the PETsMART.com E-Commerce Website (the "Initial Content").
2.2 Development of Websites. PETsMART.com will be responsible for
development (including selection and arrangement of content) of the PETsMART.com
Website. To the extent PETsMART.com desires to apply for additional domain names
or trademarks, that certain Trademark License Agreement (dated on or about May
14, 1999) between PETsMART, Inc. and PETsMART.com, Inc. (in specific, Section
3.4 (Assistance)) shall govern the parties' respective rights and obligations in
connection with such additional applications.
2.3 Approval. PETsMART.com shall submit to PETsMART for its prior
approval all logos and templates that PETsMART.com shall use to present the
products for purchase on the PETsMART.com Website. PETsMART shall have five (5)
business days to reject such logos or templates in its reasonable discretion if
PETsMART believes that the use of such logos or templates does not meet the
standards of quality required by PETsMART. PETsMART shall exercise its approval
rights in good faith, and any request for modification of a submission shall
include an adequate explanation of the reasons for such rejection.
2.4 Server Logs. Upon PETsMART's request (but no more than monthly),
PETsMART.com will deliver to PETsMART in electronic format unprocessed server
logs indicating activity in the PETsMART Pages and PETsMART E-Commerce Website.
3. PETsMART.com Hosting Services.
3.1 General. PETsMART.com will be responsible for procurement of all
additional equipment, software, content, and related maintenance services
necessary in addition to the Property to develop, maintain, or run the
PETsMART.com Websites as PETsMART.com and PETsMART deem appropriate.
3.2 Hosting of PETsMART Corporate Content and PETsMART Additional Content.
PETsMART.com shall provide Hosting Services for the PETsMART Corporate Content
and PETsMART Additional Content on the PETsMART Pages. The Hosting Services
shall include connectivity and hosting of such content on servers provided by
PETsMART.com.
(a) PETsMART will deliver the PETsMART Corporate Content and PETsMART
Additional Content to PETsMART.com in a mutually agreed upon convention digital
format (e.g., word format on disc or by e-mail) and PETsMART.com will make it
available for viewing in the PETsMART Pages, which shall be available directly
from the home page of the PETsMART.com Website.
<PAGE>
(b) PETsMART shall have the right to approve the look and feel as well
as specific presentation and use of the PETsMART Content in the PETsMART Pages;
however, will be controlled by PETsMART; however, PETsMART.com may reformat
such Content as necessary to present it on the PETsMART Pages.
(c) PETsMART.com will assist in execution and ongoing management of
the PETsMART Pages, including, but not limited to, the following: providing
regular maintenance, updating the PETsMART Pages to retain consistency with the
rest of the PETsMART.com Site, as requested by PETsMART, and ensuring that the
PETsMART Pages are maintained at a level of technological sophistication
corresponding to that implemented in the PETsMART.com Website.
3.3 Hosting of PETsMART E-Commerce Websites. At PETsMART's option,
PETsMART.com will provide Hosting Services for the PETsMART E-Commerce Website,
statelinetack.com and, upon mutual agreement, other E-Commerce Websites.
PETsMART shall be solely responsible for maintenance and defense of the
registration of any applicable URL's for such E-Commerce Websites.
(a) PETsMART will deliver the PETsMART Content comprising the PETsMART
E-Commerce Website to PETsMART.com in a format to be mutually agreed upon, or
unless otherwise agreed upon in static html format, and PETsMART.com will host
the Website and make best commercially reasonable efforts to make them available
for viewing at the respective Domain Name(s) as directed by PETsMART.
(b) PETsMART will be responsible for, and will own (as between the
parties) all design, content (including PETsMART Content), and graphic updates
of the PETsMART E-Commerce Website.
(c) PETsMART.com will provide PETsMART with such on-site and remote
access to the PETsMART.com servers (including software) as PETsMART.com has from
its third party server provider, and as required by PETsMART for operation of
the PETsMART E-Commerce Website, and will ensure that PETsMART.com's services
meet the standards set in Section 7 ("Service Standards").
3.4 PETsMART License. During the period that PETsMART.com provides
Hosting Services pursuant to this Section 3, PETsMART hereby grants to
PETsMART.com a non-exclusive, non-sublicenseable, royalty-free, worldwide
license to reproduce, distribute, publicly perform, publicly display and
digitally perform the PETsMART Content only on or in conjunction with the
Website for which such PETsMART Content was submitted by PETsMART. PETsMART
grants no rights other than explicitly granted herein, and PETsMART.com shall
not exceed the scope of its license.
<PAGE>
3.5 In the event PETsMART requests PETsMART.com to perform Hosting
Services for other PETsMART E-Commerce Websites, the parties shall negotiate in
good faith the terms and conditions for such hosting services, fees for which
shall be on an activity based costing basis.
4. Payment and Consideration.
4.1 Transfer of Property: Assignment and Cooperation.
(a) Assignment. To the extent that it is able to do so under all
applicable contracts PETsMART hereby assigns the Property to PETsMART.com. If
PETsMART is unable to transfer or assign to PETsMART.com the rights to any
Property described in (3), (4), (5), or (6) of Section 1.8 ("Property") above,
then PETsMART will sublicense such Property to PETsMART.com on an exclusive or
non-exclusive basis to the extent that it is able to do so under the applicable
contract. A list of the Property is set forth in Exhibit A (" List of
Property") to this Agreement.
(b) Cooperation. PETsMART will take all steps reasonably necessary to
effect the transfer of the Property to PETsMART.com and upon its reasonable
request, including but not limited to executing an assignment of copyright for
any copyrights owned by PETsMART in the Property.
4.2 Payment for Hosting Services for PETsMART Corporate Content And
PETsMART Additional Content. In consideration of the transfer and assignment
set forth in Section 4.1(a), PETsMART.com shall bear the cost of Hosting
Services related to hosting of PETsMART Corporate Content and PETsMART Pages.
PETsMART.com shall also bear the cost of Hosting Services related to hosting of
PETsMART Additional Content as mutually agreed upon.
4.3 Payment for Hosting E-commerce Website. If PETsMART chooses to use
PETsMART.com to host a PETsMART E-Commerce Website, then in consideration of the
hosting services provided for the PETsMART E-commerce Website, PETsMART shall
pay PETsMART.com the hosting fee and connectivity fee based upon PETsMART.com's
activity based costs. PETsMART.com's cost is intended to reflect the fully
loaded actual cost of connectivity and hosting (cost of servers and applicable
software license fee(s)).
4.4 Timing Of Payment of Hosting Fees. If applicable, PETsMART.com will
invoice PETsMART for E-Commerce Website Hosting services described herein and
provided hereunder on or before the tenth (10/th/) day after the end of each
month for PETsMART.com's cost, and PETsMART shall pay such invoice on or before
the tenth day after receipt of such invoice.
<PAGE>
5. Taxes.
(a) Indemnity. PETsMART shall be liable for, and shall indemnify,
defend, and hold harmless PETsMART.com from and against, all "Indemnifiable
Taxes," as defined in this Section 5(a). For the purposes of this Section 5,
"Taxes" shall mean all taxes (other than taxes based on PETsMART.com's income),
fees, duties, and other governmental charges (including any taxes, fees, duties,
or other governmental charges imposed on a third party that PETsMART.com is
required to withhold or collect) and any interest, additions to tax, or
penalties related thereto. For the purposes of this Section 5, "Indemnifiable
Taxes" shall mean all Taxes incurred with respect to goods or services provided
by either PETsMART.com or PETsMART pursuant to this Agreement and all reasonable
out-of-pocket attorneys' fees and other reasonable out-of-pocket expenses,
including court costs, associated with the resolution of any Contest (as defined
below) with respect to such Taxes.
(b) Notice. If PETsMART.com is made aware as part of an audit or
other administrative proceeding related to Taxes (a "Contest"), that a taxing
authority is asserting a claim for Indemnifiable Taxes, then PETsMART.com shall
promptly notify PETsMART of such claim in writing.
(c) Control. PETsMART.com shall permit PETsMART, at PETsMART's own
cost and expense, to control that portion of the Contest related to
Indemnifiable Taxes; provided, however, that PETsMART's control must not
unreasonably interfere with the remaining portion of the Contest. In the event
that PETsMART does not reasonably contest the imposition of Taxes on
PETsMART.com, PETsMART.com may assume control of the portion of the Contest
attributable to Indemnifiable Taxes at PETsMART's reasonable expense. PETsMART
may re-assume control of that portion of the Contest related to Indemnifiable
Taxes at any time.
(d) Settlement. PETsMART.com shall not settle or otherwise compromise
any portion of a Contest related to Indemnifiable Taxes without the prior
written consent of PETsMART, which consent shall not be unreasonably withheld.
PETsMART must inform PETsMART.com of all terms of any proposed settlement prior
to settling that portion of the Contest related to Indemnifiable Taxes and, if
PETsMART.com objects to PETsMART entering into such settlement, PETsMART shall
pay to PETsMART.com the amount that would be payable by PETsMART under this
Section 5 if such settlement were entered into, and upon payment of such amount,
any liability of PETsMART under this Section 5 shall terminate for the portion
of the Indemnifiable Taxes that would have been settled.
(e) Consistency. PETsMART.com shall not take any position that
Indemnifiable Taxes may be due and owing without the prior consent of PETsMART
which consent may not be unreasonably withheld. PETsMART.com shall not take any
action that could result in any taxing authority asserting a claim subject to
indemnification hereunder. For purposes of this section 5(e), a position or
action shall not be a breach of this section unless such action or position is
(i) part of a course of conduct, (ii) a significantly frequent practice, or
(iii) intentional.
<PAGE>
(f) Powers of Attorney. PETsMART.com shall execute any powers-of-
attorney or similar documents necessary for PETsMART to control the portion of a
Contest related to Indemnifiable Taxes.
(g) Information. PETsMART shall promptly notify PETsMART.com of
material developments in that portion of a Contest that is controlled by
PETsMART.
(h) Cooperation. PETsMART and PETsMART.com shall provide, or cause to
be provided, to each other, the assistance of officers, employees,
representatives and affiliates, or such assistance as may reasonably be
requested by the other party in connection with the portion of the Contest
related to Indemnifiable Taxes. The requesting party shall reimburse the other
party for the reasonable out-of-pocket cost of such other party making the
assistance of such persons available. The parties shall use reasonable best
efforts to make available persons no longer employed. PETsMART and PETsMART.com
shall retain, or cause to be retained, for so long as any taxable year in which
this Agreement is in effect shall remain open for adjustments, any records or
information related to Indemnifiable Taxes; provided however, that PETsMART.com
shall not be required to retain, or cause to be retained, records and
information that PETsMART maintains in the ordinary course of PETsMART's
operations. PETsMART.com shall, in the case of any particular calendar year, be
responsible for costs of retaining any records or information related to
Indemnifiable Taxes for the ten year period following such calendar year and,
thereafter, any such costs shall be borne equally by each of PETsMART.com and
PETsMART. With reasonable notice, any records or information so retained shall
be made available to the requesting party in a commercially reasonable manner.
The requesting party shall reimburse the other party for such party's reasonable
out-of-pocket costs, including without limitation, copying costs, reasonably
incurred in making such records or information available. In addition, the
requesting party shall enter into reasonable non-disclosure and use agreements
that limit the use of the records and the information contained therein by the
requesting party to use only in the particular Contest.
(i) Non-Compliance. If PETsMART.com fails to comply substantially
with any of the provisions set forth in this Section 5, PETsMART shall be
relieved of any obligation under this Section 5 to the extent of any actual
prejudice suffered by PETsMART as a result of such failure.
6. Late Payment. Each party will pay interest on late payments at the rate of
one and one-half percent (1.5%) per month or the highest interest rate allowed,
whichever is lower.
7. Service Standards. The Hosting Services provided by PETsMART.com under
this Agreement will meet or exceed the service level generally provided by the
top twenty-five percent (25%) of e-commerce websites, and, without limiting the
foregoing, will conform to these standards that PETsMART.com adheres to in the
operation of the PETsMART.com Website.
<PAGE>
7.1 Site Backup. PETsMART.com shall make best commercially reasonable
efforts to maintain at its expense a complete and current copy of the Websites
on a server located at a remote location. In the event that service is
interrupted to the Websites, and to the extent it is reasonably possible the
remote server shall be immediately activated so that public access to the
Websites continues without interruption. PETsMART.com shall make best
commercially reasonable efforts to compile a complete backup at least daily.
7.2 Availability of Web Sites. The Websites shall be publicly available
to users a minimum of 99% of the time during any 24 hour period, 99% of the time
during any thirty day period; and 99% of the time during any 30 day period and
there will be no period of interruption in public accessibility to the Websites
that exceeds 4 continuous hours (except for reasonably scheduled necessary
maintenance and temporary outages caused by circumstances beyond PETsMART.com's
control).
7.3 Response Time. The mean response time for server response to all
accesses to the Websites shall not exceed more than six seconds during any 1
hour period.
7.4 Bandwidth. The bandwidth representing the Websites' connection to the
Internet shall be sufficient to prevent any user material delays from accessing
the Websites or viewing or retrieving items or content therefrom.
7.5 Security. PETsMART.com shall make commercially reasonable efforts to
prevent unauthorized access to restricted areas of the Websites and any
databases or other sensitive material generated from or used in conjunction with
the Websites, and PETsMART.com shall promptly notify PETsMART of any known
security breaches or holes and, in the event any unauthorized access occurs,
PETsMART.com shall use its best efforts to detect, identify and eliminate such
unauthorized access as soon as possible and to prevent the reoccurrence thereof.
8. Ownership.
8.1 Ownership of PETsMART Content. As between PETsMART.com and PETsMART,
any PETsMART Content delivered to PETsMART.com by PETsMART, under this Agreement
or otherwise, shall at all times remain the property of PETsMART. PETsMART.com
shall have no rights in such PETsMART Content other than the limited right to
use such content only as required for PETsMART.com to perform in accordance with
this Agreement.
8.2 Ownership of PETsMART.com Website and PETsMART.com Servers. As
between PETsMART.com and PETsMART, the PETsMART.com Website (exclusive of any
PETsMART Content contained therein), and the PETsMART.com Servers shall at all
times remain the property of PETsMART.com or its Licensor(s). PETsMART shall
have no rights in the PETsMART.com Website or the PETsMART.com Servers other
than the right to use the Web-
<PAGE>
site and the PETsMART.com Servers as permitted herein and the rights to the
PETsMART trademarks (including the Domain Name) as set forth in the Trademark
Agreement.
9. Warranties.
9.1 PETsMART Warranties. PETsMART warrants that the PETsMART Content, the
PETsMART Pages and any PETsMART E-commerce Website hosted by PETsMART.com will
not: (a) infringe on the Intellectual Property Rights of any third party or any
rights of publicity or privacy; (b) violate any law, statute, ordinance or
regulation (including without limitation the laws and regulations governing
export control, unfair competition, antidiscrimination or false advertising);
(c) be defamatory, trade libelous, unlawfully threatening or unlawfully
harassing; (d) be obscene, child pornographic or harmful to minors; or (e)
contain any viruses, trojan horses, trap doors, back doors, easter eggs, worms,
time bombs, cancelbots or other computer programming routines that are intended
to damage, detrimentally interfere with, surreptitiously intercept or
expropriate any system, data or personal information.
(a) Breach of Warranties. In the event that the PETsMART content,
and/or the PETsMART pages, and/or the content of the E-commerce Website violate
any of the warranties set forth in Section 9.1, PETsMART.com may remove the
content that is in violation of Section 9.1, and shall provide PETsMART with
concurrent notice of such violation along with notice that the offending content
has been removed.
9.2 PETsMART.com Warranties. PETsMART.com warrants that the Websites,
exclusive of the PETsMART Content and the PETsMART Pages, will not (a) infringe
on the Intellectual Property Rights of any third party or any rights of
publicity or privacy; (b) violate any law, statute, ordinance or regulation
(including without limitation the laws and regulations governing export control,
unfair competition, antidiscrimination or false advertising); (c) be defamatory,
trade libelous, unlawfully threatening or unlawfully harassing; (d) be obscene,
child pornographic or harmful to minors; or (e) contain any viruses, trojan
horses, trap doors, back doors, easter eggs, worms, time bombs, cancelbots or
other computer programming routines that are intended to damage, detrimentally
interfere with, surreptitiously intercept or expropriate any system, data or
personal information.
9.3 Year 2000. PETsMART.com warrants that the PETsMART.com Servers will:
(a) include year 2000 date conversion and compatibility capabilities including,
but not limited to: century recognition; calculations which accommodate same
century and multi-century formulas and date values; correct sort ordering; and
interface values that reflect the century; (b) manage and manipulate data
involving dates, including single century formulas and multi-century formulas,
and will not cause an abnormal abend or abort within the application or result
in the generation of incorrect values or invalid outputs including such duties;
(c) provide that all date-related user interface functionalities and data fields
include the indication of the correct century; and (d) provide that all date-
related system-to-system or application-to-application data interface
functionalities will include the indication of the correct century.
<PAGE>
10. Disclaimer of Warranties. EXCEPT AS SET FORTH HEREIN, EACH PARTY EXPRESSLY
DISCLAIMS ALL WARRANTIES OR CONDITIONS OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE IM PLIED WARRANTIES OF TITLE, NON-
INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11. Limitation on Liability. IN THE EVENT OF A BREACH BY PETsMART.COM OF ITS
OBLIGATIONS TO HOST PETsMART CORPORATE CONTENT AS SET FORTH HEREIN, AND WITHOUT
LIMITING ANY OF PETSMART'S REMEDIES HEREUNDER, PETSMART.COM SHALL BE LIABLE FOR
DIRECT DAMAGES TO PETSMART. NEITHER PARTY SHALL BE LIABLE FOR ANY LOST PROFITS,
NOR ANY SPECIAL, INCIDENTAL, INDIRECT, CONSE QUENTIAL OR EXEMPLARY NOR PUNITIVE
DAMAGES ARISING FROM THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
12. Indemnity.
12.1 PETsMART Indemnity. PETsMART shall defend and hold harmless,
PETsMART.com against any third-party claim, action, suit or proceeding alleging
any breach of the covenants contained in Section 9.1 ("PETsMART Warranties").
Subject to Section 12.3 ("Mechanics Of Indemnity") PETsMART shall indemnify
PETsMART.com for all losses, damages, liabilities and all reasonable expenses
and costs incurred by PETsMART.com arising from any such claim, action, suit or
proceeding.
12.2 PETsMART.com Indemnity. PETsMART.com shall defend and hold harmless,
PETsMART against any third-party claim, action, suit or proceeding resulting
from PETsMART.com's acts, omissions or misrepresentations under this Agreement
(including, without limitation, PETsMART.com's breach of the warranties
contained in Section 9.2 ("PETsMART.com Warranties") and Section 9.3 ("Year
2000")). Subject to Section 12.3 ("Mechanics of Indemnity"), PETsMART.com shall
indemnify PETsMART for all losses, damages, liabilities and all reasonable
expenses and costs incurred by PETsMART arising from any such claim, action,
suit or proceeding.
12.3 Mechanics of Indemnity. The indemnifying party's obligations are
conditioned upon the indemnified party: (a) giving the indemnifying party prompt
written notice of any claim, action, suit or proceeding for which the
indemnified party is seeking indemnity; (b) granting control of the defense and
settlement to the indemnifying party; and (c) reasonably cooperating with the
indemnifying party at the indemnifying party's expense.
13. Confidential Information.
<PAGE>
13.1 Disclosure Of Confidential Information. Each party (the "Disclosing
Party") may from time to time during the term of this Agreement disclose to the
other party (the "Receiving Party") certain information regarding the Disclosing
Party's business, including technical, marketing, financial, employees,
planning, and other confidential or proprietary information ("Confidential
Information"). The Disclosing Party will mark all Confidential Information in
tangible form as "confidential" or "proprietary" or with a similar legend. The
Disclosing Party will identify all Confidential Information disclosed orally as
confidential at the time of disclosure and provide a written summary of such
Confidential Information to the Receiving Party within thirty (30) days after
such oral disclosure. Regardless of whether so marked or identified, however,
any information that the Receiving Party knew or should have known, under the
circumstances, was considered confidential or proprietary by the Disclosing
Party, will be considered Confidential Information of the Disclosing Party.
13.2 Protection of Confidential Information. The Receiving Party will not
use any Confidential Information of the Disclosing Party for any purpose not
expressly permitted by this Agreement, and will disclose the Confidential
Information of the Disclosing Party only to those employees or contractors of
the Receiving Party who have a need to know such Confidential Information for
purposes of this Agreement and who are under a duty of confidentiality no less
restrictive than the Receiving Party's duty hereunder. The Receiving Party will
protect the Disclosing Party's Confidential Information from unauthorized use,
access, or disclosure in the same manner as the Receiving Party protects its own
confidential or proprietary information of a similar nature and with no less
than reasonable care.
13.3 Exceptions. The Receiving Party's obligations under Section 13.2
("Protection of Confidential Information") with respect to any Confidential
Information of the Disclosing Party will terminate if and when the Receiving
Party can document that such information: (a) was already known to the Receiving
Party at the time of disclosure by the Disclosing Party; (b) was disclosed to
the Receiving Party by a third party who had the right to make such disclosure
without any confidentiality restrictions; (c) is or through no fault of the
Receiving Party has become, generally available to the public; or (d) is
independently developed by the Receiving Party without access to, or use of, the
Disclosing Party's Confidential Information. In addition, the Receiving Party
will be allowed to disclose Confidential Information of the Disclosing Party to
the extent that such disclosure is (i) approved in writing by the Disclosing
Party, (ii) necessary for the Receiving Party to enforce its rights under this
Agreement in connection with a legal proceeding; or (iii) required by law or by
the order of a court or similar judicial or administrative body, provided that
the Receiving Party notifies the Disclosing Party of such required disclosure
promptly and in writing and cooperates with the Disclosing Party, at the
Disclosing Party's reasonable request and expense, in any lawful action to
contest or limit the scope of such required disclosure.
13.4 Return of Confidential Information. The Receiving Party will return
to the Disclosing Party or destroy all Confidential Information of the
Disclosing Party in the Receiving
<PAGE>
Party's possession or control promptly upon the written request of the
Disclosing Party on the earlier of the expiration or termination of this
Agreement. At the Disclosing Party's request, the Receiving Party will certify
in writing that it has fully complied with its obligations under this Section.
13.5 Confidentiality of Agreement. Neither party will disclose any of the
financial terms of the Agreement to anyone other than its attorneys, accountants
and other professional advisors under a duty of confidentiality except as
required by law, pursuant to a mutually agreeable press release, or in
connection with a proposed merger, financing or sale of such party's business,
provided that any third party to whom the terms of this Agreement are to be
disclosed signs a confidentiality agreement reasonably satisfactory to the other
party to this Agreement.
14. Term and Termination.
14.1 Term. The term of this Agreement is co-extensive with the Trademark
Agreement with respect to hosting of the non-ecommerce PETsMART Content and the
PETsMART Pages, unless this Agreement is earlier terminated by PETsMART for
breach pursuant to Section 14.2 ("Termination for Breach"). The term of this
Agreement with respect to Web Hosting of any PETsMART E-Commerce Website is five
years, unless this Agreement is earlier terminated by either party for breach
pursuant to Section 14.2 ("Termination for Breach").
14.2 Termination For Breach. With the exception of PETsMART.com's
obligation to host the non-e-commerce PETsMART Content and PETsMART Pages,
either party may terminate this Agreement if the other party is in material
breach of the Agreement. With respect to the PETsMART Content and the PETsMART
pages, PETsMART.com's sole and exclusive remedy in the event of a breach of
Section 9.1 ("PETsMART Warranties") shall be to remove the offending content as
set forth in Section 9.1(a).
14.3 Transition Services. In the event of termination of this Agreement,
PETsMART.com shall, at PETsMART's request, make commercially reasonable
accommodations to continue to provide the services set forth in this Agreement
for a period of up to 30 days following the date of termination of this
Agreement and will cooperate with PETsMART in order to allow PETsMART to move
the PETsMART E-Commerce Website and the PETsMART Pages to a new host server and
to arrange for a new e-commerce site for the online sale of PETsMART Products.
14.4 Effect of Termination. Sections 1 ("Definitions"), 6 ("Ownership"),
9.1(a) ("Warranties") 12 ("Indemnity"), 13 ("Confidential Information"), 14.4
("Effect of Termination"), and 15 ("General Provisions") shall survive
termination of this Agreement. Except as provided in Section 14.3 ("Transition
Services"), upon the termination of this Agreement for any reason and upon
request by PETsMART at any time, PETsMART.com shall promptly return all PETsMART
Content and copies thereof. Subject to PETsMART.com's obligations pursuant to
Section 14.3 ("Transition Services"), PETsMART.com shall remove all copies of
the
<PAGE>
PETsMART Content from servers within its control and use reasonable efforts to
remove any references to PETsMART or the PETsMART Content from any site which
caches, indexes or links to the Websites.
14.5 Dispute Resolution: E-Commerce Websites. This provision applies only
to any dispute arising out of hosting of PETsMART E-Commerce Websites, and does
not apply to any dispute arising out of hosting of non-e-commerce PETsMART
Content or PETsMART Pages, which shall be governed by the procedure set forth in
Section 14.6 (Other Dispute Resolution). PETsMART and PETsMART.com are
implementing this Agreement in good faith. However, should either party believe
that the other party is in breach of this Agreement, the parties shall attempt
in good faith to resolve any dispute arising out of or relating thereto promptly
by negotiations. All negotiations at all levels pursuant to this Section 14 are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the Federal Rules of Evidence and state rules of evidence. Each
party shall bear its own expenses in connection with such negotiations pursuant
to subsection 14.5(a); expenses in connection with any subsequent litigation
shall be governed by Section 15.11 ("Attorneys' Fees").
(a) Notice and Cure. Except as set forth in 9.1(a), either party (the
"Non-Breaching Party") may give the other party (the "Breaching Party') written
notice of any material breach. The Breaching Party shall then have thirty (30)
days to cure the material breach. If the Breaching Party does not effect a cure
to the Non-Breaching Party's satisfaction, the chief executive officers of the
parties shall, within the following fifteen (15) days, confer in good faith for
the purpose of satisfactorily resolving the material breach.
(b) Arbitration.
(i) Arbitrators. No later than March 15, 2000, the parties will
jointly select a list of at least three, and no more than six, arbitrators (the
"Panel") from whom arbitra tor(s) shall be selected to resolve any disputes.
(ii) In General. If a resolution satisfactory to the Non-
Breaching Party is not achieved within the fifteen-day period set forth in
Section 14.5(a), the parties agree promptly to submit the dispute to binding
arbitration before an arbitrator selected from the Panel, such arbitration to be
held in the city of the defending party's home offices under the then-existing
rules for commercial disputes of the American Arbitration Association. Each
party irrevocably submits to the jurisdiction and venue set forth in this
Section 14.5(b).
14.6 Other Dispute Resolution. This provision applies only to any dispute
arising out of hosting of non-e-commerce PETsMART Content or PETsMART Pages, and
does not apply to any dispute arising out hosting of PETsMART E-Commerce
Websites, which shall be governed by the procedure set forth in Section 14.5
(Dispute Resolution: E-Commerce Websites). PETsMART and PETsMART.com are
implementing this Agreement in good faith. However, should either party believe
that the other party is in breach of this Agreement, the parties shall
<PAGE>
attempt in good faith to resolve any dispute arising out of or relating thereto
promptly by negotiations. All negotiations at all levels pursuant to this
Section 14 are confidential and shall be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence and state rules of
evidence. Each party shall bear its own expenses in connection with such
negotiations or mediations pursuant to this Section 14.6; expenses in connection
with any subsequent litigation shall be governed by Section 15.11 ("Attorneys'
Fees"). In the event of breach relating to hosting of non-e-commerce PETsMART
Content or PETsMART Pages, if such breach is not cured within 30 days of notice
of breach, the chief executive officers of PETsMART and PETsMART.com shall,
within the following 15 days, confer in good faith for the purpose of
satisfactorily resolving the breach. If a satisfactory resolution is not
achieved within said 15 days, the parties agree promptly to submit the dispute
to a non-binding one day mediation session held in San Francisco, California
through Judicial Arbitration & Mediation Services/Endispute, Inc. ("JAMS") under
the then existing JAMS Rules of Practice and Procedure by a mediator mutually
selected by the parties or, if no agreement can be promptly reached on the
selection of a mediator, then by the procedures for selecting a mediator set
forth in such rules. The mediation session shall take place no later than 30
days from the appointment of a mediator. If such mediation is unsuccessful in
resolving the dispute, either party may then take whatever legal actions it
deems appropriate, including, without limitation, seeking judicial relief,
and/or terminating this Agreement (except that PETsMART.com's obligation to host
the non-e-commerce PETsMART Content and PETsMART Pages can be terminated only by
PETsMART).
15. General Provisions.
15.1 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California as applied to contracts
entered into and to be performed entirely within the State of California without
giving effect to principles of conflict of laws.
15.2 Compliance With Laws. PETsMART.com shall ensure that its Website
design and its web hosting services will comply with all applicable
international, national and local laws and regulations.
15.3 Subcontracting. PETsMART.com may perform its obligations through the
use of PETsMART.com-selected independent contractors; provided, however, that
PETsMART.com shall not be relieved of its obligations under this Agreement by
the use of such contractors.
15.4 Severability; Waiver. If any provision of this Agreement is held to
be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated in any way. The
parties agree to replace any invalid provision with a valid provision which most
closely approximates the intent and economic effect of the invalid provision.
The waiver by either party of a breach of any provision of this Agreement will
not operate or be interpreted as a waiver of any other or subsequent breach.
<PAGE>
15.5 Headings. Headings used in this Agreement are for reference purposes
only and in no way define, limit, construe or describe the scope or extent of
such Section or in any way affect this Agreement.
15.6 Assignment and Subcontracting. Except as permitted pursuant to
Section 15.3 ("Subcontracting") and except for sublicensing of trademark rights,
which is governed by the Trademark Agreement, neither party may assign its
rights or delegate its duties without the other party's prior written consent in
such party's sole discretion. Notwithstanding the foregoing, PETsMART may assign
its rights or delegate its duties in connection with PETsMART.com's obligation
to host non-e-commerce PETsMART Content and PETsMART Pages without obtaining
PETsMART.com's prior written consent. The sale, transfer or encumbrance of 51%
or more of the ownership interest in, or voting stock of, a party or the merger
of a party to this Agreement into or with any other third party or entity, shall
be deemed an assignment for purposes of this Section 15.6. Any assignment,
delegation or subcontract in violation of this Section 15.6 shall be void and of
no effect. Subject to the prohibitions against assignment contained herein, this
Agreement shall inure to the benefit of and shall be binding on the parties
hereto and their respective successors and permitted assigns.
15.7 Independent Contractors. The parties to this Agreement are
independent contractors, and no agency, partnership, joint venture or employee-
employer relationship is intended or created by this Agreement. Neither party
is the agent of the other, and neither party shall have the power to obligate or
bind the other party. Personnel supplied by PETsMART.com shall work exclusively
for PETsMART.com and shall not, for any purpose, be considered employees or
agents of PETsMART. PETsMART.com assumes full responsibility for the acts of
such personnel while performing services hereunder and shall be solely
responsible for their supervision, direction and control, compensation, benefits
and taxes.
15.8 Notice. Any notices given under this Agreement shall be in writing
and shall be delivered to the addresses set forth below the signatures of the
parties or at such other address as the party shall specify in writing. Notices
shall be deemed effectively given (a) upon five (5) days following being sent by
certified or registered mail, postage prepaid, return receipt requested; (b)
upon the next business day following being sent by U.S. Express Mail or by a
major U.S. express document courier; or (c) upon receipt of confirmation
following transmission by a facsimile machine.
15.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be taken together and deemed to be one instrument.
15.10 Injunctive Relief. PETsMART.com agrees that PETsMART.com's services
with respect to hosting of non-e-commerce PETsMART Content and the PETsMART
Pages are unique and that PETsMART may suffer irreparable harm in the event of
any breach by PETsMART.com in connection with such services, and that monetary
damages in such event
<PAGE>
would be substantial and inadequate to compensate PETsMART. Consequently,
PETsMART shall be entitled, in addition to such monetary relief as may be
recoverable by law, to such injunctive or other relief as may be necessary to
restrain any threatened, continuing, or further breach by PETsMART.com, without
showing or proving actual damage sustained by PETsMART and without posting a
bond.
15.11 Attorneys' Fees. In the event that either party to this
Agreement shall institute any action to enforce any rights hereunder, the
prevailing party in such action shall be entitled, in addition to any other
relief awarded by the court, to recover its reasonable attorneys' fees and
litigation expenses.
15.12 Entire Agreement. This Agreement, including the Exhibit attached
hereto, sets forth the entire understanding and agreement of the parties
regarding the subject matter of this Agreement, and supersedes any and all oral
or written agreements or understandings between the parties as to that subject
matter. It may be changed only by a writing signed by both parties. Neither
party is relying upon any warranties, representations, assurances or inducements
not expressly set forth herein.
<PAGE>
In Witness Whereof, each of the parties hereto have executed this Agreement
as of the date first written above.
PETsMART.com: PETsMART:
/s/ Tom McGovern /s/ Philip L. Francis
___________________________________ ___________________________________
By: Tom McGovern By: Philip L. Francis
Title: President and CEO Title: President and CEO
Address: 35 Hugus Alley, Suite 101 Address: 19601 North 27/th/ Avenue
Pasadena, CA 91103 Phoenix, AZ 85207
Fax: (626) 817-7101 Fax: (623) 580-6513
<PAGE>
List of Exhibits:
A - List of Property
<PAGE>
EXHIBIT A
---------
PROPERTY LIST
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.30
MERCHANDISING, PROCUREMENT, DISTRIBUTION,
AND FULFILLMENT AGREEMENT
This Merchandising, Procurement, Distribution, and Fulfillment Agree ment
("Agreement") is made effective as of the 31st day of December, 1999 (the
"Effective Date") by and between PETsMART, Inc., a Delaware corporation having
its address at 19601 N. 27th Avenue, Phoenix, AZ 85027, and its affiliates
("PETsMART"), and PETsMART.com, Inc., a Delaware corporation having its address
at 35 Hugus Alley, Suite 210, Pasadena, CA 91103 ("PETsMART.com").
Recitals
A. PETsMART.com wishes to sell companion-animal-related products to consumers
and to make related information available to consumers online via an e-commerce
website to be operated by PETsMART.com.
B. PETsMART.com desires to establish a relationship with PETsMART to provide
procure ment, ordering, distribution and fulfillment services for PETsMART.com's
e-commerce site for the sale of companion-animal-related products to consumers.
C. PETsMART currently operates a catalog fulfillment center near Rochester,
New York, which provides similar services for PETsMART's catalog operations,
R.C. Steele, Pedigrees, Pet Professional Direct (formerly known as Groomer
Direct), National Bridle, State Line Tack, and Wiese, and for PETsMART's
e-commerce websites, statelinetack.com, nationalbridle.com, and Wiese.com.
D. PETsMART.com desires to engage the services of PETsMART to provide such
services in North America in accordance with the provisions and conditions
contained in this Agreement.
E. PETsMART and PETsMART.com have previously entered into a Trademark License
Agreement dated May 12, 1999 (the "Trademark Agreement"), pursuant to which
PETsMART will license the use of the PETsMART trademark and the petsmart.com
domain name to PETsMART.com, and are concurrently entering into a Marketing
Agreement, and a Web and Content Hosting Agreement.
Now, Therefore, the parties agree as follows:
1. Definitions.
1.1 "Anaheim Facility" means the existing facility owned and operated by
PETsMART.com located at 1835 South Lewis Street, Anaheim, California 92805.
<PAGE>
1.2 "Outside Products" means SKUs offered or desired to be offered for
sale by PETsMART.com but which are not Products (i.e., they are neither PETsMART
Products nor PETsMART.com Unique Inventory). "Outside Products" shall not
include products purchased from PETsMART Competitors, products branded with
brands of retail competitors of PETsMART, but may include equine products.
1.3 "PETsMART Catalog Fulfillment Center" means PETsMART's catalog
fulfillment center, located at 1989 Transit Way, Brockport, New York 14420, or
any other catalog fulfillment center operated by PETsMART in the future.
1.4 "PETsMART Competitor" means any national competitive brand (including
pet specialty retailers such as PETCO, grocers such as Safeway, discount chains
such as Wal-Mart, warehouse clubs such as Sam's Club or Price Costco, and the
like, but not including independently operated small boutique brands such as
Three Dog Bakery). "PETsMART Competitor" also includes catalog competitors such
as Doctors Foster & Smith.
1.5 "PETsMART's Cost" means the transfer price for any Product which shall
be calculated at the point of distribution by PETsMART based on PETsMART's fully
loaded cost, in accordance with Exhibit A ("Activity-Based Costing") to this
Agreement. [*]
1.6 "PETsMART Forward Distribution Centers" means PETsMART's distribution
centers other than the PETsMART Catalog Fulfillment Center, whether currently
existing or opened during the Term, that primarily provide deliveries of
consumable products to PETsMART retail stores.
1.7 "PETsMART Products" means any non-equine product then carried by
PETsMART in its retail stores or made available through its existing consumer
catalogs and which PETsMART has the right to sell to PETsMART.com. "PETsMART
Products" includes products sold under national brands, PETsMART's corporate or
private-label brands, and any other brands, but specifically excludes equine
products.
1.8 "PETsMART Non-Catalog Products" means that subset of PETsMART Products
which PETsMART then carries in its retail stores, but does not then make
available through its existing catalogs or its warehouse store at the PETsMART
Catalog Fulfillment Center.
1.9 "PETsMART.com Unique Inventory" means any then-current PETsMART Non-
Catalog Products, and any items that would otherwise be Outside Products but for
the fact that PETsMART agrees to procure, stock, fulfill, distribute, or
otherwise handle such items, intended for sale online by PETsMART.com that are
(at PETsMART.com's request) stocked in inventory by PETsMART for PETsMART.com at
the PETsMART Catalog Fulfillment Center or Forward Distribution Centers.
"PETsMART.com Unique Inventory" shall not include products purchased from or
branded by PETsMART Competitors or equine products. Items currently car-
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
ried at the warehouse store in the PETsMART Catalog Fulfillment Center will not
be deemed PETsMART.com Unique Inventory.
1.10 "Products" means PETsMART Products and PETsMART.com Unique Inventory.
1.11 "SKU" means a stock-keeping unit of any product.
1.12 "Website" means the e-commerce website operated by PETsMART.com at the
petsmart.com domain name.
2. Exclusivity.
2.1 PETsMART.com: Exclusive Online Exemplification Of PETsMART.
PETsMART.com shall be the exclusive online exemplification of PETsMART's
physical stores and PETsMART will not market, advertise, or sell companion-
animal-related products online. Notwithstanding the foregoing, PETsMART:
(a) acknowledges that the R.C. Steele companion-animal-related
products e-commerce business (rcsteele.com) will be operated by PETsMART.com;
(b) may continue to promote and sell equine products online through
its existing e-commerce businesses (e.g., nationalbridle.com and
statelinetack.com), and such other equine-product e-commerce business(es) as
PETsMART may commence; and
(c) may promote and sell companion-animal-related products online
directly to businesses (e.g., through an e-commerce business based on its Pet
Professional Direct (formerly known as Groomer Direct) catalog). PETsMART
agrees to take commercially reasonable steps (such as the steps performed in
connection with its business-to-business catalog operations) to confirm that a
business to which it sells such products is indeed a business.
2.2 PETsMART Activities. PETsMART explicitly reserves the right to
commence e-commerce businesses as online representations of its current Pet
Professional Direct (formerly Groomer Direct), Wiese, and National Bridle
catalogs. Nothing in this Agreement precludes PETsMART from providing
procurement, distribution and fulfillment, customer support, third-party website
administration, and other services ("Enumerated Services") on an outsourced
basis to third parties selling companion-animal-related products online, (i) so
long as such products or services are not marketed to consumers using the
PETsMART trademark and do not include any PETsMART corporate or private-label
brands, (ii) and provided PETsMART does not provide such Enumerated Services to
any online retailer of companion-animal-related products whose total SKUs of
companion-animal-related products exceeds 30% of its total number of SKUs
offered for sale to consumers under the auspices of its Corporate identity
(e.g., PETsMART could not provide the Enumerated Services to Buy.com if 30% or
more of Buy.com's total SKU's offered to consumers from any Buy.com entity (such
as any
<PAGE>
buy.home.com, buy.travel.com, buy.books.com) consists of companion-animal-
related products); and (iii) provided PETsMART shall not provide the Enumerated
Services to any of the following direct competitors of PETsMART.com: Pets.com,
Petopia.com, Petstore.com, Allpets.com, Petco.com, Petwarehouse.com,
Petplanet.com, and online grocery stores whose primary business is food (i.e.,
90% or more of its revenues are derived from food sales), such as Webvan.com and
Webgrocer.com. Notwithstanding the foregoing, PETsMART may provide the
Enumerated Services to its existing clients as of the Effective Date of this
Agreement. PETsMART agrees to use reasonable best efforts to assist in
introducing any such third party to PETsMART.com to provide PETsMART.com the
opportunity to negotiate with such party to enter into a relationship with
PETsMART.com to integrate the third party's online offering into the Website.
PETsMART also reserves the right to place online advertisements with third
parties to promote its physical retail locations and/or catalogs.
2.3 PETsMART: Exclusive Provider To PETsMART.com. PETsMART shall be the
exclusive provider to PETsMART.com of the procurement and distribution services,
and the initial provider of the customer support services, set forth in this
Agreement for PETsMART Products and PETsMART.com Unique Inventory during the
term of this Agreement, subject to the following exceptions:
(a) Drop-Ships. PETsMART.com may arrange for vendor-to-consumer drop
ships of Products where appropriate;
(b) Use of Anaheim Facility. PETsMART.com may ship Products to
customers from the existing PETsMART.com Anaheim Facility;
(c) Shipping of Outside Products. PETsMART.com may ship Outside
Products to its customers using any non-PETsMART facility or method which
PETsMART.com elects, in its sole discretion, to use; and
(d) Shipping of Non-Catalog Product. As may be mutually agreed upon,
PETsMART.com may use PETsMART Forward Distribution Centers to ship PETsMART
Non-Catalog Product.
2.4 Customer Support Services. PETsMART will be the initial provider of
customer support services to PETsMART.com. Notwithstanding the foregoing,
provided that PETsMART.com reimburses PETsMART for direct and actual costs
identified by PETsMART as incurred in connection with providing or preparing to
provide such anticipated services during the Term (including unamortized non-
refundable capital investments and return on capital directly related to such
services), PETsMART.com may, at its sole discretion, obtain from third parties
or itself provide customer support services for Outside Products and
PETsMART.com Unique Inventory instead of using PETsMART for such services.
3. Procurement. During the term of this Agreement, PETsMART will be
PETsMART.com's exclusive source of procurement services (except for Outside
Products).
<PAGE>
3.1 Procurement In General. PETsMART will purchase inventory in
accordance with PETsMART.com's binding sales forecasts pursuant to Section 4.4
("Sales Forecasting") below. PETsMART is only obligated to purchase product in
accordance with PETsMART.com's sales forecasts, and PETsMART.com acknowledges
that the inventory levels sales forecast by PETsMART.com may not always result
in vendor purchase discounts, vendor purchase allowances, volume discounts, or
the like.
3.2 Procurement Of PETsMART Products. PETsMART will procure PETsMART
Products for sale by PETsMART.com in accordance with PETsMART.com's binding
product sales forecasts pursuant to Section 4.4 ("Sales Forecasting") below.
PETsMART will use commercially reasonable efforts to consolidate its orders for
PETsMART Products with PETsMART.com's. Regardless of whether such orders are
consolidated or not, to the extent that it is permitted to do so under its
purchase agreements with individual vendors, PETsMART will obtain for
PETsMART.com purchase terms which are at least as favorable as the most
favorable terms that PETsMART receives from such vendors for its own purchases
of PETsMART Products under similar purchase volumes and circumstances.
3.3 Procurement Of PETsMART.com Unique Inventory. Unless otherwise agreed
by the parties, PETsMART.com must use PETsMART for procurement of any
PETsMART.com Unique Inventory to be held in inventory by PETsMART for
PETsMART.com. PETsMART will procure PETsMART.com Unique Inventory for sale by
PETsMART.com in accordance with PETsMART.com's binding product sales forecasts
pursuant to Section 4.4 ("Forecasting") below.
3.4 Procurement of Outside Products. PETsMART shall have no obligation to
provide procurement services for Outside Products, and PETsMART.com shall be
responsible for all aspects of Outside Products (e.g., ownership, procurement,
shipping, etc.), except for certain customer support services relating thereto
which may be provided by PETsMART hereunder upon prior request by PETsMART.com
as set forth below.
3.5 Procurement of Premiums and Prizes. PETsMART.com may, but shall not
be obliged, to use PETsMART for procurement of prizes and premiums associated
with promotional programs operated by PETsMART.com in which PETsMART is not
involved. Notwithstanding the foregoing, if procurement of such items by
PETsMART.com from a PETsMART source would affect coop or rebate dollars or
percentages, PETsMART.com must use PETsMART for such procurement.
4. Sales Forecasting and Inventory.
PETsMART Products and PETsMART.com Unique Inventory. For a fee calculated
in accordance with Exhibit A ("Activity-Based Costing") to this Agreement,
PETsMART.com will use PETsMART to stock inventory of PETsMART Products and
PETsMART.com Unique Inventory to be sold by PETsMART.com. PETsMART will stock
such PETsMART Products at
<PAGE>
the PETsMART Catalog Fulfillment Center or, as may be mutually agreed, at the
PETsMART Forward Distribution Center(s), unless otherwise agreed by the parties.
PETsMART reserves the right not to stock certain items at its Forward
Distribution Centers based on factors such as logistics, safety, legal, or other
commercially reasonable criteria.
4.1 PETsMART Non-Catalog Products. For a fee calculated in accordance
with Exhibit A ("Activity-Based Costing") to this Agreement, PETsMART.com may
choose for PETsMART to stock inventory of PETsMART Non-Catalog Products at the
PETsMART Catalog Fulfillment Center.
4.2 Location of Inventory. PETsMART reserves the right to stock inventory
for PETsMART.com through other PETsMART facilities in addition to or instead of
the PETsMART Catalog Fulfillment Center, as determined efficient, appropriate,
cost-effective, and logistically feasible by PETsMART in its reasonable
discretion; notwithstanding the foregoing, if such stocking outside the PETsMART
Catalog Fulfillment Center, could result in additional cost or liability to
PETsMART.com such stocking must be mutually agreed by the parties in advance.
4.3 Title. Title to Products will remain with PETsMART until shipped,
whether to the consumer or to PETsMART.com's Anaheim Facility. Title will
transfer to PETsMART.com upon shipment and consignment to the common courier.
PETsMART will not hold title to any Products which PETsMART.com holds in
inventory at, orders for, or ships from PETsMART.com's Anaheim Facility.
4.4 Sales Forecasting. From the Effective Date through May 12, 2000,
PETsMART.com will comply with the requirements of this Section 4.4. During that
period, PETsMART agrees not to enforce this Section 4.4 against PETsMART.com,
with the sole exception of the inventory carrying cost payment provision of
Section 4.4(c) ("Adjustment Of Non-binding Sales Forecasts"). As of May 12,
2000, this provision will be in full force and effect and enforceable by
PETsMART.
(a) Sales Forecasts For Domestic, Imported and Seasonal Products.
Beginning February 1, 2000, and continuing throughout the term of this
Agreement, PETsMART.com will provide PETsMART with a [*] rolling product sales
forecast by SKU, and will specify whether each SKU is a PETsMART Non-Catalog
Product, PETsMART Product, or PETsMART.com Unique Inventory. PETsMART.com's
sales forecast will be updated [*] on the [*] of each [*] and will specify
PETsMART.com's requirements as follows:
(i) for Products purchased and shipped from vendors located in
the United States ("Domestic Products") for the [*] period starting
[*] after the date of the sales forecast;
(ii) for Products purchased and shipped from vendors located
outside of the United States ("Imported Products") for the [*] period starting
[*] after the date of the sales forecast;
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
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(iii) for Products with a holiday or seasonal focus ("Seasonal
Products") for the [ * ] period starting [ * ] after the date of
the sales forecast; and
(iv) if a vendor requires a longer sales forecast lead time than
those set forth above at (i) through (iii), PETsMART will so inform
PETsMART.com, and PETsMART.com will adjust the timing of its sales forecasts for
the SKUs sold by such vendor to allow PETsMART to order inventory of such SKUs
in compliance with the vendor's required lead time.
(b) Binding And Non-Binding Sales Forecasts. PETsMART.com's monthly
sales forecasts shall be [ * ] of the sales forecast period, and non-binding for
the [ * ] (For example, PETsMART.com's [ * ] sales forecast update will set
forth PETsMART.com's Domestic Products requirements for the [ * ] which sales
forecast shall be binding as to [ * ] and [ * ] and PETsMART.com's Imported
Product and any Seasonal Product requirements for the [ * ] of the upcoming
[ * ] which sales forecast shall be binding as to [ * ] and [ * ].)
(c) Adjustment Of Non-Binding Sales Forecasts. In each updated
[ * ] sales forecast, PETsMART.com may adjust any non-binding sales forecast as
follows: during the [ * ] after the Effective Date, by no more than [ * ] upward
or downward from the immediately preceding sales forecast; during the [ * ] by
no more than [ * ] upward or downward from the immediately preceding sales
forecast; and during the [ * ] and thereafter, by no more than [ * ] upward or
downward from the immediately preceding sales forecast. Binding sales forecasts
may not be adjusted, and inventory purchased by PETsMART based on PETsMART.com's
binding sales forecasts will, upon arrival at the PETsMART Catalog Fulfillment
Center, be subject to carrying cost calculated in accordance with Exhibit A
("Activity-Based Costing").
4.5 Discontinued Products. If PETsMART discontinues any PETsMART Product
SKU, PETsMART.com may choose to continue such SKU as PETsMART.com Unique
Inventory.
4.6 Excess, Overstock, and Aging Inventory. If inventory purchased by
PETsMART according to a PETsMART.com binding sales forecast remains
significantly undersold after [ * ], PETsMART may, using its sole discretion,
declare such inventory to be "Excess Inventory" and shall so notify
PETsMART.com. Upon receiving such notification, PETsMART.com will, as directed
by PETsMART in PETsMART's sole discretion, reduce such inventory either by
increasing its sales of such SKU (e.g., through advertising, price reductions, a
clearance sale, etc.) or by providing PETsMART with instructions for the
disposition of such Excess Inventory. If PETsMART.com fails to dispose of Excess
Inventory within [ * ] of receiving PETsMART's notice of Excess Inventory,
PETsMART may take ac-
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
tions as necessary to reduce such Excess Inventory (e.g., through sale or
liquidation), and PETsMART may invoice PETsMART.com for any costs associated
with such inventory reduction, calculated in accordance with Exhibit A
("Activity-Based Costing").
5. Customer Order Processing.
5.1 Online Orders: Processing. At the request of PETsMART.com, PETsMART
will receive orders and, subject to PETsMART.com's review and acceptance,
process credit card payments in connection therewith (using PETsMART.com's
account). PETsMART.com will bear the risk of collecting all monies from
customers for orders processed through PETsMART. PETsMART will not be
responsible for processing of any orders for Outside Products. PETsMART will
provide other customer support services as set forth in Section 5.3 ("Other
Customer Support Services") below.
5.2 Telephone Or Facsimile Orders. PETsMART.com may implement customer
order telephone or facsimile numbers which, as set forth in the Joint Marketing
and Cooperation Agreement, shall be publicized only on the Website. In the
event that PETsMART.com implements such a telephone number, the parties will
cooperate in the design and implementation of the telephone or facsimile order
service. The telephone or facsimile service shall serve as a conduit for the
receipt of online orders, in that PETsMART telephone customer service
representatives ("CSRs") will receive and input such orders online through the
Website, which orders shall be subject to PETsMART.com's review and acceptance.
If the Website is unavailable to PETsMART's CSRs, the CSRs will take orders,
process credit card transactions (using PETsMART.com's account), and advise
customers of the possibility that SKUs ordered by the customer may be out of
stock.
5.3 Other Customer Support Services. PETsMART will provide other customer
support services via email and telephone as mutually agreed by the parties, such
as order status inquiries, product inquiries, and return and refund inquiries,
in accordance with the standards set forth at Exhibit B ("Customer Service
Standards"). PETsMART will provide customer support services with regard to
Outside Products upon request by PETsMART.com, provided that PETsMART.com
provides reasonable advance notice.
5.4 Fulfillment. If PETsMART does not have sufficient inventory of a
Product SKU to meet PETsMART.com's and PETsMART's forecasted needs for that SKU,
and orders accepted by PETsMART.com and PETsMART exceed PETsMART's inventory of
that SKU, PETsMART will allocate available inventory as follows:
(a) Until May 12, 2000, PETsMART will give reasonable priority (in
PETsMART's discretion) to orders accepted by PETsMART.com over those accepted by
PETsMART;
(b) After May 12, 2000, PETsMART will allocate available inventory [*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
If orders accepted by PETsMART.com for an SKU exceed PETsMART.com's binding
sales forecast for that SKU, [*]
6. Distribution and Delivery. PETsMART will provide pick, pack and ship
services for Products through the PETsMART Catalog Fulfillment Center and, as
may be agreed, the PETsMART Forward Distribution Center(s), except that PETsMART
may reasonably refuse to stock any PETsMART Non-Catalog Product if such stocking
would be commercially unreasonable for PETsMART. PETsMART.com will be solely
responsible for such distribution and delivery of Outside Products unless
otherwise agreed to by the parties. Unless otherwise agreed by the parties,
PETsMART.com shall handle all customer returns and any related customer
adjustments.
6.1 Delivery of PETsMART Non-Catalog Products. PETsMART and PETsMART.com
will mutually determine a process for delivery of orders for PETsMART Non-
Catalog Products in the most cost-effective manner possible, which may include
shipments from PETsMART Forward Distribution Centers as agreed by the parties,
subject to the con straints set forth in Section 2.3(d) ("Shipping of Non-
Catalog Product").
6.2 Method of Delivery. PETsMART will provide delivery services through
standard UPS ground shipping, United States Postal Service (first class and
parcel post), a reputable overnight or two-day delivery service, or other
commercial carriers, as directed by PETsMART.com. Customers may choose their
method of delivery from those offered at the Website, and PETsMART will use the
method of delivery chosen by the customer. PETsMART.com will make commercially
reasonable efforts to ensure that the Website notifies customers of available
delivery options and that customer orders for such delivery options are
immediately transmitted to PETsMART (or, for Outside Products, to PETsMART.com);
absent notification of customer selection of delivery option, PETsMART will use
a mutually agreed upon default delivery option (or, if there is no such default,
such option as PETsMART deems reasonable).
6.3 Personalization and Gift-Wrapping Services.
(a) Services Offered. For fees calculated in accordance with Exhibit
A ("Activity-Based Costing") to this Agreement, PETsMART will provide the same
product personalization services for Products as PETsMART currently offers
through its catalog operations. PETsMART may apportion, in its discretion,
performance of personalization services between orders placed through the
Website and orders placed through PETsMART's catalog operations. PETsMART will
use its best efforts to provide gift-wrapping services for Products by no later
than March 30, 2000, provided that PETsMART.com provides sufficient advance
notice regarding what services it desires to have available for which Product
SKUs. To the extent that de-
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
mand through the Website leads PETsMART to increase the volume or kinds of
personalization services performed, PETsMART may recoup its additional cost,
calculated in accordance with Exhibit A ("Activity-Based Costing").
(b) Performance of Services. Customers may choose their method of
product personalization and/or gift wrapping services from those offered at the
Website, and PETsMART will provide the service chosen by the customer.
PETsMART.com will make commercially reasonable efforts to ensure that the
Website notifies customers of available personalization and/or gift-wrapping
options and that customer orders for such personalization and/or gift-wrapping
options are immediately transmitted to PETsMART; if such orders are not
transmitted to PETsMART, PETsMART shall proceed in accordance with a mutually
agreed upon default option (or, if no such default exists, then as PETsMART
deems reasonable). Because of the additional lead time involved in performance
of personalization and gift-wrapping services, such services will not be subject
to the customer service standards set forth in this Agreement at Section 9
("Service Standards") and Exhibit B ("Customer Service Standards"). PETsMART.com
will be solely responsible for delivery, personalization, and gift-wrapping of
Outside Products.
7. Office Space Rental and Related Services. For fees calculated in
accordance with Exhibit A ("Activity-Based Costing"), during the term of this
Agreement and at PETsMART's sole discretion, PETsMART will make available
reasonable office space, office facilities (including, but not limited to,
computers, furniture, telephone service, and mail service), for up to eighteen
(18) employees of PETsMART.com at PETsMART's Phoenix, Arizona headquarters. The
number of such employees may be increased upon written approval of PETsMART's
chief executive officer. Such employees shall be issued special identification
badges by PETsMART and shall conform to normal rules of conduct and to
PETsMART's policies with respect to use of the facility, as communicated from
time to time, but shall at all times remain the employees (or consultants, as
applicable) of PETsMART.com.
8. Payment.
8.1 Products. PETsMART will invoice PETsMART.com for the products and
services described herein and provided hereunder, on or before the tenth (10th)
day after the end of each month for PETsMART's Cost (calculated in accordance
with Exhibit A ("Activity-Based Costing")), and PETsMART.com shall pay such
invoice by wire transfer on or before the tenth day after receipt of such
invoice.
8.2 Taxes.
(a) Indemnity. PETsMART.com shall be liable for, and shall indemnify,
defend, and hold harmless PETsMART from and against, all "Indemnifiable Taxes,"
as defined in this Section 8.2(a). For the purposes of this Section 8.2,
"Taxes" shall mean all taxes (other than taxes based on PETsMART's income),
fees, duties, and other governmental charges (including any taxes, fees, duties,
or other governmental charges imposed on a third party that PETsMART is required
to withhold or collect) and any interest, additions to tax, or penalties related
thereto.
<PAGE>
For the purposes of this Section 8.2, "Indemnifiable Taxes" shall mean all Taxes
incurred with respect to goods or services provided by either PETsMART or
PETsMART.com pursuant to this Agreement and all reasonable out-of-pocket
attorneys' fees and other reasonable out-of-pocket expenses, including court
costs, associated with the resolution of any Contest (as defined below) with
respect to such Taxes.
(b) Notice. If PETsMART is made aware as part of an audit or other
administrative proceeding related to Taxes (a "Contest"), that a taxing
authority is asserting a claim for Indemnifiable Taxes, then PETsMART shall
promptly notify PETsMART.com of such claim in writing.
(c) Control. PETsMART shall permit PETsMART.com, at PETsMART.com's
own cost and expense, to control that portion of the Contest related to
Indemnifiable Taxes; provided, however, that PETsMART.com's control must not
unreasonably interfere with the remaining portion of the Contest. In the event
that PETsMART.com does not reasonably contest the imposition of Taxes on
PETsMART, PETsMART may assume control of the portion of the Contest attributable
to Indemnifiable Taxes at PETsMART.com's reasonable expense. PETsMART.com may
re-assume control of that portion of the Contest related to Indemnifiable Taxes
at any time.
(d) Settlement. PETsMART shall not settle or otherwise compromise any
portion of a Contest related to Indemnifiable Taxes without the prior written
consent of PETsMART.com, which consent shall not be unreasonably withheld.
PETsMART.com must inform PETsMART of all terms of any proposed settlement prior
to settling that portion of the Contest related to Indemnifiable Taxes and, if
PETsMART objects to PETsMART.com entering into such settlement, PETsMART.com
shall pay to PETsMART the amount that would be payable by PETsMART.com under
this Section 8.2 if such settlement were entered into, and upon payment of such
amount, any liability of PETsMART.com under this Section 8.2 shall terminate for
the portion of the Indemnifiable Taxes that would have been settled.
(e) Consistency. PETsMART shall not take any position that
Indemnifiable Taxes may be due and owing without the prior consent of
PETsMART.com which consent may not be unreasonably withheld. PETsMART shall not
take any action that could result in any taxing authority asserting a claim
subject to indemnification hereunder. For purposes of this section 8.2(e), a
position or action shall not be a breach of this section unless such action or
position is (i) part of a course of conduct, (ii) a significantly frequent
practice, or (iii) intentional.
(f) Powers of Attorney. PETsMART shall execute any powers-of-attorney
or similar documents necessary for PETsMART.com to control the portion of a
Contest related to Indemnifiable Taxes.
(g) Information. PETsMART.com shall promptly notify PETsMART of
material developments in that portion of a Contest that is controlled by
PETsMART.com.
<PAGE>
(h) Cooperation. PETsMART.com and PETsMART shall provide, or cause to
be provided, to each other, the assistance of officers, employees,
representatives and affiliates, or such assistance as may reasonably be
requested by the other party in connection with the portion of the Contest
related to Indemnifiable Taxes. The requesting party shall reimburse the other
party for the reasonable out-of-pocket cost of such other party making the
assistance of such persons available. The parties shall use reasonable best
efforts to make available persons no longer employed. PETsMART.com and PETsMART
shall retain, or cause to be retained, for so long as any taxable year in which
this Agreement is in effect shall remain open for adjustments, any records or
information related to Indemnifiable Taxes; provided however, that PETsMART
shall not be required to retain, or cause to be retained, records and
information that PETsMART.com maintains in the ordinary course of PETsMART.com's
operations. PETsMART shall, in the case of any particular calendar year, be
responsible for costs of retaining any records or information related to
Indemnifiable Taxes for the ten year period following such calendar year and,
thereafter, any such costs shall be borne equally by each of PETsMART and
PETsMART.com. With reasonable notice, any records or information so retained
shall be made available to the requesting party in a commercially reasonable
manner. The requesting party shall reimburse the other party for such party's
reasonable out-of-pocket costs, including without limitation, copying costs,
reasonably incurred in making such records or information available. In
addition, the requesting party shall enter into reasonable non-disclosure and
use agreements that limit the use of the records and the information contained
therein by the requesting party to use only in the particular Contest.
(i) Non-Compliance. If PETsMART fails to comply substantially with
any of the provisions set forth in this Section 8.2, PETsMART.com shall be
relieved of any obligation under this Section 8.2 to the extent of any actual
prejudice suffered by PETsMART.com as a result of such failure.
8.3 Audits. PETsMART.com will have the right, during normal business
hours and upon at least thirty (30) days' prior notice, to have a nationally
recognized independent accounting firm selected by PETsMART.com and reasonably
acceptable to PETsMART audit PETsMART's records related to the cost components
set forth in Exhibit A ("Activity-Based Costing") in order to verify that
PETsMART.com has paid to PETsMART the correct amounts paid under this Agreement.
The audit will be conducted at PETsMART.com's expense and no more than once in
any twelve month period during the term of this Agreement. In the event of a
discrepancy, PETsMART shall reimburse PETsMART.com or PETsMART.com shall pay
PETsMART, the applicable amount as the case may be; in the event of a
discrepancy of at least five percent (5%) in PETsMART.com's favor, PETsMART
shall reimburse PETsMART.com its costs of audit. Any confidential information
of PETsMART disclosed to PETsMART.com or the independent accounting firm in the
course of the audit will be subject to the confidentiality terms set forth in
Section 11 ("Confidential Information") of this Agreement.
8.4 Late Payment. PETsMART.com will pay interest on late payments at the
rate of one and one-half percent (1.5%) per month or the highest interest rate
allowed, whichever is lower.
<PAGE>
8.5 Adjustment. As set forth throughout this Agreement, all costs and
fees PETsMART charges PETsMART.com for services and products provided by
PETsMART to PETsMART.com pursuant to this Agreement are to be calculated in
accordance with Exhibit A ("Activity-Based Costing"). During the term of this
Agreement, PETsMART reserves the right to adjust Exhibit A ("Activity-Based
Costing") as may be necessary to achieve the objective of more accurately
reflecting PETsMART's actual costs.
9. Service Standards. The services provided by PETsMART under this Agreement
will conform to the standards set out in Exhibit B ("Customer Service
Standards").
10. Warranty.
10.1 Representations and Warranties. Each party represents and warrants
that it has the authority to enter into this Agreement, and to perform all of
its obligations hereunder. Each party further represents and warrants that it
has the capacity to perform all of its obligations hereunder.
10.2 Disclaimer of Warranties. EXCEPT AS SET FORTH HEREIN, EACH PARTY
EXPRESSLY DISCLAIMS ALL WARRANTIES OR CONDITIONS OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRAN TIES OF TITLE, NON-
INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11. Confidential Information.
11.1 Confidential Information. Each party (the "Disclosing Party") may
from time to time during the term of this Agreement disclose to the other party
(the "Receiving Party") certain information regarding the Disclosing Party's
business, including technical, marketing, financial, employees, planning, and
other confidential or proprietary information ("Confidential Information").
The Disclosing Party will mark all Confidential Information in tangible form as
"confidential" or "proprietary" or with a similar legend. The Disclosing
Party will identify all Confidential Information disclosed orally as
confidential at the time of disclosure and provide a written summary of such
Confidential Information to the Receiving Party within thirty (30) days after
such oral disclosure. Regardless of whether so marked or identified, however,
any information that the Receiving Party knew or should have known, under the
circumstances, was considered confidential or proprietary by the Disclosing
Party, will be considered Confidential Information of the Disclosing Party.
11.2 Protection of Confidential Information. The Receiving Party will not
use any Confidential Information of the Disclosing Party for any purpose not
expressly permitted by this Agreement, and will disclose the Confidential
Information of the Disclosing Party only to those employees or contractors of
the Receiving Party who have a need to know such Confidential Information for
purposes of this Agreement and who are under a duty of confidentiality no less
re-
<PAGE>
strictive than the Receiving Party's duty hereunder. The Receiving Party will
protect the Disclosing Party's Confidential Information from unauthorized use,
access, or disclosure in the same manner as the Receiving Party protects its own
confidential or proprietary information of a similar nature and with no less
than reasonable care.
11.3 Exceptions. The Receiving Party's obligations under Section 11.2
("Protection of Confidential Information") with respect to any Confidential
Information of the Disclosing Party will terminate if and when the Receiving
Party can document that such information: (a) was already known to the Receiving
Party at the time of disclosure by the Disclosing Party; (b) was disclosed to
the Receiving Party by a third party who had the right to make such disclosure
without any confidentiality restrictions; (c) is or through no fault of the
Receiving Party has become, generally available to the public; or (d) is
independently developed by the Receiving Party without access to, or use of, the
Disclosing Party's Confidential Information. In addition, the Receiving Party
will be allowed to disclose Confidential Information of the Disclosing Party to
the extent that such disclosure is (i) approved in writing by the Disclosing
Party, (ii) necessary for the Receiving Party to enforce its rights under this
Agreement in connection with a legal proceeding; or (iii) required by law or by
the order of a court or similar judicial or administrative body, provided that
the Receiving Party notifies the Disclosing Party of such required disclosure
promptly and in writing and cooperates with the Disclosing Party, at the
Disclosing Party's reasonable request and expense, in any lawful action to
contest or limit the scope of such required disclosure.
11.4 Return of Confidential Information. The Receiving Party will return
to the Disclosing Party or destroy all Confidential Information of the
Disclosing Party in the Receiving Party's possession or control promptly upon
the written request of the Disclosing Party on the expiration or termination of
this Agreement, whichever comes first. At the Disclosing Party's request, the
Receiving Party will certify in writing that it has fully complied with its
obligations under this Section.
11.5 Confidentiality of Agreement. Neither party will disclose any
financial and/or costing or payment terms of the Agreement to anyone other than
its attorneys, accountants and other professional advisors under a duty of
confidentiality except (a) as required by law; (b) pursuant to a mutually
agreeable press release; (c) in connection with a proposed merger, financing or
sale of such party's business, provided that any third party to whom the terms
of this Agreement are to be disclosed signs a confidentiality agreement
reasonably satisfactory to the other party to this Agreement.
12. Limitation of Liability; Indemnity.
12.1 Limitation of Liability. Neither party shall be liable to the other
for any indirect, incidental, special or consequential damages, or for any loss
of profits or loss of revenue, or failure to realize expected savings for any
services performed by such party pursuant to this Agreement. Except for each
party's obligations pursuant to Section 12.2 ("Indemnity"), each party's
<PAGE>
maximum liability for any damages whatsoever to the other party arising out of
this Agreement shall be the amount paid or owed by PETsMART.com to PETsMART
hereunder.
12.2 Indemnity.
(a) By PETsMART. PETsMART agrees to defend, indemnify, and hold
harmless PETsMART.com from and against any claims, suits, losses, damages,
liabilities, costs, and expenses (including reasonable attorneys' fees) brought
by third parties to the extent such claim results from or relates to (i)
violation of any applicable law or regulation arising from a PETsMART Product;
(ii) injury to or violation of, the rights of a third party, arising from a
PETsMART Product; (iii) violation of any applicable law or regulation by
PETsMART in the performance of its obligations hereunder; or (iv) injury to or
violation of the rights of a third party by PETsMART in the performance of its
obligations hereunder.
(b) By PETsMART.com. PETsMART.com agrees to defend, indemnify, and
hold harmless PETsMART from and against any claims, suits, losses, damages,
liabilities, costs, and expenses (including reasonable attorneys' fees) brought
by third parties to the extent such claim results from or relates to (i)
violation of any applicable law or regulation arising from an Outside Product
(or any item which would be an Outside Product but for the fact that PETsMART
agrees to procure, stock, fulfill, distribute, or otherwise handle such item;
(ii) injury to or violation of, the rights of a third party, by an Outside
Product (or any item which would be an Outside Product but for the fact that
PETsMART agrees to procure, stock, fulfill, distribute, or otherwise handle such
item; (iii) violation of any applicable law or regulation by PETsMART.com in the
performance of its obligations hereunder; or (iv) injury to or violation of the
rights of a third party by PETsMART.com in the performance of its obligations
hereunder.
(c) Mechanics. Each party's (the "Indemnifying Party") obligation to
indemnify under this Section 12.2 is conditioned on the party seeking indemnity
(the "Indemnified Party") (i) giving the Indemnifying Party written notice of
the relevant claim, (ii) cooperating with the Indemnifying Party, at the
Indemnifying Party's expense, in the defense of such claim, and (iii) giving the
Indemnifying Party the right to control the defense and settlement of any such
claim, except that the Indemnifying Party shall not enter into any settlement
that affects the Indemnified Party's rights or interest without the Indemnified
Party's prior written approval. The Indemnified Party shall have the right to
participate in the defense at its expense.
13. Dispute Resolution. PETsMART and PETsMART.com are implementing this
Agreement in good faith. However, should either party believe that the other
party is in breach of this Agreement, the parties shall attempt in good faith to
resolve any dispute arising out of or relating thereto promptly by negotiations.
All negotiations at all levels pursuant to this Section 13 are confidential and
shall be treated as compromise and settlement negotiations for purposes of the
Federal Rules of Evidence and state rules of evidence. Each party shall bear
its own expenses in connection with such negotiations.
<PAGE>
13.1 Notice And Cure. Except in the case of expedited arbitration under
Section 13.2(c), either party (the "Non-Breaching Party") may give the other
party (the "Breaching Party") written notice of any material breach. The
Breaching Party shall then have thirty (30) days to cure the material breach.
If the Breaching Party does not effect a cure to the Non-Breaching Party's
satisfaction, the chief executive officers of the parties shall, within the
following fifteen (15) days, confer in good faith for the purpose of
satisfactorily resolving the material breach.
13.2 Arbitration.
(a) Arbitrators. No later than March 15, 2000, the parties will
jointly select a list of at least three, and no more than six, arbitrators (the
"Panel") from whom arbitrator(s) shall be selected to resolve any disputes.
(b) In General. If a resolution satisfactory to the Non-Breaching
Party is not achieved within the fifteen-day period set forth in Section 13.1,
the parties agree promptly to submit the dispute to binding arbitration before
an arbitrator selected from the Panel, such arbitration to be held in the city
of the defending party's home offices under the then-existing rules for
commercial disputes of the American Arbitration Association. Each party
irrevocably submits to the jurisdiction and venue set forth in this Section
13.2(b).
(c) Expedited. The parties agree and acknowledge that certain
disputes may require more immediate resolution than set forth in Section
13.2(b). If the Non-Breaching Party claims that the Breaching Party has
breached Sections 2.3 ("PETsMART Exclusive Provider to PETsMART.com"), 4.6
("Excess, Overstock, and Aging Inventory"), 5.4 ("Fulfillment"), 6
("Distribution and Delivery"), 6.1 ("Delivery of PETsMART Non-Catalog Product"),
6.2 ("Method of Delivery"), 8.1 ("Products"), 9 ("Service Standards"), or
14.3(b) ("Inventory Repurchase") and that such breach substantially interferes
with the Non-Breaching Party's ability to conduct its business, the Non-
Breaching Party may give notice of expedited arbitration. Within fifteen (15)
days of notice of expedited arbitration, executive representatives from each
party shall meet and confer in good faith to resolve the dispute. If the
parties remain unable to resolve the dispute, the parties will contact the first
arbitrator on the Panel (or, if unavailable, successive arbitrators until one is
available), which arbitrator shall conduct an expedited arbitration within the
next twenty-one (21) days and shall render a binding opinion within three (3)
business days after the conclusion of the expedited arbitration.
14. Term and Termination.
14.1 Term. The initial term shall commence on the Effective Date of this
Agreement, and shall expire on the fifth anniversary of the Effective Date of
this Agreement (the "Term"), and shall thereafter automatically continue for two
successive one-year terms unless either party provides notice of non-renewal at
least one hundred eighty (180) days before the expiration of the then-current
term (which may be the Term or a successor term). Following the Term,
PETsMART.com may terminate this Agreement, without cause, with one hundred
twenty (120)
<PAGE>
days' prior written notice to PETsMART. If either party notifies the other of
non-renewal before expiration of any term, both parties shall continue to be
bound by all of the terms of this Agreement, and PETsMART.com shall continue to
sell PETsMART Products in accordance with the terms of this Agreement for a
transition period of one hundred twenty (120) days (the "Transition Period")
after the expiration of the then-current term. This Agreement shall
automatically expire on the final day of the Transition Period, unless renewed
before that date.
14.2 Termination for Breach.
(a) By PETsMART. PETsMART shall have the right to terminate this
Agreement in the event PETsMART.com materially breaches any term of this
Agreement and fails to cure such breach in the course of the dispute resolution
procedures set forth above at Section 13 ("Dispute Resolution").
(b) By PETsMART.com. PETsMART.com may terminate this Agreement, or
any portion hereof, only after an arbitrator first determines (i) that PETsMART
is in material breach and such material breach substantially affects
PETsMART.com's ability to conduct its business, (ii) which aspects of the
Agreement PETsMART.com may terminate, and (iii) which unamortized or committed
costs, commitments, expenses, or other liabilities incurred in connection with
PETsMART's provision of products and services to PETsMART.com hereunder shall be
reimbursed by PETsMART.com to PETsMART.
14.3 Effect of Termination.
(a) Survival. Sections 1 ("Definitions"), 8 ("Payment"), 10
("Warranty"), 11 ("Confidential Information"), 12 ("Limitation of Liability;
Indemnity"), 13 ("Dispute Resolution"), 14 ("Term and Termination"), and 15
("General Provisions") shall survive termination of this Agreement.
(b) Inventory Repurchase. Upon the expiration or termination of this
Agreement for any reason, PETsMART shall submit to PETsMART.com within ten (10)
days a summary of the number and type of Products on order or held in stock by
PETsMART for PETsMART.com based on PETsMART.com's sales forecasts, including
PETsMART.com Unique Inventory and PETsMART Products (including PETsMART Non-
Catalog Products), and PETsMART.com shall purchase all PETsMART.com Unique
Product inventory from PETsMART at PETsMART's Cost, plus shipping and insurance
at PETsMART.com's expense, within ten (10) days following receipt of such
notice.
15. General Provisions.
15.1 Governing Law and Venue. This Agreement will be governed and
construed in accordance with the laws of the State of California as such laws
apply to contracts between California residents performed entirely within
California without giving effect to principles of conflicts of laws.
<PAGE>
15.2 Force Majeure. Any party's delay in the performance of any duties or
obligations under this Agreement (except the payment of money owed) (including,
but not limited to, PETsMART's compliance with the standards set forth on
Exhibit B ("Customer Service Standards")) will not be considered a breach of
this Agreement if such delay is caused by a labor dispute, shortage of
materials, fire, earthquake, flood or any other event beyond the control of the
party, provided that the party uses reasonable efforts, under the circumstances,
(a) to notify the other party of the circumstances causing the delay and (b) to
resume performance as soon as possible.
15.3 Subcontracting. PETsMART may perform its obligations through the use
of PETsMART-selected independent contractors; provided, however, that PETsMART
shall not be relieved of its obligations under this Agreement by the use of such
contractors.
15.4 Notices. Any notices given under this Agreement shall be in writing
and shall be delivered to the addresses set forth below the signatures of the
parties or at such other address as the party shall specify in writing. Notices
shall be deemed effectively given: (a) upon five (5) days after being sent by
certified or registered mail, postage prepaid, return receipt requested; (b)
upon he next business day after being sent overnight by U.S. Express Mail or by
a major U.S. express document courier; or (c) upon receipt of confirmation
following transmission by a facsimile machine if sent on a business day during
business hours (otherwise, deemed received six hours after the beginning of the
next business day).
15.5 No Assignment. Except as permitted by Section 15.3
("Subcontracting"), PETsMART may not assign its rights or delegate its duties
without PETsMART.com's prior written consent in PETsMART.com's sole discretion.
PETsMART.com may assign, transfer, delegate or grant all or any part of its
rights pursuant to this Agreement to any person or entity. Any assignment or
delegation in violation of this Section shall be void and of no effect. Subject
to the prohibitions against assignment contained herein, this Agreement shall
inure to the benefit of and shall be binding on the parties hereto and their
respective successors and permitted assigns.
15.6 Severability; Waiver. If any provision of this Agreement is held to
be invalid or unenforceable for any reason, the remaining provisions will
continue in full force and effect without being impaired or invalidated in any
way. The parties agree to replace any invalid provision with a valid provision
which most closely approximates the intent and economic effect of the invalid
provision. The waiver by any party of a breach of any provision of this
Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach.
15.7 Headings. Headings used in this Agreement are for reference purposes
only and in no way define, limit, construe or describe the scope, intent, or
extent of the section or in any way affect this Agreement.
<PAGE>
15.8 Independent Contractors; No Agency. The parties to this Agreement are
independent contractors, and no agency, partnership, joint venture, or employee-
employer is intended or created by this Agreement. Neither party is the agent
of the other, and neither party shall have the power to obligate or bind the
other party. Personnel supplied by each party shall work exclusively for that
party, and shall not, for any purpose, be considered employees or agents of the
other party, and each party assumes full responsibility for the acts of
personnel supplied by it while performing services hereunder and, with regard to
any personnel supplied by it, each party shall be solely responsible for their
supervision, direction and control, compensation, benefits, and taxes.
15.9 Entire Agreement. This Agreement, including the Exhibits attached
hereto, sets forth the entire understanding and agreement between the parties
regarding the subject matter of this Agreement, and supersedes any and all oral
or written agreements or understandings between the parties as to that subject
matter. It may be changed only by a writing signed by both parties. Neither
party is relying upon any warranties, representations, assurances, or
inducements not expressly set forth herein.
In Witness Whereof, each of the parties hereto have executed this Agreement
as of the date first written above.
PETsMART.com: PETsMART:
/s/ Tom McGovern /s/ Philip L. Francis
- ---------------------------------- --------------------------------------
By: Tom McGovern By: Philip L. Francis
Title: President and CEO Title: President and CEO
Address: 53 Hugus Alley, Suite 210 Address: 19601 North 27th Avenue
Pasadena, CA 91103 Phoenix, AZ 85207
Fax: (626) 817-7101 Fax: (623) 580-6513
List of Exhibits:
A - Activity-Based Costing
B - Customer Service Standards
<PAGE>
EXHIBIT A
---------
FULFILLMENT ACTIVITY BASED COSTING
[*]
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT B
---------
PETsMART CUSTOMER SERVICE STANDARDS
Overall: PETsMART's ability to meet any customer service standard depends on
the variance between projected and actual customer volume.
Customer Order Processing Service Standards.
PETsMART CSRs will meet the following standards (applied as a monthly average)
for answer ing telephone calls to the Website customer service telephone
number:
. [*] answered within [*] seconds and less than [*] abandon call rate.
. [*] of all calls will be coded as to the source/nature of the call (e.g.,
order taking, order status, site problem, etc.)
PETsMART CSRs will meet the following standards (applied as a monthly average)
for respond ing to emailed customer inquiries.
. [*] personal contact (e.g., automatic email response) within [*] by
March 2000.
. [*] resolved within [*].
Merchandise "In Stock" Availability.
. Key Items merchandise, as mutually agreed upon from time to time (so-called
"A" items) will be "in stock" and will have a [*] fulfillment rate measured in
line items calculated on a monthly average.
. All other items (so-called "B" items) will have a [*] fulfillment rate
measured in line items calculated on a monthly average.
Fulfillment.
PETsMART will meet the following fulfillment service rates (applied as a monthly
average) for in-stock inventory (except for personalization and gift-wrapping):
. [*] fulfillment rate measured in line items, shipped within [*] of
PETsMART Direct's computers' receipt of complete and accurate order.
2
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
. [*] fulfillment rate measured in line items, shipped within [*] of
PETsMART Direct's computers' receipt of complete and accurate order.
3
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.31
FORM OF STANDSTILL AGREEMENT
----------------------------
This Standstill Agreement, dated February [_], 2000 (the "Agreement"),
is entered into by and between PETsMART.com, Inc., a Delaware corporation
("PETsMART.com") and PETsMART, Inc., a Delaware corporation ("PETsMART").
RECITALS
--------
WHEREAS, PETsMART beneficially owns as of the date of this agreement,
an aggregate of [_______________________] shares of the common stock of
PETsMART.com (the "Common Stock");
WHEREAS, substantially concurrently with the execution of this
Agreement, PETsMART and PETsMART.com have entered into a Web and Content Hosting
Agreement, a Merchandising, Procurement, Distribution, and Fulfillment
Agreement, and a Marketing Agreement, each dated as of December 31, 1999;
WHEREAS, PETsMART.com and PETsMART desire to enter into this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
made, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound hereby, agree as follows:
AGREEMENT
---------
1. Standstill
----------
1.1 Limitations. For a period of 30 months from the date of this
-----------
Agreement, without the prior written consent of the Board of Directors of
PETsMART.com, specifically expressed in a resolution adopted by a major-
ity of the directors of PETsMART.com who are not affiliates of, and are
neither officers nor directors of, PETsMART or any corporation or other
entity controlling, controlled by or under common control with PETsMART
(each a member of the "PETsMART Group"), PETsMART shall not, and shall not
permit any member of the PETsMART Group to, in any manner, directly or
indirectly:
<PAGE>
(i) acquire, or offer or agree to acquire, directly or
indirectly, by purchase or otherwise, any capital stock of
PETsMART.com ("Capital Stock"), or any securities convertible into or
exchangeable for, or any other right to acquire, Capital Stock
(collectively, "Convertible Securities") (except by way of stock
dividends or other distributions made on a pro rata basis with respect
to securities of PETsMART.com acquired by any member of the PETsMART
Group prior to the date of this Agreement) if, immediately following
such acquisition, the members of the PETsMART Group would beneficially
own, in the aggregate, more than 49.9% (the "Threshold Percentage") of
the then outstanding Common Stock (assuming the conversion, exchange
and/or exercise of all Convertible Securities beneficially owned by
members of the PETsMART Group but not of any Convertible Securities
owned by any other person or entity); provided, that if PETsMART.com
--------
repurchases or recapitalizes any of its shares and such repurchases or
recapitalization result in the members of the PETsMART Group owning
more than the Threshold Percentage at the effective time of such
repurchase or recapitalization, no member of the PETsMART Group shall
be obligated to divest itself of shares of Capital Stock to meet the
Threshold Percentage, but no member of the PETsMART Group shall
acquire any additional shares of Capital Stock unless such acquisition
would otherwise be permitted under this Section 1;
(ii) solicit proxies or consents or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the
Securities Exchange Act of 1934, as amended) of proxies or consents
with respect to securities of PETsMART.com with regard to any matter;
(iii) seek to advise, encourage or influence any person with
respect to the voting of any securities of PETsMART.com, or induce,
attempt to induce or in any manner assist any other person in
initiating any stockholder proposal or tender or exchange offer for
securities of PETsMART.com or any change of control of PETsMART.com,
or for the purpose of convening a stockholders' meeting of
PETsMART.com; provided, that PETsMART may tender in any such tender or
exchange offer;
2
<PAGE>
(iv) acquire or agree to acquire, by purchase or otherwise,
more than 5% of any class of equity securities of any entity which,
prior to the time the PETsMART Group acquires more than 5% of such
class, is publicly disclosed (by filing with the Securities and
Exchange Commission or otherwise), or is otherwise known to PETsMART,
to be the beneficial owner of more than 5% of the outstanding Common
Stock;
(v) make any public announcement, regarding any possibility,
intention, plan or arrangement, relating to a tender or exchange offer
for securities of PETsMART.com or a business combination (or other
similar transaction that would result in a change of control), sale of
assets, liquidation or other extraordinary corporate transaction
between any member of the PETsMART Group and PETsMART.com, or take any
action that could reasonably be expected to require PETsMART.com to
make a public announcement regarding any of the foregoing;
(vi) other than [ ] shares of Common Stock purchased
pursuant to that Stock Subscription Agreement, dated February [_],
2000, between PETsMART.com and PETsMART, deposit any securities of
PETsMART.com in a voting trust or subject any securities of
PETsMART.com to any arrangement or agreement with respect to the
voting of securities of PETsMART.com; or
(vii) form, join or in any way participate in a partnership,
limited partnership, syndicate or other group (or otherwise act in
concert with any other person) other than other members of the
PETsMART Group for the purpose of (A) acquiring, holding, or voting of
securities of PETsMART.com or (B) taking any other actions restricted
or prohibited under clauses (i) through (vi) of this Section 1, or
announce an intention to do, or enter into any arrangement or
understanding with others to do, any of the actions restricted or
prohibited under clauses (i) through (vi) of this Section 1.
1.2 Notice of Capital Stock Purchases. For a period of 30 months
----------------------------------
from the date of this Agreement, PETsMART shall notify PETsMART.com as to
any acquisition by any member of the PETsMART Group of beneficial ownership
of Capital Stock or Convertible Securities, within ten (10) busi-
3
<PAGE>
ness days after such action in order for PETsMART.com to monitor compli-
ance with the terms of this Agreement. All such purchases shall be made in
compliance with applicable laws and regulations.
1.3 Permitted Transaction. The restrictions contained in Section 1.1
---------------------
of this Agreement shall immediately and automatically be suspended upon the
occurrence and during the continuation of any of the following events: (a)
the filing with the Securities and Exchange Commission ("SEC") of a
Schedule 13D (or any successor filing) by any person, entity or group
outside the PETsMART Group indicating that such person, entity or group has
acquired more than 5% of the outstanding shares of Common Stock, which
Schedule 13D expresses the filing party's intention to assume control of
the Company, whether by tender offer, merger, proxy contest or otherwise;
(b) the commencements of a tender offer by any person, entity or group
outside the PETsMART Group to acquire 30% or more of the outstanding shares
of Common Stock; or (c) the solicitation of proxies by any party other than
PETsMART.com or a member of the PETsMART Group to which Rules 14a-3 to 14a-
15 under the Securities Exchange Act of 1934, as amended (or any successor
rules) applies that is intended to effect a change in the majority of
members of the PETsMART.com Board of Directors.
1.4 No Waiver Request. No request or proposal to amend, modify or
-----------------
waive any provision of this Section 1 (other than a request or proposal
made or solicited by PETsMART.com) shall be made or solicited during the 30
months beginning on the date of this Agreement.
1.5 No Limitation on Disposition. Nothing in this Agreement shall be
----------------------------
construed in any manner to limit any member of the PETsMART Group's rights
to sell or otherwise dispose of Capital Stock in any manner or to any
person(s) or entity(ies).
2. Miscellaneous
-------------
2.1 Merger Clause. This Agreement constitutes the complete agreement
-------------
between the parties hereto with respect to the subject matter hereof and
shall continue in full force and effect until terminated by mutual
agreement of the parties hereto or pursuant to the terms hereof. The
section headings used herein are for reference purposes only and shall not
in any way affect the meaning or interpretation of this Agreement.
4
<PAGE>
2.2 Choice of Law. This Agreement shall be construed, performed
-------------
and enforced in accordance with, and governed by the internal laws of the
State of Delaware, without giving effect to the principles of conflicts of
law thereof, and each party consents to personal jurisdiction in such state
and voluntarily submits to the jurisdiction of the courts of such state in
any action or proceeding relating to this Agreement. Whenever possible,
each provision of this Agreement shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision hereof
is held to be invalid, illegal or unenforceable under any applicable law or
rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality, or unenforceability, without
invalidating the remainder of this Agreement. This Agreement may not be
modified or amended and no provision hereof may be waived, in whole or in
part, except by a written agreement signed by the parties hereto. No
waiver of any breach or default hereunder shall be considered valid unless
in writing, and no such waiver shall be deemed a waiver of any subsequent
breach or default.
2.3 Remedy. PETsMART acknowledges that PETsMART.com would not have
-------
an adequate remedy at law for money damages in the event that this
agreement is not performed in accordance with its terms and therefore
PETsMART agrees that PETsMART.com shall be entitled to specific enforcement
of the terms hereof, without being required to post any bond, in addition
to any other remedy to which it may be entitled, at law or in equity.
2.4 Notices. All notices, consents, waivers, and other
-------
communications under this Agreement must be in writing and will be deemed
to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by facsimile (with written confirmation
of receipt), provided that a copy is mailed by registered mail, return
receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth
below (or to such other addresses and facsimile numbers as a party may
designate by notice to the other parties):
5
<PAGE>
(i) If to PETsMART.com:
PETsMART.com, Inc.
35 Hugus Alley, Suite 210
Pasadena, CA 91103
Facsimile No.: (626) 817-7101
Attn: Tom McGovern, Jr.
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue, Ste. 3400
Los Angeles, CA 90071
Facsimile No.: 213-687-5600
Attn: Michael A. Woronoff
(ii) If to PETsMART:
PETsMART, Inc.
19601 N. 27/th/ Avenue
Phoenix, AZ 85027
Facsimile No.: (623) 580-6513
Attn: Philip L. Francis
With a copy to:
PETsMART, Inc.
19601 N. 27/th/ Avenue
Phoenix, AZ 85027
Facsimile No.: (623) 580-6513
Attn: General Counsel
2.5 Counterparts. This Agreement may be executed in counterparts,
------------
all of which shall be taken together as one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
PETSMART.COM, INC.
By:
-------------------------------
Name:
Title:
PETSMART, INC.
By:
-------------------------------
Name:
Title:
7
<PAGE>
EXHIBIT 10.32
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (the "Agreement") is made and entered into
as of the date last below written (the "Effective Date") by and between
PETsMART, INC., a Delaware corporation ("Licensor"), and PETsMART.COM, a
Delaware corporation ("Licensee").
Recitals
WHEREAS, Licensor has adopted and owns the marks "PETsMART" and "R.C.
STEELE" in typed form and stylized formats all as reflected on Exhibit A hereto
(the "Licensed Marks") in connection with the production, promotion, marketing,
distribution and sales of pet food and supplies and related services;
WHEREAS, Licensor is the owner of registrations for and applications to
register the Licensed Marks in the United States and certain other
jurisdictions, as reflected on Exhibit B hereto;
WHEREAS, the parties wish to collaborate to sell pet-related products to
consumers and to make available pet-related information on-line via a web site
to be operated by Licensee under the Licensed Marks; and
WHEREAS, the parties are concurrently entering into separate concurrent
agreements relating to Joint Marketing, Web-Hosting, Merchandising and Sales,
and Distribution and Fulfillment (the "Related Agreements").
Agreement
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and obligations contained herein, the parties agree as follows:
1. Grant and Scope of License.
1.1 Grant of License. Subject to the limitations set forth below,
Licensor grants to Licensee and Licensee accepts an exclusive (even as to
Licensor), royalty-free, worldwide license to use the Licensed Marks as service
marks, and on packaging shipment labels, and the name PETSMART.COM as a
corporate name and domain name, solely for the purpose of operating an on-line
retail pet supply business under the URL PETSMART.COM (including the development
and operation of the site as on-line interactive destination regarding pets and
pet care), which URL Licensor shall maintain. Licensee shall additionally have
the non-exclusive right to use the Licensed Marks in on-line and off-line
promotional advertising of its on-line business activities described above
(collectively, the "Licensed Uses.") Licensee shall not use the Licensed
<PAGE>
Marks in connection with any activities other than the Licensed Uses without
prior wriften approval of Licensor.
1.2 Form of Use. Licensee shall use the Licensed Marks only in the
form(s) set forth on Exhibit A hereto or otherwise approved in writing by
Licensor and shall include where appropriate the designations (R) and (TM) and a
statement that the Licensed Marks are the trademarks of PETsMART, Inc., and
other proprietary notices as reasonably required by Licensor from time-to-time.
Licensee agrees to comply with all applicable laws and regulations pertaining to
the proper use and designation of trademarks in each country in which Licensee
uses the Licensed Marks.
1.3 Other Marks. In addition to the Licensed Marks, Licensor is the
owner of a number of other marks that function as Licensor's private label
brands. The parties contemplate that Licensee will promote and sell certain of
Licensor's private label brands in the ordinary course of Licensee's activities
as a merchant. In the event that such activities require licensing of certain of
Licensor's other marks to Licensee, the parties shall cooperate and enter into
the appropriate form of agreement granting Licensee the right to engage in such
activities.
2. OBLIGATIONS OF LICENSEE.
2.1 Quality Control.
(a) The nature and quality of all services rendered by Licensee
and all goods sold by Licensee in connection with the Licensed Marks and all
advertising and promotional uses and all other related uses of the Licensed
Marks by Licensee shall be of the highest standards of product quality, honesty,
integrity, fair dealing and ethics conforming to standards set by and under the
control of Licensor. Without limitation, Licensee shall not sell or offer for
sale under the Licensed Marks, dogs, cats, or any other animal or type of
products that is inconsistent with maintaining the association of the Licensed
Marks with safe, humane and responsible pet ownership. Similarly, Licensee shall
not sell or offer for sale any animal for research or experimentation purposes.
(b) Licensor shall have the right to monitor the quality of the
services provided by Licensee and the depiction of the Licensed Marks, and
Licensee agrees to assist Licensor in monitoring quality by providing to
Licensor customer communications expressing customer satisfaction or complaints
with respect to Licensee's operation of the web site under the Licensed Marks.
(c) Licensee shall additionally make available to Licensor, for
its approval, exemplars of all uses of the Licensed Marks on web site pages and
on and in promotional materials. Licensor shall have the right to make
reasonable objections to any such sample on the grounds that Licensor believes
that the use of such
2
<PAGE>
materials by Licensee will be damaging to the value of, or reputation associated
with, the Licensed Marks, be dilutive of the Licensed marks or do not meet the
standards of quality required by Licensor. Licensor shall exercise its approval
rights in good faith and any request for modification of a submission shall
include an adequate explanation.
(d) Licensee agrees to undertake such other steps as Licensor may
reasonably request to assist Licensor in monitoring the quality of the services
provided by Licensee under the Licensed Marks.
(e) Licensee shall comply with all applicable laws and
regulations and obtain all appropriate government approvals pertaining to its
sale, distribution and advertising of the goods and services under the Licensed
Marks and shall not do or suffer to be done any act or thing that would impair
Licensor's rights in the Licensed Marks or damage the reputation for quality
inherent in the Licensed Marks.
(f) Subject to the provisions of Section 4.2, Licensor has the
right to take all action which it deems necessary to ensure that the Licensee's
activities under and uses of the Licensed Marks are consistent with the
reputation for quality and prestige of the Licensed Marks.
2.2 Indemnity of Licensor. Licensee agrees to indemnify and hold
Licensor harmless from and against any loss, claim, damage cost, expense
(including reasonable attorneys' fee) or liability worldwide to third parties
arising out of or in connection with promotion, marketing and distribution of
goods and services under the Licensed Marks which are in violation of the terms
of this Agreement, provided that (a) Licensor promptly notifies Licensee in
writing of any such claim and (b) permits Licensee to assume sole control of the
defense and/or settlement of such claim, subject to Licensee's cooperation with
Licensor to protect the reputation for quality and integrity associated with the
Licensed Marks. Licensee shall defend or settle any such claim at Licensee's
expense and with Licensee's choice of counsel. Licensor shall cooperate with
Licensee, at Licensee's expense, in defending or settling such claim, and
Licensor may join in defense with counsel of its choice at Licensor's expense.
Licensor may not settle any claim without Licensee's consent.
2.3 Confusingly Similar and/or Combination Marks. Licensee agrees
not to adopt or use any other trademark, word, symbol, letter, design or mark
(i) in combination with any of the Licensed Marks in a manner that would result
in a new mark creating a separate commercial impression from the Licensed Mark
(a "Combination Mark") or (ii) that is confusingly similar to the Licensed
Marks; provided, however, that Licensee may use the Licensed Marks with other
marks or names if such other marks or names are sufficiently separated from the
Licensed Marks and sufficiently distinctive to avoid the consumer impression
that such other marks or their owners are associated with Licensor.
3
<PAGE>
3. Ownership.
3.1 Ownership of Licensed Marks. Licensee acknowledges that it has
no interest in the Licensed Marks other than the license granted under this
Agreement and that Licensor is the sole and exclusive owner of all right, title
and interest in the Licensed Marks. Licensee agrees that sales and services by
Licensee shall be deemed made by Licensor for the purposes of trademark
registration and that Licensee's use of the Licensed Marks will inure solely to
the benefit of Licensor and will not create any right, title or interest for
Licensee in the Licensed Marks other than the license granted under this
Agreement.
3.2 No Contest. Licensee agrees that it will not contest, oppose or
challenge Licensor's ownership of the Licensed Marks. Licensee agrees that it
will do nothing to impair Licensor's ownership or rights in the Licensed Marks.
In particular, Licensee will not register or attempt to register the Licensed
Marks in any jurisdiction and will not oppose Licensor's registration of the
Licensed Marks, alone or with other words or designs, in any jurisdiction. If
Licensee uses, registers or applies to register a licensed mark that violates
its obligations under this section, Licensee agrees, at Licensor's request, to
abandon the use of such mark and any application or registration for such mark.
3.3 Adverse Use. Each party shall notify the other of any adverse
on-line use by a third party of the Licensed Marks or of a mark or name
confusingly similar to the Licensed Marks. Licensee agrees to take no action
with respect thereto except with the prior written authorization of Licensor.
Licensor may thereupon take such action as it in its sole discretion deems
advisable for the protection of its rights in and to the Licensed Marks,
including allowing Licensee to bring and prosecute a claim against such third
party at Licensee's expense. Licensee further agrees to provide full cooperation
with any legal or equitable action by Licensor to protect Licensor's rights,
title and interest in the Licensed Marks. The party responsible for bringing and
prosecuting any infringement proceedings and for the expenses associated with
such proceedings shall have the sole right to retain any damages recovered in
such proceedings.
3.4 Assistance. Licensee shall assist Licensor in complying with any
formalities to protect the Licensed Marks under foreign law, such as registering
the Licensed Marks, registering this Agreement or filing as a registered user.
Licensee agrees to execute any documents reasonably requested by Licensor,
including, but not limited to, applications for registered user or additional
licenses for recording with the appropriate authorities. Licensee may propose to
Licensor in writing that additional applications for trademark or domain name
registrations be filed. Such applications may be made at Licensor's discretion
and at Licensor's expense. If Licensor does not undertake to initiate such any
such application proposed by Licensee within 30 days of receiving Licensee's
request for such action, then Licensee may initiate, at Licensee's
4
<PAGE>
expense, in Licensor's name, the requested application. Upon termination or
expiration of the license to use the Licensed Marks in a country to which this
section applies, Licensor and Licensee shall cancel the registered user
registration or recording of the Agreement in such country. Licensee agrees to
execute any documents reasonably requested by Licensor to complete such
cancellations.
3.5 Infringement Warranty and Indemnification. Licensor represents
and warrants to Licensee it owns the trademark applications and registrations
identified in Exhibit B hereto. Licensor shall indemnify, defend and hold
Licensee harmless from and against any and all losses, claims, damages,
liabilities, costs and expenses (including but not limited to reasonable
attorneys' fees) arising out of any third party claim, judgment or adjudication
against Licensee that the Licensed Marks infringe third party's trademark rights
in the jurisdictions identified in Exhibit B as jurisdictions in which Licensor
has been issued a trademark registration and for services identified in those
registrations, provided that Licensee (a) promptly notifies Licensor in writing
of any such claim and (b) permits Licensor to assume sole control of the defense
and/or settlement of such claim. Licensor shall defend or settle any such claim
at Licensor's expense and with Licensor's choice of counsel. Licensee shall
cooperate with Licensor, at Licensor's expense, in defending or settling such
claim, and Licensee may join in defense with counsel of its choice at Licensee's
expense. Licensee may not settle any claim without Licensor's consent. Licensor
shall have no liability hereunder to the extent that the infringement arises
solely from any use or modification of the Licensed Marks not permitted
hereunder.
3.6 Maintenance of Quality and Value of Licensed Marks. Licensor
shall not do any act or thing that would damage the reputation for quality
inherent in the Licensed Marks. Without limiting the foregoing, in all uses of
the Licensed Marks Licensor shall maintain the highest standards of product
quality, honesty, integrity, fair dealing and ethics. Licensor shall not sell
or offer of sale under the Licensed Marks any pet-related product that is
inconsistent with maintaining the association of the Licensed Marks with safe,
humane and responsible pet ownership. Licensor shall not sell or offer for sale
under the Licensed Marks any animal for research or experimentation. Licensor
shall monitor the quality of all services under the Licensed Marks provided by
parties to whom Licensor has granted licenses.
4. Term and Termination.
4.1 Term of Use. This Agreement shall begin on the Effective Date
and shall continue until terminated in accordance with the provisions of this
Agreement.
4.2 Termination by Licensor.
(a) In the event Licensee breaches any of its material
obligations under Sections 1, 2 or 3 of this Agreement, with respect to use of
the
5
<PAGE>
Licensed Marks in connection with obscene, unsafe, inhumane or violent products,
practices, or activities, or those that are deeply offensive to accepted
standards of propriety or decency, or the on-line sale of dog or cats for any
purpose, or the on-line sale of any animals for research or experimentation
purposes, Licensor may terminate this Agreement and the license granted
hereunder by giving notice in writing to Licensee of the default. The parties
agree that whether a product, practice or activity is unsafe or inhumane shall
be governed by the standards followed or approved by the American Humane
Association and/or the American Society for the Prevention of Cruelty to
Animals. In the event Licensee does not correct or eliminate the default within
45 days from the date of receipt of such notice, this Agreement, including the
license to use the Licensed Marks, shall terminate at the end of such 45 day
period.
(b) In the event Licensee breaches any of its other material
obligations under Sections 1, 2 or 3 of this Agreement, Licensor shall give
notice in writing to Licensee of the default. Licensor shall then have 30 days
to cure the default. If Licensee does not effect a cure to Licensor's
satisfaction, the chief executive officers of Licensor and Licensee shall,
within the following 15 days, confer in good faith for the purpose of
satisfactorily resolving the default. If a resolution satisfactory to Licensor
is not achieved within said 15 days, the parties agree promptly to submit the
dispute to a non-binding one day mediation session held in San Francisco,
California through Judicial Arbitration & Mediation Services/Endispute, Inc.
("JAMS") under the then existing JAMS Rules of Practice and Procedure by a
mediator mutually selected by the parties or, if no agreement can be promptly
reached on the selection of a mediator, then by the procedures for selecting a
mediator set forth in such rules. The mediation session shall take place no
later than 30 days from the appointment of a mediator. If such mediation is
unsuccessfiil in resolving the dispute, either party may then take whatever
legal actions it deems appropriate, including, without limitation, seeking
judicial relief, and/or terminating this Agreement. In the event that Licensor
terminates this Agreement as a result of a breach by Licensee as described in
this Section 4.2(b) neither Licensor nor any of its licensees may use the
Licensed Marks for the purpose of operating an on-line retail pet supply
business for a [*]. During such [*], internet domain traffic to the PETSMART.COM
URL will be redirected in a manner satisfactory to both parties to an
alternative domain name to be selected by Licensee.
(c) Licensor shall have the right to terminate this Agreement
and the license granted hereunder by giving written notice to Licensee if any
other retail mass merchandiser or specialty pet supply retailer beneficially
owns, direct or indirectly, fifteen percent (15%) or more of the then
outstanding common stock equivalents or total voting power of Licensee.
For purposes of this Section 4.2(b): (i) the term beneficial ownership shall
have the meaning set forth in Section 13(d) of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder; (ii) the term
total voting power shall
6
[*] CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTIONS.
<PAGE>
mean, at any time, the total number of votes that may be cast in the election of
directors of Licensee at any meeting of the holders of voting securities held at
such time for such purpose; and (iii) the term voting securities shall mean the
common stock of Licensee and any other securities issued by Licensee having the
power to vote in the election of directors of Licensee, including without
limitation any securities having such power only upon the occurrence of a
default or any other extraordinary contingency.
(d) Licensor shall have the right to terminate this Agreement
and the license granted hereunder by giving written notice to Licensed if
Licensee ceases use of the licensed mark PETSMART as a URL entirely or as its
dominant URL for a period of 30 days.
4.3 Automatic Termination. In the event that Licensee dissolves or
liquidates or ceases to engage in its business, files a petition in bankruptcy,
is adjudicated a bankrupt or files a petition or otherwise seeks relief under or
pursuant to any bankruptcy, insolvency or reorganization statute or proceeding,
or if a petition in bankruptcy is filed against it and is not discharged within
60 days thereafter or if Licensee makes an assignment for the benefit of its
creditors or if a custodian, receiver or trustee is appointed for it or for a
substantial portion of its business or assets and such appointment is not
discharged within 60 days thereafter, then this Agreement shall terminate
automatically and forthwith.
4.4 Consequences of Termination. In the event of any termination or
expiration of this Agreement, Licensee agrees to discontinue immediately all use
of the Licensed Marks. In the event of such termination or expiration, Licensee
shall promptly destroy or return to Licensee, at Licensee's expense, all
advertising or promotional materials, stationery or other materials that bear
the Licensed Marks.
5. Miscellaneous.
5.1 Governing Law. This Agreement shall be governed by and construed
in accordance with federal laws as they apply to trademark matters and in
accordance with the laws of the State of California as applied to contracts
entered into and to be performed entirely within the State of California without
regard to conflicts of laws principles.
5.2 Notices. Any notice given under this Agreement shall be in
writing and shall be delivered to the addresses set forth below the signatures
of the parties, unless a party changes its address by written notice to the
other party. Notices shall be deemed effectively given upon five (5) days
following being mailed by certified or registered mail, return receipt
requested, upon the next business day following being sent by U.S. Express Mail
or by a major U.S. express document courier, or upon receipt of confirmation
following transmission by facsimile machine. Any notice by Licensor
7
<PAGE>
of breach or termination under Section 4 must explicitly state that it is a
notice under Section 4 of this Agreement.
5.3 Entire Agreement. This Agreement constitutes the complete, final
and exclusive agreement between the parties with respect to the subject matter
hereof and shall supersede any and all prior oral or written representations,
conditions, warranties, understandings, proposals or agreements between the
parties regarding the subject matter hereof.
5.4 Amendment and Waiver. No provision of this Agreement may be
amended or waived except by a writing signed by both parties.
5.5 Severability. Any invalidity, in whole or in part, of one
provision of this Agreement shall not affect the validity of any other provision
of this Agreement.
5.6 Survival. In the event of termination of this Agreement and the
license granted hereunder in accordance with the provisions of Sections 4.1, 4.2
or 4.3 hereof, the obligations set forth in Sections 2.2, 2.3, 3.1, 3.2, 3.5,
4.4 and 5 shall remain in full force and effect.
5.7 Successors. Subject to the prohibitions against assignment
contained herein, this Agreement shall inure to the benefit of and shall be
binding on the parties hereto and their respective successors and permitted
assigns.
5.8 Legal Fees. In the event either party hereto shall institute any
action to enforce any rights hereunder, the prevailing party in such action
shall be entitled, in addition to any other relief awarded by the court, to
recover its reasonable attorney's fees and litigation expenses.
5.9 Equitable Relief. Licensee acknowledges and agrees that any
breach of its obligations under this Agreement with respect to limitations upon
its use of the Licensed Marks will result in irreparable harm to Licensor which
cannot be reasonably or adequately compensated in damages, Licensor shall be
entitled to injunctive and/or equitable relief to prevent a breach and to secure
enforcement thereof, in addition to any other relief or award to which Licensor
may be entitled.
5.10 Non-Assignability; Non-Transferability. Licensor acknowledges
that Licensee may propose sublicenses and categories of sublicenses for
Licensor's consideration in order to fully exploit the business opportunities
that both parties anticipate their collaboration will provide. Licensor's prior
written approval, which shall not be unreasonably withheld, shall be required
prior to the granting of any such sublicense. This Agreement may not be
otherwise assigned or transferred in any manner by Licensee without the prior
written consent of Licensor. Licensor acknowl-
8
<PAGE>
edges that, consistent with the license granted herein, Licensee shall have the
right to place banner and promotional advertisements featuring the Licensed
Marks, and create hot links to the PETSMART.COM site, on third party web sites.
No assignee for the benefit of creditors, custodian, receiver, trustee in
bankruptcy, sheriff or any other officer of the court or official charged with
taking over custody of Licensee's assets or business shall have the right to
continue this Agreement or to exploit or in anyway use the Licensed Marks if
this Agreement terminates pursuant to Section 4.3 above.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
Licensor: Licensee:
PETsMART, INC. PETSMART.COM
a Delaware Corporation a Delaware Corporation
By: /s/ Philip L. Francis By: /s/ Tom McGovern
------------------------------ ---------------------------------
Name: Philip L. Francis Name: Tom McGovern
-------------------------- --------------------------------
Address: 19601 N. 27th Avenue Address: 130 West Union
Phoenix, Arizona 85027 Pasadena, California 91103
Date: Date: 5/12/99
--------------------------- -------------------------------
9
<PAGE>
EXHIBIT A
---------------
PETSMART
---------------
PETSMART.COM
---------------
PETsMART
---------------
---------------
R.C. STEELE
---------------
RCSTEELE.COM
---------------
10
<PAGE>
EXHIBIT B
PETsMART, Inc. Trademark Registrations and Applications
PETSMART Applications and Registrations
<TABLE>
<CAPTION>
========================================================================================================
Country Class(es) Registration or Registration or
Application Number Application Date
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States Int'l Class 16 Registration No. 1,914,862 Registered 8/29/95
- --------------------------------------------------------------------------------------------------------
Int'l Class 42 Registration No. 1,559,337 Registered 10/3/89
========================================================================================================
</TABLE>
R.C. STEELE Registration
<TABLE>
<CAPTION>
========================================================================================================
Country Class(es) Registration or Registration or
Application Number Application Date
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States Int'l Class 42 Registration No. 1,543,985 Registered 6/13/89
========================================================================================================
</TABLE>
PETsMART with Bouncing Ball Logo Applications and Registrations
<TABLE>
<CAPTION>
========================================================================================================================
Country Class(es) Registration or Registration or
Application Number Application Date
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States Int'l Class 42 Registration No. 1,751,656 Registered 2/9/93
--------------------------------------------------------------------------------------------------------
Int'l Class 42 Registration No. 2,003,185 Registered 9/24/96
- ------------------------------------------------------------------------------------------------------------------------
Argentina Int'l Class 35 Application No. 2017374 Filed 1/15/96
--------------------------------------------------------------------------------------------------------
Int'l Class 42 Application No. 2017375 Filed 1/15/96
- ------------------------------------------------------------------------------------------------------------------------
Austria Int'l Classes 16, 31, Registration No. 171.581 Registered 9/16/97
38 and 42
- ------------------------------------------------------------------------------------------------------------------------
Benelux Int'l Classes 35 and 42 Registration No. 533126 Registered 5/24/93
- ------------------------------------------------------------------------------------------------------------------------
Brazil Brazilian Class 39.30 Application No. 819175099 Filed 1/23/97
- ------------------------------------------------------------------------------------------------------------------------
Brazil Brazilian Class 40.15 Registration No. 819175102 Registered 12/12/98
- ------------------------------------------------------------------------------------------------------------------------
Canada N/A Registration No. 474251 Registered 4/7/97
========================================================================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================================
Country Class(es) Registration or Registration or
Application Number Application Date
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chile Commercial Establishment Registration No. 477102 Registered 1/17/97
Class covering goods in
Classes 3, 5, 8, 18, 20,
21 and 28
------------------------------------------------------------------------------------------------
Int'l Class 35 Registration No. 477100 Registered 1/17/97
-----------------------------------------------------------------------------------------------
Int'l Class 42 Registration No. 477101 Registered 1/17/97
- ----------------------------------------------------------------------------------------------------------------------------
Columbia Int'l Class 42 Application No. 96018775 Filed 4/18/96
- ----------------------------------------------------------------------------------------------------------------------------
Costa Rica Int'l Class 42 Registration No. 97993 Registered 11/22/96
- ----------------------------------------------------------------------------------------------------------------------------
Czech Republic Int'l Classes 16, 31 Registration No. 212571 Registered 9/28/98
and 42
- ----------------------------------------------------------------------------------------------------------------------------
Denmark Int'l Classes 16, 31 Application No. 616/1997 Filed 2/5/97
and 42
- ----------------------------------------------------------------------------------------------------------------------------
Dominican Republic Dominican Class 63 Registration No. 84,421 Registered 6/15/96
- ----------------------------------------------------------------------------------------------------------------------------
Dominican Class 70 Registration No. 84,511 Registered 6/15/96
-----------------------------------------------------------------------------------------------
ECTM Int'l Classes 1, 5, 7, 9, Application No. 182,105 Filed 4/1/96
11, 16, 18, 19, 20, 21,
28, 31, 41, and 42
- ----------------------------------------------------------------------------------------------------------------------------
Egypt Int'l Class 16 Application No. 105108 Filed 2/12/97
- ----------------------------------------------------------------------------------------------------------------------------
Int'l Class 31 Application No. 105109 Filed 2/12/97
-----------------------------------------------------------------------------------------------
Int'l Class 42 Application No. 105110 Filed 2/12/97
- ----------------------------------------------------------------------------------------------------------------------------
Finland Int'l Classes 16, 31, Registration No. 209002 Registered 1/30/98
35, 38, 41 and 42
- ----------------------------------------------------------------------------------------------------------------------------
France Int'l Class 42 Registration No. 93/497203 Registered 12/17/93
- ----------------------------------------------------------------------------------------------------------------------------
Germany Int'l Classes 35 and 42 Registration No. 2101210 Registered 9/24/96
- ----------------------------------------------------------------------------------------------------------------------------
Greece Int'l Class 42 Registration No. 128734 Registered 3/17/98
- ----------------------------------------------------------------------------------------------------------------------------
Guatemala Int'l Class 42 Registration No. 88005 Registered 11/14/97
- ----------------------------------------------------------------------------------------------------------------------------
Hong Kong Int'l Class 42 Application No. 95-15677 Filed 12/11/95
- ----------------------------------------------------------------------------------------------------------------------------
Iceland Int'l Classes 16, 31, Registration No. 906/1997 Registered 7/24/97
35 and 42
- ----------------------------------------------------------------------------------------------------------------------------
India Int'l Class 16 Application No. 733031 Filed 2/6/97
-----------------------------------------------------------------------------------------------
Int'l Class 21 Application No. 733035 Filed 2/6/97
-----------------------------------------------------------------------------------------------
Int'l Class 28 Application No. 733033 Filed 2/6/97
-----------------------------------------------------------------------------------------------
Int'l Class 31 Application No. 733032 Filed 2/6/97
- ----------------------------------------------------------------------------------------------------------------------------
Ireland Int'l Class 42 Registration No. 200610 Registered 7/1/96
- ----------------------------------------------------------------------------------------------------------------------------
Israel Int'l Class 16 Application No. 110407 Filed 2/13/97
-----------------------------------------------------------------------------------------------
Int'l Class 31 Application No. 110408 Filed 2/13/97
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================================
Country Class(es) Registration or Registration or
Application Number Application Date
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Int'l Class 35 Application No. 122469 Filed 9/16/98
- ----------------------------------------------------------------------------------------------------------------------------
Int'l Class 42 Application No. 110409 Filed 2/13/97
- ----------------------------------------------------------------------------------------------------------------------------
Italy Int'l Class 42 Registration No. 660.723 Registered 10/17/95
- ----------------------------------------------------------------------------------------------------------------------------
Japan Int'l Class 42 Registration No. 4093798 Registered 12/19/97
- ----------------------------------------------------------------------------------------------------------------------------
Kuwait Int'l Class 42 Application No. 36896 Filed 6/18/97
- ----------------------------------------------------------------------------------------------------------------------------
Malaysia Int'l Class 5 Application No. 96/2003,644 Filed 4/10/96
-----------------------------------------------------------------------------------------------
Int'l Class 16 Application No. 96/2003,645 Filed 4/10/96
-----------------------------------------------------------------------------------------------
Int'l Class 18 Application No. 96/2003,646 Filed 4/10/96
-----------------------------------------------------------------------------------------------
Int'l Class 21 Application No. 96/2003,647 Filed 4/10/96
-----------------------------------------------------------------------------------------------
Int'l Class 28 Application No. 96/2003,649 Filed 4/10/96
-----------------------------------------------------------------------------------------------
Int'l Class 31 Application No. 96/2003,650 Filed 4/10/96
- ----------------------------------------------------------------------------------------------------------------------------
Mexico Int'l Class 42 Registration No. 453616 Registered 3/4/94
- ----------------------------------------------------------------------------------------------------------------------------
New Zealand Int'l Class 42 Registration No. B227109 Registered 5/21/93
- ----------------------------------------------------------------------------------------------------------------------------
Nicaragua Int'l Class 42 Registration No. 32,286 C.C. Registered 11/5/96
- ----------------------------------------------------------------------------------------------------------------------------
Norway Int'l Classes 16, 31 Application No. 970698 Filed 1/28/97
and 42
- ----------------------------------------------------------------------------------------------------------------------------
Panama Int'l Class 42 Registration No. 081120 Registered 6/3/96
- ----------------------------------------------------------------------------------------------------------------------------
Peru Int'l Class 42 Registration No. 7999 Registered 8/16/96
- ----------------------------------------------------------------------------------------------------------------------------
Phillipines Int'l Class 42 Application No. 107313 Filed 4/11/96
-----------------------------------------------------------------------------------------------
Int'l Class 42 Not yet available Filed 4/11/96
- ----------------------------------------------------------------------------------------------------------------------------
Poland Int'l Classes 16, 31 Application No. Z-169944 Filed 2/19/97
and 42
- ----------------------------------------------------------------------------------------------------------------------------
Portugal Int'l Classes 42 Registration No. 314.349 Registered 9/9/96
- ----------------------------------------------------------------------------------------------------------------------------
Russian Federation Int'l Classes 16, 31 Registration No. 164447 Registered 5/15/98
and 42
- ----------------------------------------------------------------------------------------------------------------------------
Saudi Arabia Int'l Class 16 Application No. 39747 Filed 7/12/97
-----------------------------------------------------------------------------------------------
Int'l Class 31 Application No. 39771 Filed 7/12/97
-----------------------------------------------------------------------------------------------
Int'l Class 42 Application No. 39772 Filed 7/12/97
- ----------------------------------------------------------------------------------------------------------------------------
Singapore Int'l Class 16 Application No. 1166/97 Filed 1/31/97
-----------------------------------------------------------------------------------------------
Int'l Class 31 Application No. 1167/97 Filed 1/31/97
-----------------------------------------------------------------------------------------------
Int'l Class 35 Application No. 8388/98 Filed 8/21/98
-----------------------------------------------------------------------------------------------
Int'l Class 42 Application No. 8389/98 Filed 8/21/98
- ----------------------------------------------------------------------------------------------------------------------------
South African Int'l Class 16 Application No. 97/1982 Filed 2/10/97
Republic -----------------------------------------------------------------------------------------------
Int'l Class 31 Application No. 97/1983 Filed 2/10/97
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================================
Country Class(es) Registration or Registration or
Application Number Application Date
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Int'l Class 42 Application No. 09701984 Filed 2/10/97
- ----------------------------------------------------------------------------------------------------------------------------
Spain Int'l Class 42 Registration No. 1,795,187/9 Registered 7/11/95
- ----------------------------------------------------------------------------------------------------------------------------
Sweden Int'l Class 42 Application No. 300,519 Filed 4/13/95
- ----------------------------------------------------------------------------------------------------------------------------
Switzerland Int'l Class 42 Registration No. 412,204 Registered 5/21/93
- ----------------------------------------------------------------------------------------------------------------------------
Taiwan Int'l Class 42 Registration No. 86168 Registered 11/1/96
- ----------------------------------------------------------------------------------------------------------------------------
United Arab Emirates Int'l Class 42 Application No. 22303 Filed 6/23/97
- ----------------------------------------------------------------------------------------------------------------------------
United Kingdom Int'l Classes 16, 18, Registration No. 2115265 Registered 11/11/96
19, 21, 28, 31,
and 41
-----------------------------------------------------------------------------------------------
Int'l Class 42 Registration No. B1571365 Registered 5/10/94
- ----------------------------------------------------------------------------------------------------------------------------
Venezuela Int'l Class 42 Application No. 4691-96 Registered 8/6/97
-----------------------------------------------------------------------------------------------
Class: Tradename Application No. 12570-96 Registered 3/13/98
============================================================================================================================
</TABLE>
14
<PAGE>
EXHIBIT 10.33
PETsMART.com, Inc.
35 Hugus Alley #210
Pasadena, California 91103
February 2, 2000
PETsMART, Inc.
19601 N. 27th Avenue
Phoenix, Arizona 85027
Ladies and Gentlemen:
This letter confirms that the Trademark License Agreement (the
"Agreement") between PETsMART, Inc. and PETsMART.com, Inc., dated as of May 12,
1999, is hereby modified as follows:
The term "retail mass merchandiser or specialty pet supply retailer"
Section 4.2(c) of the Agreement shall be deemed to mean only (in each case,
regardless of when such entity acquires beneficial ownership, direct or
indirect, of 15% or more of the then outstanding common stock equivalents or
voting power of Licensee):
(1) a land-based retail mass merchandiser or land-based or online specialty
pet supply retailer (a "Primary Competitor"); and
(2) an online retail mass merchandiser that owns a controlling interest in
or has a material marketing, fulfilment, financial or similar strategic
relationship with a Primary Competitor.
Notwithstanding any other provision of the Agreement, such term shall
not include PETsMART, Inc. or any of its existing or future affiliates.
Except as expressly modified hereby, the Agreement shall remain in
full force and effect.
Sincerely,
PETsMART.com, Inc.
/s/ Tom McGovern
---------------------------------
Tom McGovern, Jr.
Chief Executive Officer
AGREED TO AND ACCEPTED:
PETsMART, INC.
/s/ Philip L. Francis
- ----------------------------
Name: Philip L. Francis
Title: President and CEO
<PAGE>
EXHIBIT 10.34
PETsMART.COM, INC.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract and
--------------------
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Employees, Directors and Consultants and to
promote the success of the Company's business. Options granted under the Plan
may be Incentive Stock Options or Nonstatutory Stock Options, as determined by
the Administrator at the time of grant. Stock Purchase Rights may also be
granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means PETsMART.com, Inc. a Delaware corporation.
-------
<PAGE>
(h) "Consultant" means any person who is engaged by the Company or any
----------
Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "Director" means a member of the Board of Directors of the Company.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the l81st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
2
<PAGE>
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify
-------------------------
as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
------
(r) "Option Agreement" means a written or electronic agreement between
----------------
the Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(s) "Option Exchange Program" means a program whereby outstanding Options are
exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
3
<PAGE>
(w) "Plan" means this 1999 Stock Plan.
----
(x) "Restricted Stock" means shares of Common Stock acquired pursuant to a
-----------------
grant of a Stock Purchase Right under Section 11 below.
(y) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
------------
of 1934, as amended.
(z) "Service Provider" means an Employee, Director or Consultant.
----------------
(aa) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(bb) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(cc) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defrned in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is l,191,169 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4
<PAGE>
4. Administration of the Plan.
--------------------------
(a) Administrator. The Plan shall be administered by the Board or a
-------------
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan
---------------------------
and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each such
award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or Stock
Purchase Right granted hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options or Stock Purchase
Rights may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or Stock Purchase Right or the Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
5
<PAGE>
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted
to Service Providers. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
6
<PAGE>
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued upon
exercise of an option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
7
<PAGE>
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable according to the terms hereof at such times and
under such conditions as determined by the Administrator and set forth in the
Option Agreement. Except in the case of Options granted to Officers, Directors
and Consultants, Options shall become exercisable at a rate of no less than 20%
per year over five (5) years from the date the Options are granted. Unless the
Administrator
8
<PAGE>
provides otherwise, vesting of Options granted hereunder shall be tolled during
any unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least
9
<PAGE>
six (6) months) to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (l2) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. The Options
--------------------------------------------------------
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
10
<PAGE>
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The offer shall be accepted by execution of a
Restricted Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a stockholder
and shall be a stockholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
----------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
11
<PAGE>
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
--------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in
12
<PAGE>
writing or electronically that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Stockholder Approval. The Board shall obtain stockholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
13
<PAGE>
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan, shall
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the degree and manner
required under Applicable Laws.
14
<PAGE>
19. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
15
<PAGE>
PETsMART.COM, INC.
AMENDMENT TO 1999 STOCK PLAN
Section 3 of the 1999 Stock Plan of PETsMART.com Inc., a Delaware
corporation, is hereby amended and restated in its entirety to read as follows:
3. Stock Subject to the Plan. Subject to the provisions of
-------------------------
Section 12 of the Plan, the maximum aggregate number of Shares which
may be subject to option and sold under the Plan in 5,466,464 Shares.
The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which
were subject thereto shall become available for future grant or sale
under the Plan (unless the Plan has terminated). However, Shares that
have actually been issued under the Plan, upon exercise of either an
Option or Stock Purchase Right, shall not be returned to the Plan and
shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become
available for future grant under the Plan.
Dated: October 6, 1999 /s/ Tom McGovern
-----------------------------------
Tom McGovern, Jr.
Secretary
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EXHIBIT 10.35
[FORM OF PETsMART.COM, INC.
AMENDMENT TO 1999 STOCK PLAN]
The first sentence of Section 3 of the 1999 Stock Plan of PETsMART.com
Inc., a Delaware corporation, is hereby amended to read as follows:
"The maximum number of Shares reserved for the grant of Options and
Stock Purchase Rights under the Plan shall be, subject to adjustment as provided
herein, that number of shares equal to 20% of the number of Shares outstanding
at any time, provided that in no event shall the number of shares available for
issuance under the Plan exceed 11,000,000 Shares."
Dated: ___________________________________________
Tom McGovern, Jr.
President and Chief Executive Officer
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EXHIBIT 10.36
FORM OF PETsMART.COM, INC.
2000 DIRECTORS' STOCK OPTION PLAN
1. PURPOSES OF THE PLAN.
The purposes of this Directors' Stock Option Plan are to attract and retain
the best available personnel for service as Directors of the Company, to provide
additional incentive to the Outside Directors of the Company to serve as
Directors, and to encourage their continued service on the Board. All options
granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Affiliate" has the meaning given to such term in Rule 144(a)(1)
promulgated under the Securities Act of 1933, as amended.
(b) "Board" means the Board of Directors of the Company or the com
pensation committee thereof.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Common Stock" means the Common Stock of the Company.
(e) "Company" means PETsMART.com, Inc. a Delaware corporation.
(f) "Continuous Status As A Director" means the absence of any
interruption or termination of service as a Director.
(g) "Corporate Transaction" means a dissolution or liquidation of the
Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.
(h) "Director" means a member of the Board of Directors of the Company.
(i) "Employee" means any person, including any officer or Director,
employed by the Company or any Subsidiary or Affiliate of the Company. The
payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
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(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(k) "Option" means a nonstatutory stock option granted pursuant to the Plan
(i.e., options that are not intended to qualify as incentive stock options under
Section 422 of the Code).
(l) "Optioned Stock" means the Common Stock subject to an Option.
(m) "Optionee" means an Outside Director who receives an Option.
(n) "Outside Director" means a Director who is not an Employee.
(o) "Plan" means this 2000 Directors' Stock Plan.
(p) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 11 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
3. ELIGIBILITY.
Options may be granted only to Outside Directors. All Options shall be
automatically granted in accordance with the terms set forth in Section 6 below.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
4. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 12 of the Plan, the maximum aggregate
number of Shares which may be optioned and sold under the Plan is 300,000 Shares
of Common Stock (the "Pool"). The Shares may be authorized, but unissued, or
reacquired Common Stock.
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If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan has been terminated, become available for future grant
under the Plan. In addition, any Shares of Common Stock that are retained by
the Com pany upon exercise of an Option in order to satisfy the exercise price
for such Option, or any withholding taxes due with respect to such exercise,
shall be treated as not issued and shall continue to be available under the
Plan. If Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan shall be
administered by the Board.
(b) POWERS OF THE BOARD. Subject to the provisions and restrictions of
the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per Share of Options to be granted, which exercise price
shall be determined in accordance with Section 8 of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(d) SUSPENSION OR TERMINATION OF OPTION. If the Chief Executive Officer
or his or her designee reasonably believes that an Optionee has committed an
act of misconduct, such officer may suspend the Optionee's right to exercise any
option pending a determination by the Board (excluding the Outside Director
accused of such misconduct). If the Board (excluding the Outside Director
accused of such misconduct) determines an Optionee has committed an act of
embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage
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or injury to the Company, or if an Optionee makes an unauthorized disclosure of
any Company trade secret or confidential information, engages in any conduct
constituting unfair competition, induces any Company customer to breach a
contract with the Company or induces any principal for whom the Company acts as
agent to terminate such agency relationship, neither the Optionee nor his or her
estate shall be entitled to exercise any Option whatsoever. In making such
determination, the Board of Directors (excluding the Outside Director accused of
such misconduct) shall act fairly and shall give the Optionee an opportunity to
appear and present evidence on Optionee's behalf at a hearing before the Board
or a committee of the Board.
6. PROCEDURE FOR GRANTS.
All grants of Options hereunder shall be automatic and nondiscretionary and
shall be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director who becomes an Outside Director after the
effective date of this Plan shall be automatically granted an Option to purchase
25,000 Shares on the date on which such person first becomes an Outside
Director, whether through election by the stockholders of the Company or
appointment by the Board to fill a vacancy.
(iii) Each Outside Director shall thereafter be automatically granted
an Option to purchase 12,500 Shares on the date of each Annual Meeting of the
Company's stockholders immediately following which such Outside Director is
serving on the Board, provided that, on such date, he or she shall have served
on the Board for at least six (6) months prior to the date of such Annual
Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to
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increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any grant of an Option made before the Company has obtained stockholder
approval of the Plan in accordance with Section 15 hereof shall be conditioned
upon obtaining such stockholder approval of the Plan in accordance with Section
15 hereof.
7. VESTING AND EXERCISABILITY.
The Option shall be fully vested and exercisable in its entirety
immediately upon grant. The Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 10
below.
8. TERM OF OPTIONS.
The term of each Option shall be ten (10) years from the date of grant
thereof unless an Option terminates sooner pursuant to Section 10 below.
9. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined by the
Board; provided however that in the event the Common Stock is traded on the
Nasdaq National Market or listed on a stock exchange, the fair market value per
Share shall be the closing sales price on such system or exchange on the date of
grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in THE WALL
STREET JOURNAL, or if there is a public market for the Common Stock but the
Common Stock is not traded on the Nasdaq National Market or listed on a stock
exchange, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System).
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(c) FORM OF CONSIDERATION. The consideration to be paid for the Shares to
be issued upon exercise of an Option shall consist entirely of cash, check,
other Shares of Common Stock having a fair market value on the date of surrender
equal to the aggregate exercise price of the Shares as to which the Option shall
be exercised (which, if acquired from the Company, shall have been held for at
least six months), or any combination of such methods of payment and/or any
other consideration or method of payment as shall be permitted under
applicable corporate law.
10. EXERCISE OF OPTION.
(a) An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 9(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be
issued to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an Outside
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 8 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the
extent he or she was entitled to exercise) within the time specified above,
the Option shall terminate and the Shares underlying the unexercised portion of
the Option shall revert to the Plan.
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11. NONTRANSFERABILITY OF OPTIONS.
The Option may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent or
distribution or pursuant to a qualified domestic relations order (as defined by
the Code or the rules thereunder). The designation of a beneficiary by an
Optionee does not constitute a transfer. An Option may be exercised during
the lifetime of an Optionee only by the Optionee or a transferee permitted by
this Section.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPO RATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the stockholders of the
Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Section 6 above, and
the number of Shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share of Common Stock covered by each such outstanding Option,
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock (including
any such change in the number of Shares of Common Stock effected in connection
with a change in domicile of the Company) or any other increase or decrease in
the number of issued Shares of Common Stock effected without receipt of
consideration by the Company; provided however that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) CORPORATE TRANSACTIONS. In the event of a Corporate Transaction,
each outstanding Option shall be assumed or an equivalent option shall be
substituted by the successor corporation or a Parent or Subsidiary of such
successor corporation, unless the successor corporation does not agree to assume
the outstand-
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ing Options or to substitute equivalent options, in which case the Options shall
terminate upon the consummation of the transaction.
(c) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan
from time to time in such respects as the Board may deem advisable; provided
that, to the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act (or any other applicable law or regulation), the Company shall
obtain approval of the stockholders of the Company to Plan amendments to the
extent and in the manner required by such law or regulation.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amend ment or
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. OPTION AGREEMENT.
Options shall be evidenced by written option agreements in such form as the
Board shall approve.
15. STOCKHOLDER APPROVAL.
If required by the Applicable Laws, continuance of the Plan shall be
subject to approval by the stockholders of the Company. Such stockholder
approval shall be obtained in the manner and to the degree required under the
Applicable Laws.
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16. TERM OF PLAN; EFFECTIVE DATE.
The Plan shall become effective on the effectiveness of the registration
statement under the Securities Act of 1933, as amended, relating to the
Company's initial public offering of securities. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
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EXHIBIT 10.37
FORM OF PETsMART.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
Section 1. General Purpose of Plan; Definitions.
The name of this plan is the PETsMART.Com, Inc. 2000 Employee
Stock Purchase Plan (the "Plan"). The Plan was adopted by the Board (defined
below) on [ ], subject to the approval of the stockholders of the Company
(defined below), which approval was obtained on [ ]. The purpose of the Plan
is to provide Employees (defined below) of the Company (defined below), with the
opportunity to purchase Common Stock (defined below) through accumulated payroll
deductions. It is the intention of the Company that the Plan qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Code
(defined below), and that the provisions of the Plan be construed in a manner
consistent with the requirements of such Section of the Code.
For purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Administrator" means the Board, or if and to the extent the
-------------
Board does not administer the Plan, the Committee in accordance with Section 11
below.
(b) "Board" shall mean the Board of Directors of the Company.
-----
(c) "Change in Capitalization" shall mean any increase,
------------------------
reduction, change or exchange of Shares for a different number of shares and/or
kind of shares or other securities of the Company by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
issuance of warrants or rights, stock dividend, stock split or reverse stock
split, combination or exchange of Shares, repurchase of Shares, change in
corporate structure or otherwise.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended from time to time, or any successor thereto.
(e) "Committee" shall mean a committee appointed by the Board to
---------
administer the Plan and to perform the functions set forth herein.
(f) "Common Stock" shall mean the common stock, $0.001 par
------------
value, of the Company.
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(g) "Company" shall mean PETsMART.Com, Inc., a Delaware
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corporation or any Subsidiary of the Company.
(h) "Compensation" shall mean the fixed salary or wage paid by
------------
the Company to an Employee as reported by the Company to the United States
government for Federal income tax purposes, including an Employee's portion of
salary deferral contributions pursuant to Section 401(k) of the Code and any
amount excludable pursuant to Section 125 of the Code, but excluding any
payments for overtime, shift premium, incentive compensation, bonuses,
commissions, severance pay, expense reimbursements or any credit or benefit
under any employee plan maintained by the Company.
(i) "Continuous Status as an Employee" shall mean the absence of
--------------------------------
any interruption or termination of service as an Employee. Continuous Status as
an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, as appropriate, provided that (x)
such leave is for a period of not more than 90 days or (y) reemployment with the
Company, as appropriate, is guaranteed by contract or statute upon expiration of
such leave.
(j) "Employee" shall mean any person who is customarily employed
--------
for at least twenty (20) hours per week and more than five (5) months in a
calendar year by the Company
(k) "Effective Date" shall mean the date on which the Securities
--------------
and Exchange Commission declares the Company's Registration Statement (as
defined below) effective.
(l) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(m) "Fair Market Value" as of a particular date shall mean the
-----------------
fair market value of the Shares as determined by the Administrator in its sole
discretion; provided, however, that (i) if the Shares are admitted to trading on
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a national securities exchange, fair market value of the Shares on any date
shall be the closing sale price reported for the Shares on such exchange on such
date or, if no sale was reported on such date, on the last date preceding such
date on which a sale was reported, (ii) if the Shares are admitted to quotation
on the National Association of Securities Dealers Automated Quotation ("Nasdaq")
System or other comparable quotation system and have been designated as a
National Market System ("NMS") security, fair market value of the Shares on any
date shall be the closing sale price reported for the Shares on such system on
such date or, if no
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sale was reported on such date, on the last date preceding such date on which a
sale was reported, or (iii) if the Shares are admitted to quotation on the
Nasdaq System but have not been designated as an NMS security, fair market value
of the Shares on any date shall be the average of the highest bid and lowest
asked prices of the Shares on such system on such date or, if no bid and ask
prices were reported on such date, on the last date preceding such date on which
both bid and ask prices were reported. Notwithstanding anything to the contrary
contained herein, for purposes of the Enrollment Date of the first Offering
Period under the Plan, fair market value of the Shares shall be the initial
price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial underwritten public offering of the Stock (the
"Registration Statement").
(n) "Offering Period" shall mean a period as described in
---------------
Section 3 hereof.
(o) "Participant" shall mean an Employee who elects to
-----------
participate in the Plan pursuant to Section 4 hereof.
(p) "Purchase Date" shall mean the last Trading Day of each
-------------
Offering Period.
(q) "Purchase Price" shall mean an amount equal to the lesser
--------------
of (i) 85% of the Fair Market Value of a Share on the Enrollment Date or (ii)
85% of the Fair Market Value of a Share on the Purchase Date.
(r) "Share" shall mean a share of Common Stock.
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(s) "Subsidiary" shall mean any corporation (other than the
----------
Company) in an unbroken chain of corporations, beginning with the Company, if,
at the time of the granting of an option, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
(t) "Trading Day" shall mean a day on which national stock
-----------
exchanges and the Nasdaq System are open for trading.
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Section 2. Eligibility.
(a) Subject to the limitations set forth in Section 2(b) hereof,
any person who is an Employee as of an Enrollment Date shall be eligible to
participate in the Plan in accordance with Section 4 hereof and shall be granted
an option for the Offering Period commencing on such Enrollment Date.
(b) Notwithstanding any provision of the Plan to the contrary,
no Employee shall be granted an option under the Plan (i) if such Employee (or
any other person whose stock would be attributed to such Employee pursuant to
Section 424(d) of the Code) would own stock and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company, or (ii) if such grant
would permit such Employee's right to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company, to accrue
at a rate that exceeds twenty-five thousand dollars ($25,000) of Fair Market
Value of such stock (determined at the time such option is granted) for any
calendar year in which such option would be outstanding. Any amounts received
from an Employee that cannot be used to purchase Shares as a result of this
limitation shall be returned as soon as reasonably practicable to the Employee
without interest.
Section 3. Offering Periods.
The Plan shall be implemented by a series of consecutive six-
month Offering Periods, with a new Offering Period commencing on the first
Trading Day on or after May 15 and November 15 of each year, or at such other
time or times as may be determined by the Administrator, and ending on the last
Trading Day on or before the following November 14 and May 14, respectively, or
at such other time or times as may be determined by the Administrator; provided,
--------
however, that the first Offering Period under the Plan shall commence with the
- -------
first Trading Day on or after the date on which the Securities and Exchange
Commission declares the Company's Registration Statement effective and ending on
the last Trading Day on or before the May 14 or November 14 immediately
thereafter. The Plan shall continue until terminated in accordance with Section
17 hereof. Subject to Section 17 hereof, the Administrator shall have the power
to change the duration and/or the frequency of Offering Periods with respect to
future offerings and shall use its best efforts to notify Employees of any such
change at least fifteen (15) days prior to the scheduled beginning of the first
Offering Period to be affected. In no event shall any option
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granted hereunder be exercisable more than twenty-seven (27) months from its
date of grant.
Section 4. Enrollment; Participation.
(a) On each Enrollment Date, the Company shall commence an
offering by granting each eligible Employee who has elected to participate in
such Offering Period pursuant to Section 4(b) hereof an option to purchase on
the Purchase Date of such Offering Period up to a number of Shares determined by
dividing each Employee's payroll deductions accumulated prior to such Purchase
Date and retained in the Participant's account as of such Purchase Date by the
applicable Purchase Price; provided that in no event shall a Participant be
permitted to purchase during each Offering Period more than 2,500 Shares
(subject to any adjustment pursuant to Section 16 hereof), provided, further,
-------- -------
that such purchase shall be subject to the limitations set forth in Sections
2(b) and 10 hereof. Exercise of the option shall occur as provided in Section 6
hereof, unless the Participant has withdrawn pursuant to Section 8 hereof. The
option with respect to an Offering Period shall expire on the Purchase Date with
respect to such Offering Period or the withdrawal date if earlier.
(b) Subject to the limitations set forth in Section 2(b) hereof,
an Employee may elect to become a Participant in the Plan by completing and
filing a subscription agreement authorizing the Company to make payroll
deductions (as set forth in Section 5 hereof) at least five (5) business days
prior to the applicable Enrollment Date unless a later time for filing the
subscription agreement is set by the Administrator for all Employees. Unless a
Participant, by giving written notice (or such other notice as may from time to
time be prescribed by the Administrator), elects not to participate with respect
to any subsequent Offering Period, the Participant shall be deemed to have
accepted each new offer and to have authorized payroll deductions in respect
thereof during each subsequent Offering Period.
Section 5. Payroll Deductions.
(a) An Employee may, in accordance with rules and procedures
adopted by the Administrator and subject to the limitation set forth in Section
2(b) hereof, authorize payroll deductions in amounts which are not less than one
percent (1%) and not more than fifteen percent (15%) of such Employee's
Compensation on each payday during the Offering Period. Payroll deductions shall
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commence on the first payroll paid following the Enrollment Date, and shall end
on the last payroll paid prior to the Purchase Date of the Offering Period to
which the subscription agreement is applicable, unless sooner terminated by the
Participant's withdrawal from the Plan or termination of the Participant's
Continuous Status as an Employee as provided in Section 8 hereof. A Participant
may increase or decrease his or her rate of payroll deductions at any time
during an Offering Period, but not more frequently than once during each
Offering Period, or as may be determined by the Administrator prior to the
commencement of an Offering Period, by giving written notice (or such other
notice as may from time to time be prescribed by the Administrator). The change
in rate shall be effective the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in rate of payroll
deductions more quickly.
(b) All payroll deductions made by a Participant shall be
credited to such Participant's account under the Plan and shall be withheld in
whole percentages only. A Participant may not make any additional payments into
such account.
(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 2(b) hereof, a
Participant's rate of payroll deductions may be decreased by the Company to zero
percent (0%) at any time during an Offering Period. Payroll deductions shall
recommence at the rate provided for in such Participant's subscription agreement
at the beginning of the first Offering Period which is scheduled to end the
following calendar year, unless a Participant increases or decreases the rate of
his or her payroll deductions as provided in Section 5(a) hereof, or terminates
his or her participation in the Plan as provided in Section 8 hereof.
Section 6. Purchase of Shares.
Unless a Participant withdraws from the Plan as provided in
Section 8 hereof, such Participant's election to purchase Shares shall be
exercised automatically on each Purchase Date, and the maximum number of whole
Shares subject to option shall be purchased for each Participant at the
applicable Purchase Price with the accumulated payroll deductions in each
Participant's account as of the Purchase Date. No fractional Shares may be
purchased hereunder. Any payroll deductions accumulated in a Participant's
account following the purchase of Shares on any Purchase Date that are not
sufficient to purchase a full Share shall be retained in
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the Participant's account for the subsequent Offering Period, subject to earlier
withdrawal by the Participant as provided in Section 8 hereof. Any additional
amounts remaining in a Participant's account following the purchase of Shares on
any Purchase Date that are equal to, or in excess of, the amount required under
this Section 6 to purchase at least one full Share shall be returned to the
Participant as soon as reasonably practicable following the Purchase Date.
During a Participant's lifetime, a Participant's option to purchase Shares
hereunder is exercisable only by the Participant.
Section 7. Delivery of Shares; Withdrawal or Sale of Shares.
As promptly as reasonably practicable after each Purchase Date,
the Company shall either arrange the delivery of the whole Shares purchased on
such date by each Participant to the Participant's brokerage account or arrange
the delivery to the Participant of a share certificate representing such Shares.
Section 8. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all, but not less than all, of
the payroll deductions credited to such Participant's account (that have not
been used to purchase Shares) under the Plan by giving written notice to the
Company at least five (5) business days prior to the Purchase Date of the
Offering Period in which the withdrawal occurs. Withdrawal of payroll deductions
shall be deemed to be a withdrawal from the Plan. All of the payroll deductions
credited to such Participant's account (that have not been used to purchase
Shares) shall be paid to such Participant promptly after receipt of such
Participant's notice of withdrawal, and such Participant's eligibility to
participate in the Plan for the Offering Period in which the withdrawal occurs
shall be automatically terminated. No further payroll deductions for the
purchase of Shares shall be made for such Participant during such Offering
Period. If a Participant withdraws from an Offering Period, payroll deductions
for such Participant shall not resume at the beginning of the succeeding
Offering Period unless the Participant timely delivers to the Company a new
subscription agreement in accordance with the provisions of Section 4 hereof. A
Participant's withdrawal from an Offering Period shall not have any effect upon
a Participant's eligibility to participate in any similar plan which may
hereafter be adopted by the Company or in succeeding Offering Periods which
commence after termination of the Offering Period from which the Participant
withdraws.
7
<PAGE>
(b) Upon termination of a Participant's Continuous Status as an
Employee during the Offering Period for any reason, including Participant's
voluntary termination, retirement or death, all the payroll deductions credited
to such Participant's account (that have not been used to purchase Shares) shall
be returned to such Participant or, in the case of such Participant's death, to
the person or persons entitled thereto under Section 12 hereof, and such
Participant's option shall be automatically terminated. Such termination shall
be deemed a withdrawal from the Plan.
Section 9. Interest.
No interest shall accrue on or be payable by the Company with
respect to the payroll deductions of a Participant in the Plan.
Section 10. Stock Subject to Plan.
(a) Subject to adjustment upon Changes in Capitalization of the
Company as provided in Section 16 hereof, the maximum number of Shares which
shall be reserved for sale under the Plan shall be 1,000,000 Shares, plus an
annual increase to be added on each of the first five anniversaries of the
Effective Date equal to the lesser of (i) 500,000 shares, (ii) 3% of the
outstanding shares on such date or (iii) a lesser amount determined by the
Board. Such Shares shall be available as of the first day of the first Offering
Period that commences in each such fiscal year. The Shares may consist, in whole
or in part, of authorized and unissued Shares or treasury Shares. If the total
number of Shares which would otherwise be subject to options granted pursuant to
Section 2(a) hereof on an Enrollment Date exceeds the number of Shares then
available under the Plan (after deduction of all Shares for which options have
been exercised or are then outstanding), the Administrator shall make a pro rata
allocation of the Shares remaining available for option grant in as uniform a
manner as shall be practicable and as it shall determine to be equitable. In
such event, the Administrator shall give written notice to each Participant of
such reduction of the number of option Shares affected thereby and shall
similarly reduce the rate of payroll deductions, if necessary.
(b) No Participant shall have rights as a stockholder with
respect to any option granted hereunder until the date on which such Shares
shall be deemed to have been purchased by the Participant in accordance with
Section 6 hereof.
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<PAGE>
(c) Shares purchased on behalf of a Participant under the Plan
shall be registered in the name of the Participant or, if requested in writing
by the Participant, in the names of the Participant and the Participant's
spouse.
Section 11. Administration.
The Plan shall be administered by the Board or a Committee. The
Board or the Committee shall have full power and authority, subject to the
provisions of the Plan, to promulgate such rules and regulations as it deems
necessary for the proper administration of the Plan, to interpret the provisions
and supervise the administration of the Plan, and to take all action in
connection therewith or in relation thereto as it deems necessary or advisable.
Any decision reduced to writing and signed by a majority of the members of the
Committee shall be fully effective as if it had been made at a meeting duly
held. The Company shall pay all expenses incurred in the administration of the
Plan. No member of the Board or Committee shall be personally liable for any
action, determination, or interpretation made in good faith with respect to the
Plan, and all members of the Board or Committee shall be fully indemnified by
the Company with respect to any such action, determination or interpretation.
All decisions, determinations and interpretations of the Board or
Committee shall be final and binding on all persons, including the Company, its
Parent, any Subsidiary, the Employee (or any person claiming any rights under
the Plan through any Employee) and any stockholder of the Company, its Parent or
any Subsidiary.
Section 12. Designation of Beneficiary.
(a) A Participant may file, on forms supplied by and delivered
to the Company, a written designation of a beneficiary who is to receive Shares
and/or cash, if any, remaining in such Participant's account under the Plan in
the event of the Participant's death.
(b) Such designation of beneficiary may be changed by the
Participant at any time by written notice. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Participant's death, the Company shall
deliver the balance of the Shares and/or cash credited to Participant's account
to the executor or administrator of the estate of the Participant or, if no such
executor or administrator has
9
<PAGE>
been appointed (to the knowledge of the Company), the Company, in its
discretion, may deliver such Shares and/or cash to the spouse or to any one or
more dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
Section 13. Transferability.
Neither payroll deductions credited to a Participant's account
nor any rights with regard to the exercise of an option or any rights to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by the laws of descent and distribution or as
provided in Section 12 hereof) by the Participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 8 hereof.
Section 14. Use of Funds.
All payroll deductions received or held by the Company under the
Plan may be used by the Company for any corporate purpose, and the Company shall
not be obligated to segregate such payroll deductions.
Section 15. Reports.
Individual accounts shall be maintained by the Company for each
Participant in the Plan. Statements of account shall be given to each
Participant at least annually which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of Shares purchased and the
remaining cash balance, if any.
Section 16. Effect of Certain Changes.
In the event of a Change in Capitalization or the distribution of
an extraordinary dividend, the Administrator shall conclusively determine the
appropriate equitable adjustments, if any, to be made under the Plan, including
without limitation adjustments to the number of Shares which have been
authorized for issuance under the Plan, but have not yet been placed under
option, as well as the Purchase Price of each option under the Plan which has
not yet been exercised. In the event of a Change in Control of the Company, the
Offering Period shall terminate unless otherwise provided by the Administrator.
10
<PAGE>
Section 17. Amendment or Termination.
The Board may at any time terminate or amend the Plan. Except as
provided in Section 16 hereof, no such termination may adversely affect options
previously granted and no amendment may make any change in any option
theretofore granted which adversely affects the rights of any Participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
Section 18. Notices.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when they are received in a timely manner in the form specified by the
Company at the location, or by the person, designated by the Company for the
receipt thereof.
Section 19. Regulations and Other Approvals; Governing Law.
(a) This Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the State of
California without giving effect to the choice of law principles thereof, except
to the extent that such law is preempted by Federal law.
(b) The obligation of the Company to sell or deliver Shares with
respect to options granted under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Administrator.
Section 20. Withholding of Taxes.
If the Participant makes a disposition, within the meaning of
Section 424(c) of the Code of any Share or Shares issued to Participant pursuant
to Participant's exercise of an option, and such disposition occurs within the
two-year period commencing on the day after the Enrollment Date or within the
one-year
11
<PAGE>
period commencing on the day after the Purchase Date, Participant shall, within
ten (10) days of such disposition, notify the Company thereof and thereafter
immediately deliver to the Company any amount of Federal, state or local income
taxes and other amounts which the Company informs the Participant the Company
may be required to withhold.
Section 21. Effective Date.
Subject to the approval of the Plan by the stockholders of the
Company within twelve (12) months before or after the date the Plan is adopted
by the Board, the Plan shall be effective as of the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective (the "Effective Date").
Section 22. Term of Plan.
No option shall be granted pursuant to the Plan and no Offering
Period shall commence on or after the tenth anniversary of the Effective Date,
but options theretofore granted may extend beyond that date.
12
<PAGE>
EXHIBIT 10.38
Grant #______
[FORM OF INCENTIVE STOCK OPTION AGREEMENT]
----------------------------------------
This INCENTIVE STOCK OPTION AGREEMENT (this "Option Agreement"), dated
as of the [__] day of [_____], 1999 (the "Date of Grant"), by and between
PETsMART.com, Inc., a Delaware corporation (the "Company"), and [______] (the
"Optionee").
Pursuant to the Company's 1999 Stock Plan (the "Plan"), the Board of
Directors of the Company (the "Board") or a committee appointed by the Board, as
the Administrator of the Plan, has determined that the Optionee is to be granted
an option (the "Option") to purchase shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), on the terms and conditions set
forth herein, and hereby grants such Option. It is intended that the Option
constitute an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). In the event the Option
exceeds the $100,000 rule of Section 422(d), this Option shall be treated as a
Non-Qualified Stock Option.
Any capitalized terms not defined herein shall have their respective
meanings set forth in the Plan.
1. Number of Shares and Exercise Price. The Option entitles the
-----------------------------------
Optionee to purchase [____] shares of the Company's Common Stock (the "Option
Shares") at a price of $.75 per share (the "Option Exercise Price"), which is at
least equal to the Fair Market Value of the Common Stock as of the Date of
Grant.
2. Option Term. The term of the Option and of this Option Agreement
-----------
(the "Option Term") shall commence on the Date of Grant and, unless the Option
is previously terminated pursuant to this Option Agreement, shall terminate upon
the expiration of ten (10) years from the Date of Grant. Upon expiration of the
Option Term, all rights of the Optionee hereunder shall terminate.
3. Conditions of Exercise.
----------------------
(a) This Option may be exercised in whole or in part at any time as
to 100% of the Option Shares, whether vested or unvested.
(b) As a condition to exercising this Option for unvested Option
Shares, the Optionee shall be subject to the Company's right to repurchase such
shares, as set forth in Section 10 hereto .
<PAGE>
(c) Except as otherwise provided herein, the right of the Optionee
to purchase Option Shares with respect to which this Option has become
exercisable may be exercised in whole or in part at any time or from time to
time prior to expiration of the Option Term. This Option may not be exercised
for a fraction of a share.
4. Vesting Schedule.
-----------------
(a) So long as Optionee is employed by the Company and subject to
the provisions of the Plan and this Agreement, the Option shall vest
(i) as to twenty percent (20%) of the Option Shares, on the six
month anniversary of the Date of Grant,
(ii) as to twenty percent (20%) of the Option Shares, on the
first anniversary of the Date of Grant, and
(iii) as to the remaining sixty percent (60%) of the Option
Shares, 1/36th on the last date of each calendar month beginning on or after the
first anniversary of the Date of Grant, so that the Option Shares are fully
vested on or about the fourth anniversary of the Date of Grant.
(b) In the event Optionee suffers an Involuntary Termination (as
defined in Section 25) of employment within six months following a Change of
Control (as defined in Section 25), fifty percent (50%) of the unvested portion
of the Option Shares shall vest in full.
(c) In the event Optionee ceases to be employed by the Company
(unless Optionee (i) voluntarily terminates employment, or (ii) is terminated
for Cause (as defined in Section 25)), prior to the six month anniversary of the
Date of Grant, 20% of the Option Shares shall vest in full.
5. Nontransferability of Option. The Option and this Option Agreement
----------------------------
shall not be transferable and, during the lifetime of Optionee, the Option may
be exercised only by Optionee. Without limiting the generality of the foregoing,
except as otherwise provided herein, the Option may not be assigned,
transferred, pledged or hypothecated in any way, shall not be assignable by
operation of law, and shall not be subject to execution, attachment or similar
process.
6. Method of Exercise of Option. The Option may be exercised by means
----------------------------
of written notice of exercise to the Company specifying the number of
2
<PAGE>
Option
Shares to be purchased, accompanied by payment in full of the aggregate Option
Exercise Price and any applicable withholding taxes
(i) in cash or by check,
(ii) by means of a cashless exercise program adopted by the
Company in connection with the Plan,
(iii) in the form of shares of unrestricted Stock already owned
by the Optionee which, (x) in the case of unrestricted Stock acquired upon
exercise of an option, have been owned by the optionee for more than six months
on the date of surrender, and (y) have an aggregate Fair Market Value on the
date of surrender equal to the aggregate Option Exercise Price of the Stock as
to which such Stock Option shall be exercised,
(iv) in the discretion of the Board, by delivery of a full
recourse promissory note (the "Note") (other than with respect to the par value
of the Shares, which shall be paid in cash or cash equivalents), the terms of
which are approved by the Board, or
(v) by any other means of exercise authorized from time to time
in the Plan and/or by the Board or a committee appointed by the Board.
7. Company's Right of First Refusal. Before any Option Shares held by
--------------------------------
Optionee or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Option Shares on the terms and conditions set forth in
this Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Option Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer the Option Shares;
(ii) the name of each proposed purchaser or other transferee (each, a "Proposed
Transferee"); (iii) the number of Option Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
payable by each Proposed Transferee for which the Holder proposes to transfer
the Option Shares (the "Offered Price"), and the Holder shall offer the Option
Shares at the Offered Price to the Company or its assignee(s).
3
<PAGE>
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Option Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Option Shares purchased by the Company or its assignee(s) under this Section
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash or by check, by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Option Shares
--------------------------
proposed in the Notice to be transferred to one or more Proposed Transferees are
not purchased by the Company and/or its assignee(s) as provided in this Section
7, then the Holder may sell or otherwise transfer such Option Shares to the
Proposed Transferee(s) at the Offered Price or at a higher price, provided that
(i) such sale or other transfer is consummated within 120 days after the date of
the Notice, and (ii) any such sale or other transfer is effected in accordance
with any applicable securities laws and the Proposed Transferee(s) agrees in
writing that the provision of this Section 7 shall continue to apply to the
Option Shares in the hands of the Proposed Transferee(s). If the Option Shares
described in the Notice are not transferred to the Proposed Transferee(s) within
such 120-day period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Option Shares held by the Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Notwithstanding
--------------------------------------
anything to the contrary contained in this Section 7, the transfer of any or all
of the Option Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the provisions
of this Section 7. "Immediate Family" as used herein shall mean spouse, lineal
descendant or anteced-
4
<PAGE>
ent, father, mother, brother or sister. In such case, the transferee or other
recipient shall receive and hold the Option Shares so transferred subject to the
provisions of this Section 7, and there shall be no further transfer of such
Option Shares except in accordance with the terms of this Section 7.
(g) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Option Shares upon the consummation of an
initial underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Securities Act
of 1933, as amended (the "Securities Act").
8. Effect of Termination of Employment. Upon the termination of
-----------------------------------
Optionee's employment or service with the Company or any Subsidiary, the Option
shall immediately terminate as to any Option Shares that have not previously
vested as of the date of such termination (the "Termination Date"). Any portion
of the Option that has vested as of the Termination Date shall be exercisable in
whole or in part for a period of 90 days following the Termination Date;
provided, that in the event of termination by reason of Optionee's death or
Disability, such exercise period shall extend until the date that is twelve
months from the Termination Date. Upon expiration of such 90-day or twelve-month
period, as applicable, any unexercised portion of the Option shall terminate in
full.
9. Investment Representation. The Optionee hereby represents and
-------------------------
warrants to the Company that the Optionee, by reason of the Optionee's business
or financial experience (or the business or financial experience of the
Optionee's professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly), has the capacity to protect the Optionee's own
interests in connection with the transactions contemplated under this Option
Agreement.
10. Restricted Shares; Repurchase Option. Optionee may elect to
------------------------------------
exercise any portion of the Option prior to the Option Shares becoming vested
pursuant to Section 4 hereof. Upon exercise of the Option to purchase unvested
Option Shares, Optionee shall receive shares of stock, which until vested, shall
be restricted ("Restricted Shares"). The Restricted Shares shall be subject to
the following terms and conditions:
(a) Transferability. The Optionee shall not transfer, assign,
encumber or otherwise dispose of any Restricted Shares, except (i) by will or by
the laws of descent or distribution or (ii) by transferring to the Company in
pledge as
5
<PAGE>
security for payment of the Note. If the Optionee transfers any Restricted
Shares, this Section 10 shall apply to the transferee to the same extent as the
Optionee.
(b) Exercise of Repurchase Option. The Company shall have the right
(but not the obligation) to repurchase the Restricted Shares during the sixty
(60) day period immediately following the later of (i) the date when the
Optionee ceases to be employed by the Company for any reason and (ii) the date
when such Restricted Shares were purchased by the Optionee, the executors or
administrators of the Optionee's estate or any person who has acquired this
Option directly from the Optionee by bequest, inheritance or beneficiary
designation (the "Repurchase Option").
(c) Lapse of Repurchase Option. The Repurchase Option shall lapse
with respect to the Shares subject to this Option in accordance with the vesting
schedule (including any accelerated vesting) set forth in Section 4. In
addition, the Repurchase Option shall lapse and all of the remaining Restricted
Shares shall become vested at such time and in such events as Section 12 of the
Plan provides for vesting of Stock Purchase Rights.
(d) Repurchase Option Price. If the Company exercises the
Repurchase Option, it shall pay the Optionee an amount equal to the Exercise
Price for each of the Restricted Shares being repurchased. Payment shall be made
in cash or cash equivalents or by canceling indebtedness to the Company incurred
by the Optionee in the purchase of the Restricted Shares.
(e) Exercise of Repurchase Option. The Repurchase Option shall be
exercisable only by written notice delivered to the Optionee prior to the
expiration of the 60-day period specified in Subsection (b) above. The notice
shall set forth the date on which the repurchase is to be effected. Such date
shall not be more than 30 days after the date of the notice. The certificate(s)
representing the Restricted Shares to be repurchased shall, prior to the close
of business on the date specified for the repurchase, be delivered to the
Company properly endorsed for transfer. The Company shall, concurrently with the
receipt of such certificate(s), pay to the Optionee the purchase price
determined according to Subsection (d) above. The Repurchase Option shall
terminate with respect to any Restricted Shares for which it has not been timely
exercise pursuant to this Subsection (e).
(f) Additional Shares of Substituted Securities. In the event of
the declaration of a stock dividend, the declaration of an extraordinary
dividend payable in a form other than stock, a spin-off, a stock split, an
adjustment in conversion ratio, a recapitalization or a similar transaction
affect the Company's
6
<PAGE>
outstanding securities without receipt of consideration, any new, substituted or
additional securities or other property (including money paid other than as an
ordinary cash dividend) which are by reason of such transaction distributed with
respect to any Restricted Shares or into which such Restricted Shares thereby
become convertible shall immediately be subject to the Repurchase Option.
Appropriate adjustments to reflect the distribution of such securities or
property shall be made to the number and/or class of Restricted Shares.
Appropriate adjustments shall also, after each such transaction, be made to the
price per share to be paid upon the exercise of the Repurchase Option in order
to reflect any change in the Company's outstanding securities effected without
receipt of consideration therefor; provided, however, that the aggregate
purchase price payable for the Restricted Shares shall remain the same.
(g) Termination of Rights as Stockholder. If the Company makes
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Restricted Shares to be repurchased in
accordance with this Section 10, then after such time the person from whom such
Restricted Shares are to be repurchased shall no longer have any rights as a
holder of such Restricted Shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such Restricted Shares
shall be deemed to have been repurchased in accordance with the applicable
provisions hereof, whether or not the certificate(s) therefor have been
delivered as required by this Agreement.
(h) Escrow. Upon issuance, if requested by the Company, the
certificates for Restricted Shares shall be deposited in escrow with the Company
to be held in accordance with the provisions of this Agreement. Any new,
substituted or additional securities or other property described in Subsection
(f) above shall immediately be delivered to the Company to be held in escrow,
but only to the extent the Shares are at the time Restricted Shares. All regular
cash dividends on Restricted Shares (or other securities at the time held in
escrow) shall be paid directly to the Optionee and shall not be held in escrow.
Restricted Shares, together with any other assets or securities held in escrow
hereunder, shall be (i) surrendered to the Company for repurchase and
cancellation upon the Company's exercise of its Repurchase Option or (ii)
released from escrow upon the Optionee's request to the extent the Shares are no
longer Restricted Shares (but not more frequently than once every six months).
11. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be given by facsimile or first class mail,
certified or registered with return receipt requested, and shall be deemed to
have been
7
<PAGE>
duly given three days after mailing or 24 hours after transmission by facsimile
to the respective parties named below:
If to Company: PETsMART.com, Inc.
35 Hugus Alley, Suite 210
Pasadena, CA 91103
Attention: Thomas McGovern
Facsimile: (626) 817-
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 S. Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Michael A. Woronoff
Facsimile: (213) 687-5600
If to the Optionee: [Name of Optionee]
[Address]
________________________
Facsimile:______________
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
12. Securities Laws Requirements. The Option shall not be
----------------------------
exercisable to any extent, and the Company shall not be obligated to transfer
any Option Shares to the Optionee upon exercise of such Option, if such
exercise, in the opinion of counsel for the Company, would violate the
Securities Act (or any other federal or state statutes having similar
requirements as may be in effect at that time). Further, the Company may require
as a condition of transfer of any Option Shares pursuant to any exercise of the
Option that the Optionee furnish a written representation that he or she is
purchasing or acquiring the Option Shares for investment and not with a view to
resale or distribution to the public. The Optionee hereby represents and
warrants that he or she understands that the Option Shares are "restricted
securities," as defined in Rule 144 under the Securities Act, and that any
resale of the Option Shares must be in compliance with the registration
requirements of the Securities Act, or an exemption therefrom, and with the
requirements of California "Blue Sky" law. Each certificate representing Option
Shares shall bear the legends set forth below and with any other legends that
may be required by the Company or by any Federal or state securities laws:
8
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES THEREUNDER,
AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEES(S). SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES
Further, if the Company decides, in its sole discretion, that the listing or
qualification of the Option Shares under any securities or other applicable law
is necessary or desirable, the Option shall not be exercisable, in whole or in
part, unless and until such listing or qualification, or a consent or approval
with respect thereto, shall have been effected or obtained free of any
conditions not acceptable to the Company.
13. No Obligation to Register Option Shares. The Company shall be under
---------------------------------------
no obligation to register the Option Shares pursuant to the Securities Act or
any other Federal or state securities laws.
14. Protections Against Violations of Agreement. No purported sale,
-------------------------------------------
assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security interest in or lien on, any of the Option Shares by any holder thereof
in violation of the provisions of this Agreement or the Certificate of
Incorporation or the Bylaws of the Company, will be valid, and the Company will
not transfer any of said Option Shares on its books nor will any of said Option
Shares be entitled to vote, nor will any dividends be paid thereon, unless and
until there has been full compliance with said provisions to the satisfaction of
the Company. The foregoing restrictions are in addition to and not in lieu of
any other remedies, legal or equitable, available to enforce said provisions.
15. Withholding Requirements. The Company's obligations under this
------------------------
Option Agreement shall be subject to all applicable tax and other withholding
requirements, and the Company shall, to the extent permitted by law, have the
right to deduct any withholding amounts from any payment or transfer of any kind
otherwise due to the Optionee.
9
<PAGE>
16. Failure to Enforce Not a Waiver. The failure of the Company to
-------------------------------
enforce at any time any provision of this Option Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
17. Governing Law. This Option Agreement shall be governed by and
-------------
construed according to the laws of the State of California without regard to its
principles of conflict of laws.
18. Incorporation of Plan. The Plan is hereby incorporated by reference
---------------------
and made a part hereof, and the Option and this Option Agreement shall be
subject to all terms and conditions of the Plan.
19. Amendments. This Option Agreement may be amended or modified at any
----------
time only by an instrument in writing signed by each of the parties hereto.
20. Rights as a Stockholder. Neither the Optionee nor any of the
-----------------------
Optionee's successors in interest shall have any rights as a stockholder of the
Company with respect to any shares of Common Stock subject to the Option until
the date of issuance of a stock certificate for such shares of Common Stock.
21. Section 83(b) Election. Optionee hereby acknowledges that he has
----------------------
been informed that, with respect to the exercise of the Option for Restricted
Shares, an election may be filed by the Optionee with the Internal Revenue
Service, within 30 days of the purchase of the Shares, electing pursuant to
Section 83(b) of the Code to be taxed currently on any difference between the
Option Exercise Price and Fair Market Value of the Shares on the date of
purchase.
Optionee acknowledges that it is Optionee's sole responsibility and
not the Company's to file timely the election under section 83(b) of the code,
even if Optionee requests the Company or its representative to make this filing
on Optionee's behalf.
22. Agreement Not a Contract of Employment. Neither the Plan, the
--------------------------------------
granting of the Option, this Option Agreement nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Optionee has a right to continue to
provide services as an officer, director, employee, consultant or advisor of the
Company or any Parent Subsidiary or affiliate of the Company for any period of
time or at any specific rate of compensation.
10
<PAGE>
23. Authority of the Board. The Board, or a committee appointed by the
----------------------
Board, shall have full authority to interpret and construe the terms of the Plan
and this Option Agreement. The determination of the Board, or a committee
appointed by the Board, as to any such matter of interpretation or construction
shall be final, binding and conclusive.
24. Market Stand-Off. Optionee agrees that, if so requested by the
----------------
Company or any representative of the underwriter (the "Managing Underwriter") in
connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
25. Definitions. For purposes of this Option Agreement:
-----------
(a) "Cause" shall mean (i) any act of personal dishonesty taken by
the Optionee in connection with his responsibilities to the Company which is
intended to result in substantial personal enrichment of the Optionee, (ii)
Optionee's conviction of a felony, (iii) a willful act by the Optionee which
constitutes misconduct and is injurious to the Company, and (iv) continued
willful violations by the Optionee of his obligations to the Company after there
has been delivered to the Optionee a written demand for performance from the
Company which describes the basis for the Company's belief that the Optionee has
not substantially performed his duties.
(b) "Change of Control" shall mean the sale of all or substantially
all of the Company's assets or the acquisition of the Company by another entity
by means of merger or consolidation resulting in the exchange of the outstanding
shares of the Company for securities or consideration issued, or caused to be
issued, by the acquiring corporation or its subsidiary, unless the stockholders
of the Company immediately prior to such transaction hold as least 50% of the
voting power of the surviving corporation.
11
<PAGE>
(c) "Involuntary Termination" shall mean termination of the
Optionee's employment with the Company immediately following any of the
following: (i) a reduction by the Company of the Optionee's base salary as in
effect immediately prior to such reduction or a material reduction by the
Company in the kind or level of employee benefits to which the Optionee is
entitled immediately prior to such reduction with the result that the Optionee's
overall benefits package is significantly reduced; (ii) a material diminution of
the Optionee's duties or (iii) any purported termination of the Optionee by the
Company which is not effected for "Cause" (as defined above).
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Option Agreement on the day and year first above written.
PETsMART.COM, INC.
By ________________________________
Name ______________________________
Title _____________________________
This Option Agreement supersedes and shall be in lieu of any prior
agreement, whether written or oral, relating to Optionee's right to purchase
shares of Common Stock of the Company, other than any option agreement executed
by the Company and the Optionee pursuant to the Company's 1999 stock plan. The
undersigned has had the opportunity to read the terms and provisions of the
foregoing Option Agreement and the terms and provisions of the Plan, herein
incorporated by reference. The undersigned hereby accepts and agrees to all the
terms and provisions of the foregoing Option Agreement and to all the terms and
provisions of the Plan, herein incorporated by reference.
___________________________________
The Optionee
Address: __________________________
__________________________
__________________________
13
<PAGE>
EXHIBIT 10.39
Grant #______
[FORM OF NONQUALIFIED STOCK OPTION AGREEMENT]
-------------------------------------------
This NONQUALIFIED STOCK OPTION AGREEMENT (this "Option Agreement"),
dated as of the 28/th/ day of September, 1999 (the "Date of Grant"), by and
between PETsMART.com, Inc., a Delaware corporation (the "Company"), and [______]
(the "Optionee").
Pursuant to the Company's 1999 Stock Plan (the "Plan"), the Board of
Directors of the Company (the "Board") or a committee appointed by the Board, as
the Administrator of the Plan, has determined that the Optionee is to be granted
an option (the "Option") to purchase shares of the Company's common stock, par
value $.001 per share (the "Common Stock"), on the terms and conditions set
forth herein, and hereby grants such Option. It is intended that the Option
constitute a "nonqualified stock option" and not an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
Any capitalized terms not defined herein shall have their respective
meanings set forth in the Plan.
1. Number of Shares and Exercise Price. The Option entitles the
-----------------------------------
Optionee to purchase [____] shares of the Company's Common Stock (the "Option
Shares") at a price of $.75 per share (the "Option Exercise Price").
2. Option Term. The term of the Option and of this Option Agreement
-----------
(the "Option Term") shall commence on the Date of Grant and, unless the Option
is previously terminated pursuant to this Option Agreement, shall terminate upon
the expiration of ten (10) years from the Date of Grant. Upon expiration of the
Option Term, all rights of the Optionee hereunder shall terminate.
3. Conditions of Exercise.
----------------------
(a) Subject to the provisions of the Plan and this Agreement,
the Option shall vest and become exercisable
(i) as to twenty percent (20%) of the Option Shares, on
the Date of Grant,
(ii) as to twenty percent (20%) of the Option Shares, on
the first anniversary of the Date of Grant,
<PAGE>
(iii) as to the remaining sixty percent (60%) of the Option
Shares, 1/36th on the last date of each calendar month beginning on or after the
first anniversary of the Date of Grant, so that the Option Shares are fully
vested on or about the fourth anniversary of the Date of Grant.
(b) Except as otherwise provided herein, the right of the
Optionee to purchase Option Shares with respect to which this Option has become
exercisable may be exercised in whole or in part at any time or from time to
time prior to expiration of the Option Term.
4. Nontransferability of Option and Option Shares. The Option and
----------------------------------------------
this Option Agreement shall not be transferable and, during the lifetime of
Optionee, the Option may be exercised only by Optionee. Without limiting the
generality of the foregoing, except as otherwise provided herein, the Option may
not be assigned, transferred, pledged or hypothecated in any way, shall not be
assignable by operation of law, and shall not be subject to execution,
attachment or similar process.
5. Method of Exercise of Option. The Option may be exercised by
----------------------------
means of written notice of exercise to the Company specifying the number of
Option Shares to be purchased, accompanied by payment in full of the aggregate
Option Exercise Price and any applicable withholding taxes (i) in cash or by
check, (ii) by means of a cashless exercise program adopted by the Company in
connection with the Plan, (iii) in the form of unrestricted Stock already owned
by the Optionee which, (x) in the case of unrestricted Stock acquired upon
exercise of an option, have been owned by the optionee for more than six months
on the date of surrender, and (y) have an aggregate Fair Market Value on the
date of surrender equal to the aggregate Option Exercise Price of the Stock as
to which such Stock Option shall be exercised, or (iv) by any other means of
exercise authorized from time to time in the Plan and/or by the Board or a
committee appointed by the Board.
6. Company's Right of First Refusal. Before any Option Shares held
--------------------------------
by Optionee or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Option Shares on the terms and conditions set forth in
this Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Option Shares
---------------------------
shall deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer the Option Shares;
2
<PAGE>
(ii) the name of each proposed purchaser or other transferee (each, a "Proposed
Transferee"); (iii) the number of Option Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
payable by each Proposed Transferee for which the Holder proposes to transfer
the Option Shares (the "Offered Price"), and the Holder shall offer the Option
Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within
----------------------------------
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Option Shares proposed to be transferred to any one or more of
the Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for
--------------
the Option Shares purchased by the Company or its assignee(s) under this Section
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash or by check, by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Option Shares
--------------------------
proposed in the Notice to be transferred to one or more Proposed Transferees are
not purchased by the Company and/or its assignee(s) as provided in this Section
6, then the Holder may sell or otherwise transfer such Option Shares to the
Proposed Transferee(s) at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 120 days after the date of the
Notice, and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee(s)
agrees in writing that the provision of this Section 6 shall continue to apply
to the Option Shares in the hands of the Proposed Transferee(s). If the Option
Shares described in the Notice are not transferred to the Proposed Transferee(s)
within such 120-day period, a new Notice shall be given to the Company, and the
Company and/or its assignees shall again be offered the Right of First Refusal
before any Option Shares held by the Holder may be sold or otherwise
transferred.
3
<PAGE>
(f) Exception for Certain Family Transfers. Notwithstanding
--------------------------------------
anything to the contrary contained in this Section 6, the transfer of any or all
of the Option Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the provisions
of this Section 6. "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Option Shares so
transferred subject to the provisions of this Section 6, and there shall be no
further transfer of such Option Shares except in accordance with the terms of
this Section 6.
(g) Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal shall terminate as to any Option Shares upon the consummation of an
initial underwritten public offering by the Company of its equity securities
pursuant to an effective registration statement filed under the Securities Act
of 1933, as amended (the "Securities Act").
7. Effect of Termination of Service. Upon the termination of
--------------------------------
Optionee's service with the Company or any Parent or Subsidiary, the Option
shall immediately terminate as to any Option Shares that have not previously
vested as of the date of such termination (the "Termination Date"). Any portion
of the Option that has vested as of the Termination Date shall be exercisable in
whole or in part for a period of 90 days following the Termination Date;
provided, however, that in the event of termination by reason of Optionee's
- -------- -------
death or Disability, such exercise period shall extend until the date that is
twelve months from the Termination Date. Upon expiration of such 90-day or
twelve-month period, as applicable, any unexercised portion of the Option shall
terminate in full.
8. Investment Representation. The Optionee hereby represents and
-------------------------
warrants to the Company that the Optionee, by reason of the Optionee's business
or financial experience (or the business or financial experience of the
Optionee's professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly), has the capacity to protect the Optionee's own
interests in connection with the transactions contemplated under this Option
Agreement.
9. Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be given by facsimile or first class
mail, certified or registered with return receipt requested, and shall be deemed
to have been
4
<PAGE>
duly given three days after mailing or 24 hours after transmission by facsimile
to the respective parties named below:
If to Company: PETsMART.com, Inc.
35 Hugus Alley, Suite 210
Pasadena, CA 91103
Attention: Thomas McGovern
Facsimile: (626) 817-
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 S. Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Michael A. Woronoff
Facsimile: (213) 687-5600
If to the Optionee: [Name of Optionee]
[Address]
______________________
Facsimile: __________
Either party hereto may change such party's address for notices by notice duly
given pursuant hereto.
10. Securities Laws Requirements. The Option shall not be
----------------------------
exercisable to any extent, and the Company shall not be obligated to transfer
any Option Shares to the Optionee upon exercise of such Option, if such
exercise, in the opinion of counsel for the Company, would violate the
Securities Act (or any other federal or state statutes having similar
requirements as may be in effect at that time). Further, the Company may require
as a condition of transfer of any Option Shares pursuant to any exercise of the
Option that the Optionee furnish a written representation that he or she is
purchasing or acquiring the Option Shares for investment and not with a view to
resale or distribution to the public. The Optionee hereby represents and
warrants that he or she understands that the Option Shares are "restricted
securities," as defined in Rule 144 under the Securities Act, and that any
resale of the Option Shares must be in compliance with the registration
requirements of the Securities Act, or an exemption therefrom, and with the
requirements of California "Blue Sky" law. Each certificate representing Option
Shares shall bear the legends set forth below and with any other legends that
may be required by the Company or by any Federal or state securities laws:
5
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES
THEREUNDER, AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEES(S). SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES
Further, if the Company decides, in its sole discretion, that the listing or
qualification of the Option Shares under any securities or other applicable law
is necessary or desirable, the Option shall not be exercisable, in whole or in
part, unless and until such listing or qualification, or a consent or approval
with respect thereto, shall have been effected or obtained free of any
conditions not acceptable to the Company.
11. No Obligation to Register Option Shares. The Company shall be
---------------------------------------
under no obligation to register the Option Shares pursuant to the Securities Act
or any other Federal or state securities laws.
12. Protections Against Violations of Agreement. No purported sale,
-------------------------------------------
assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift,
transfer in trust (voting or other) or other disposition of, or creation of a
security interest in or lien on, any of the Option Shares by any holder thereof
in violation of the provisions of this Agreement or the Certificate of
Incorporation or the Bylaws of the Company, will be valid, and the Company will
not transfer any of said Option Shares on its books nor will any of said Option
Shares be entitled to vote, nor will any dividends be paid thereon, unless and
until there has been full compliance with said provisions to the satisfaction of
the Company. The foregoing restrictions are in addition to and not in lieu of
any other remedies, legal or equitable, available to enforce said provisions.
13. Withholding Requirements. The Company's obligations under this
------------------------
Option Agreement shall be subject to all applicable tax and other withholding
requirements, and the Company shall, to the extent permitted by law, have the
right to deduct any withholding amounts from any payment or transfer of any kind
otherwise due to the Optionee.
6
<PAGE>
14. Failure to Enforce Not a Waiver. The failure of the Company to
-------------------------------
enforce at any time any provision of this Option Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
15. Governing Law. This Option Agreement shall be governed by and
-------------
construed according to the laws of the State of California without regard to its
principles of conflict of laws.
16. Incorporation of Plan. The Plan is hereby incorporated by
---------------------
reference and made a part hereof, and the Option and this Option Agreement shall
be subject to all terms and conditions of the Plan.
17. Amendments. This Option Agreement may be amended or modified at
----------
any time only by an instrument in writing signed by each of the parties hereto.
18. Rights as a Stockholder. Neither the Optionee nor any of the
-----------------------
Optionee's successors in interest shall have any rights as a stockholder of the
Company with respect to any shares of Common Stock subject to the Option until
the date of issuance of a stock certificate for such shares of Common Stock.
19. Agreement Not a Contract of Employment. Neither the Plan, the
--------------------------------------
granting of the Option, this Option Agreement nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Optionee has a right to continue to
provide services as an officer, director, employee, consultant or advisor of the
Company or any Parent Subsidiary or affiliate of the Company for any period of
time or at any specific rate of compensation.
20. Authority of the Board. The Board, or a committee appointed by
----------------------
the Board, shall have full authority to interpret and construe the terms of the
Plan and this Option Agreement. The determination of the Board, or a committee
appointed by the Board, as to any such matter of interpretation or construction
shall be final, binding and conclusive.
21. Market Stand-Off. Optionee agrees that, if so requested by the
----------------
Company or any representative of the underwriter (the "Managing Underwriter") in
connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as
7
<PAGE>
may be requested in writing by the Managing Underwriter and agreed to in writing
by the Company) (the "Market Standoff Period") following the effective date of a
registration statement of the Company filed under the Securities Act. Such
restriction shall apply only to the first registration statement of the Company
to become effective under the Securities Act that includes securities to be sold
on behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such Market Standoff Period.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Option Agreement on the day and year first above written.
PETsMART.COM, INC.
By _____________________________
Name ___________________________
Title __________________________
THIS OPTION AGREEMENT SUPERSEDES AND SHALL BE IN LIEU OF ANY PRIOR
AGREEMENT, WHETHER WRITTEN OR ORAL, RELATING TO OPTIONEE'S RIGHT TO PURCHASE
SHARES OF COMMON STOCK OF THE COMPANY, OTHER THAN ANY OPTION AGREEMENT EXECUTED
BY THE COMPANY AND THE OPTIONEE PURSUANT TO THE COMPANY'S 1999 STOCK PLAN. The
undersigned has had the opportunity to read the terms and provisions of the
foregoing Option Agreement and the terms and provisions of the Plan, herein
incorporated by reference. The undersigned hereby accepts and agrees to all the
terms and provisions of the foregoing Option Agreement and to all the terms and
provisions of the Plan, herein incorporated by reference.
________________________________
The Optionee
Address: _______________________
_______________________
_______________________
8
<PAGE>
EXHIBIT 10.40
PETsMART.COM, INC.
EMPLOYMENT AGREEMENT
This Agreement is entered into as of May 12, 1999, (the "Effective Date")
by and between PETsMART.com, Inc. (the "Company"), and Tom McGovern, Jr.
("Executive").
RECITALS
--------
WHEREAS, the Executive has entered into that certain Employment Agreement
by and between the Executive and PetJungle, Inc. (f.k.a. Interpet, Inc.)
("Target") dated March 1, 1999 (the "Original Employment Agreement");
WHEREAS, pursuant to the Agreement and Plan of Reorganization dated as of
the date hereof by and between Target and the Company (the "Merger Agreement"),
Target has been merged with and into the Company, with the Company being the
surviving corporation (the "Merger");
WHEREAS, pursuant to the terms of the Merger Agreement, all obligations of
Target, including the obligations under the Original Employment Agreement, have
vested in the Company;
WHEREAS, pursuant to the Original Employment Agreement, Executive was
granted the right to purchase 2,820,000 shares of Target's Common Stock subject
to a vesting requirement, which, pursuant to the Merger Agreement, have been
converted into 76,870 shares of Common Stock of the Company (the "Restricted
Shares");
WHEREAS, the Company and Executive desire to retain the vesting schedule of
the Restricted Shares set forth in the Original Employment Agreement;
WHEREAS, the Company desires to grant to Executive the right to purchase
additional restricted shares of Common Stock of the Company, which also shall be
subject to a vesting requirement;
WHEREAS, the Company and the Executive therefore desire to amend and
restate the Original Employment Agreement in its entirety as set forth herein,
effective upon the effectiveness of the Merger;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
<PAGE>
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and between the parties as follows:
1. Amendment of Original Employment Agreement. As of the date of the
------------------------------------------
effectiveness of the Merger, this Agreement shall amend and restate the Original
Employment Agreement in its entirety.
2. Position and Duties. Executive shall be employed, as of the Effective
-------------------
Date, as President and Chief Executive Officer of the Company, reporting to the
Company's Board of Directors and assuming and discharging such responsibilities
as are commensurate with Executive's position. Executive shall perform his
duties faithfully and to the best of his ability and shall devote his full
business time and effort to the performance of his duties hereunder.
3. At-Will Employment. The parties agree that Executive's employment
------------------
with the Company shall be "at-will" employment and may be terminated at any time
with or without cause or notice at the option of either the Company or
Executive. No provision of this Agreement shall be construed as conferring upon
Executive a right to continue as an employee of the Company.
4. Compensation. For all services to be rendered by Executive pursuant
------------
to this Agreement, Executive shall receive $88,000 on an annual basis (the "Base
Salary"), payable monthly in accordance with the Company's normal payroll
practices. Executive understands and agrees that neither his job performance nor
promotions, commendations, bonuses or the like from the Company give rise to or
in any way serve as the basis for modification, amendment, or extension by
implication or otherwise, of this Agreement.
5. Discretionary Bonus. The performance of Executive and the Company may
-------------------
be reviewed by the Board annually, and, on that basis, the Board may, in its
discretion, award the Executive a bonus. Any such bonus shall be subject to
applicable withholding.
6. Other Benefits. During his employment hereunder, Executive shall be
--------------
entitled to participate in the employee benefit plans and programs of the
Company, if any, to the extent that his position, tenure, salary, age, health
and other qualifications make him eligible to participate in such plans or
programs, subject to the rules and regulations applicable thereto. The Company
reserves the right to cancel or change the benefit plans and programs it offers
to its employees at any time.
2
<PAGE>
7. Restricted Stocks
-----------------
(a) Executive purchased the Restricted Shares pursuant to that certain
Restricted Stock Purchase Agreement between Executive and Target dated March 15,
1999, which is attached hereto as Exhibit A (the "Target Restricted Stock
---------
Agreement"). The Restricted Shares are subject to the terms, definitions and
provisions of the Target Restricted Stock Agreement, which is incorporated
herein by reference.
(b) As of the Effective Date, Executive has the right to purchase a
total of 1,043,111 shares of the Company's Common Stock at an exercise price of
$0.20 per share on the date of grant (the "Founders' Stock"). The Founders'
Stock shall vest as to 1/3 of the shares subject to the restricted stock on the
date of grant and as to 1/36th of the remaining shares subject to the restricted
stock monthly thereafter, so that the shares are fully vested three years from
the date of grant. Vesting of the Founders' Stock shall be subject to
Executive's continued employment with the Company on the relevant vesting dates.
The Founders' Stock shall be subject to the terms, definitions and provisions of
the Restricted Stock Purchase Agreement by and between Executive and the Company
attached hereto as Exhibit B (the "Company Restricted Stock Agreement"), which
---------
is incorporated herein by reference.
(c) Notwithstanding anything to the contrary contained in this Section
7, if Executive's employment with the Company terminates involuntarily by the
Executive or as a result of an "Involuntary Termination" (as defined herein) at
any time within six (6) months after a "Change of Control" (as defined herein),
then the Executive shall immediately vest in and have the right to exercise the
Restricted Shares and Founders' Stock as to 50% of the unvested shares as of the
date of such termination.
For this purpose, "Change of Control" of the Company is defined as: (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 50% or more of the total voting power represented by
the Company's then outstanding voting securities; or (ii) a change in the
composition of the Board of Directors of the Company occurring within a two-year
period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or (iii) the date
of the consum-
3
<PAGE>
mation of a merger or consolidation of the Company with any other corporation
that has been approved by the stockholders of the Company, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company; or (iv)
the date of the consummation of the sale or disposition by the Company of all or
substantially all the Company's assets.
For this purpose, "Involuntary Termination" shall mean (i) without
Executive's consent, the significant reduction of his duties or responsibilities
relative to his duties or responsibilities in effect immediately prior to such
reduction; (ii) without Executive's consent, a significant reduction by the
Company in Base Salary as in effect immediately prior to such reduction; (iii) a
significant reduction by the Company in the kind or level of employee benefits
to which Executive is entitled immediately prior to such reduction with the
result that Executive's overall benefits package is significantly reduced; or
(iv) any purported termination of Executive by the Company which is not effected
by virtue of his death, permanent and total disability, or for "Cause" (as
defined herein).
8. Right to Purchase Stock. As of the Effective Date, the Board shall
-----------------------
grant Executive the right to purchase 48,000 shares of the Company's Series C
Preferred Stock at a purchase price of $1.67 per share on the date of grant (the
"Stock"). The Stock shall be subject to the terms, definitions and provisions
of that certain Preferred Stock Purchase Agreement by and among the Company and
certain investors dated as of May 12, 1999 (the "Stock Agreement"), which is
incorporated herein by reference.
9. Expenses. The Company shall reimburse Executive for reasonable travel,
--------
entertainment or other expenses incurred by Executive in the furtherance of or
in connection with the performance of Executive's duties hereunder, in
accordance with the Company's expense reimbursement policy as in effect from
time to time.
10. Severance Benefits. If Executive's employment with the Company
------------------
terminates other than, voluntarily or for "Cause" (as defined herein) while
employed hereunder, then (i) the Executive shall be entitled to receive a lump-
sum severance payment equal to three (3) months of the Executive's base salary
(as in effect immediately prior to such termination) (less applicable
withholding taxes) and (ii) up to fifty percent (50%) of the shares subject to
the Founders' Stock granted to Executive pursuant to Section 6 of this
Agreement will accelerate and become fully vested.
4
<PAGE>
For this purpose, "Cause" is defined as (i) an act of dishonesty made
by Executive in connection with Executive's responsibilities as an employee,
(ii) Executive's conviction of, or plea of nolo contendere to, a felony, (iii)
---------------
Executive's serious misconduct, (iv) Executive's continued violations of her
employment duties after Executive has received a written demand for performance
from the Company which specifically sets forth the factual basis for the
Company's belief that Executive has not substantially performed her duties, or
(v) Executive's death or permanent and total disability.
11. Right to Advice of Counsel. Executive acknowledges that he has had
--------------------------
the right to consult with counsel and is fully aware of his rights and
obligations under this Agreement.
12. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company," shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. Without the written consent of the
----------------------
Company, Executive shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Executive hereunder
shall inure to the benefit of, and be enforceable by, Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
13. Notice Clause.
-------------
(a) Manner. Any notice hereby required or permitted to be given shall
------
be sufficiently given if in writing and upon mailing by registered or certified
mail, postage prepaid, to either party at the address of such party or such
other address as shall have been designated by written notice by such party to
the other party.
(b) Effectiveness. Any notice or other communication required or
-------------
permitted to be given under this Agreement will be deemed given on the day when
5
<PAGE>
delivered in person, or the third business day after the day on which such
notice was mailed in accordance with this Section.
14. Arbitration.
-----------
(a) Except as provided in Section 13(c) below, the parties hereto
agree that any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be finally settled by binding
arbitration, unless otherwise required by law, to be held in Los Angeles,
California under the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association as then in effect (the "Rules"). The
arbitrator(s) may grant injunctions or other relief in such dispute or
controversy. The decision of the arbitrator(s) shall be final, conclusive and
binding on the parties to the arbitration, and judgment may be entered on the
decision of the arbitrator(s) in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law.
(c) The parties may apply to any court of competent jurisdiction for a
temporary restraining order, preliminary injunction, or other interim or
conservatory relief, as necessary, without breach of this arbitration agreement
and without abridgement of the powers of the arbitrator.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, UNLESS OTHERWISE REQUIRED
BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S
RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING
TO EXECUTIVE'S RELATIONSHIP WITH THE COMPANY, INCLUDING BUT NOT LIMITED TO,
CLAIMS OF HARASSMENT, DISCRIMINATION, WRONGFUL TERMINATION AND ANY STATUTORY
CLAIMS.
15. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement, or any terms hereof, shall not affect the validity or
enforceability of any other provision or term of this Agreement.
16. Integration. This Agreement, the Restricted Stock Agreement, and the
-----------
Stock Agreement represent the entire agreement and understanding between the
6
<PAGE>
parties as to the subject matter herein and supersede all prior or
contemporaneous agreements whether written or oral. No waiver, alteration, or
modification of any of the provisions of this Agreement shall be binding unless
in writing and signed by duly authorized representatives of the parties hereto.
(a) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal substantive laws, but not the choice of law
rules, of the state of California.
(Signatures appear on the next page.)
7
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by their duly authorized officers, as of the day and year
first above written.
PETsMART.COM, INC.
/s/ Tom McGovern
----------------
Tom McGovern, Jr., President
EXECUTIVE
/s/ Tom McGovern
----------------
Tom McGovern, Jr.
8
<PAGE>
EXHIBIT A
---------
Target Restricted Stock Agreement
9
<PAGE>
EXHIBIT B
---------
Company Restricted Stock Agreement
10
<PAGE>
EXHIBIT 10.41
PETsMART.COM, INC.
EMPLOYMENT AGREEMENT
This Agreement is entered into as of May 12, 1999, (the "Effective Date")
by and between PETsMART.com, Inc. (the "Company"), and Carina Schaldach
("Executive").
RECITALS
--------
WHEREAS, the Executive has entered into that certain Employment Agreement
by and between the Executive and PetJungle, Inc. (f.k.a. Interpet, Inc.)
("Target") dated March 1, 1999 (the "Original Employment Agreement");
WHEREAS, pursuant to the Agreement and Plan of Reorganization dated as of
the date hereof by and between Target and the Company (the "Merger Agreement"),
Target has been merged with and into the Company, with the Company being the
surviving corporation (the "Merger");
WHEREAS, pursuant to the terms of the Merger Agreement, all obligations of
Target, including the obligations under the Original Employment Agreement, have
vested in the Company;
WHEREAS, pursuant to the Original Employment Agreement, Executive was
granted the right to purchase 1,047,000 shares of Target's Common Stock subject
to a vesting requirement, which, pursuant to the Merger Agreement, have been
converted into 28,540 shares of Common Stock of the Company (the "Restricted
Shares");
WHEREAS, the Company and Executive desire to retain the vesting schedule of
the Restricted Shares set forth in the Original Employment Agreement;
WHEREAS, the Company desires to grant to Executive the right to purchase
additional restricted shares of Common Stock of the Company, which also shall be
subject to a vesting requirement;
WHEREAS, the Company and the Executive therefore desire to amend and
restate the Original Employment Agreement in its entirety as set forth herein,
effective upon the effectiveness of the Merger;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
<PAGE>
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and between the parties as follows:
1. Amendment of Original Employment Agreement. As of the date of the
------------------------------------------
effectiveness of the Merger, this Agreement shall amend and restate the Original
Employment Agreement in its entirety.
2. Position and Duties. Executive shall be employed, as of the Effective
-------------------
Date, as Chief Operating Officer of the Company, reporting to the Company's
Board of Directors and assuming and discharging such responsibilities as are
commensurate with Executive's position. Executive shall perform her duties
faithfully and to the best of her ability and shall devote her full business
time and effort to the performance of her duties hereunder.
3. At-Will Employment. The parties agree that Executive's employment
------------------
with the Company shall be "at-will" employment and may be terminated at any time
with or without cause or notice at the option of either the Company or
Executive. No provision of this Agreement shall be construed as conferring upon
Executive a right to continue as an employee of the Company.
4. Compensation. For all services to be rendered by Executive pursuant
------------
to this Agreement, Executive shall receive $88,000 on an annual basis (the "Base
Salary"), payable monthly in accordance with the Company's normal payroll
practices. Executive understands and agrees that neither her job performance
nor promotions, commendations, bonuses or the like from the Company give rise to
or in any way serve as the basis for modification, amendment, or extension by
implication or otherwise, of this Agreement.
5. Discretionary Bonus. The performance of Executive and the Company may
-------------------
be reviewed by the Board annually, and, on that basis, the Board may, in its
discretion, award the Executive a bonus. Any such bonus shall be subject to
applicable withholding.
6. Other Benefits. During her employment hereunder, Executive shall be
--------------
entitled to participate in the employee benefit plans and programs of the
Company, if any, to the extent that her position, tenure, salary, age, health
and other qualifications make her eligible to participate in such plans or
programs, subject to the rules and regulations applicable thereto. The Company
reserves the right to cancel or change the benefit plans and programs it offers
to its employees at any time.
2
<PAGE>
7. Restricted Stock.
----------------
(a) Executive purchased the Restricted Shares pursuant to that
certain Restricted Stock Purchase Agreement between Executive and Target dated
March 15, 1999, which is attached hereto as Exhibit A (the "Target Restricted
---------
Stock Agreement"). The Restricted Shares are subject to the terms, definitions
and provisions of the Target Restricted Stock Agreement, which is incorporated
herein by reference.
(b) As of the Effective Date, Executive has the right to purchase a
total of 387,283 shares of the Company's Common Stock at an exercise price of
$0.20 per share on the date of grant (the "Founders' Stock"). The Founders'
Stock shall vest as to 20% of the shares subject to the restricted stock on the
date of grant and as to 20% of the remaining shares subject to the restricted
stock annually thereafter, so that the shares are fully vested four years from
the date of grant. Vesting of the Founders' Stock shall be subject to
Executive's continued employment with the Company on the relevant vesting dates.
The Founders' Stock shall be subject to the terms, definitions and provisions of
the Restricted Stock Purchase Agreement by and between Executive and the Company
attached hereto as Exhibit B (the "Company Restricted Stock Agreement"), which
---------
is incorporated herein by reference.
(c) Notwithstanding anything to the contrary contained in this
Section 7, if Executive's employment with the Company terminates involuntarily
by the Executive or as a result of an "Involuntary Termination" (as defined
herein) at any time within six (6) months after a "Change of Control" (as
defined herein), then the Executive shall immediately vest in and have the right
to exercise the Restricted Shares and Founders' Stock as to 50% of the unvested
shares as of the date of such termination.
For this purpose, "Change of Control" of the Company is defined as:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of
securities of the Company representing 50% or more of the total voting power
represented by the Company's then outstanding voting securities; or (ii) a
change in the composition of the Board of Directors of the Company occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent Directors" shall mean directors
who either (A) are directors of the Company as of the date hereof, or (B) are
elected, or nominated for election, to the Board of Directors of the Company
with the affirmative votes of at least a majority of the Incumbent Directors at
the time of such election or nomination (but shall not include an individual
whose election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or (iii) the date
of the consum-
3
<PAGE>
mation of a merger or consolidation of the Company with any other corporation
that has been approved by the stockholders of the Company, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company; or (iv)
the date of the consummation of the sale or disposition by the Company of all or
substantially all the Company's assets.
For this purpose, "Involuntary Termination" shall mean (i) without
Executive's consent, the significant reduction of her duties or responsibilities
relative to her duties or responsibilities in effect immediately prior to such
reduction; (ii) without Executive's consent, a significant reduction by the
Company in Base Salary as in effect immediately prior to such reduction; (iii) a
significant reduction by the Company in the kind or level of employee benefits
to which Executive is entitled immediately prior to such reduction with the
result that Executive's overall benefits package is significantly reduced; or
(iv) any purported termination of Executive by the Company which is not effected
by virtue of her death, permanent and total disability, or for "Cause" (as
defined herein).
8. Right to Purchase Stock. As of the Effective Date, the Board shall
-----------------------
grant Executive the right to purchase 48,000 shares of the Company's Series C
Preferred Stock at a purchase price of $1.67 per share on the date of grant (the
"Stock"). The Stock shall be subject to the terms, definitions and provisions of
that certain Preferred Stock Purchase Agreement by and among the Company and
certain investors dated as of May ____, 1999 (the "Stock Agreement"), which is
incorporated herein by reference.
9. Expenses. The Company shall reimburse Executive for reasonable
--------
travel, entertainment or other expenses incurred by Executive in the furtherance
of or in connection with the performance of Executive's duties hereunder, in
accordance with the Company's expense reimbursement policy as in effect from
time to time.
10. Severance Benefits. If Executive's employment with the Company
------------------
terminates other than voluntarily or for "Cause" (as defined herein) while
employed hereunder, then up to fifty percent (50%) of the shares subject to the
Founders' Stock granted to Executive pursuant to Section 6 of this Agreement
will accelerate and become fully vested.
For this purpose, "Cause" is defined as (i) an act of dishonesty made
by Executive in connection with Executive's responsibilities as an employee,
(ii) Executive's conviction of, or plea of nolo contendere to, a felony, (iii)
---------------
Executive's
4
<PAGE>
serious misconduct, (iv) Executive's continued violations of her employment
duties after Executive has received a written demand for performance from the
Company which specifically sets forth the factual basis for the Company's belief
that Executive has not substantially performed her duties, or (v) Executive's
death or permanent and total disability.
11. Right to Advice of Counsel. Executive acknowledges that he has had
--------------------------
the right to consult with counsel and is fully aware of her rights and
obligations under this Agreement.
12. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume the obligations under this Agreement and agree
expressly to perform the obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
"Company," shall include any successor to the Company's business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.
(b) Executive's Successors. Without the written consent of the
----------------------
Company, Executive shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Executive hereunder
shall inure to the benefit of, and be enforceable by, Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
13. Notice Clause.
-------------
(a) Manner. Any notice hereby required or permitted to be given shall
------
be sufficiently given if in writing and upon mailing by registered or certified
mail, postage prepaid, to either party at the address of such party or such
other address as shall have been designated by written notice by such party to
the other party.
(b) Effectiveness. Any notice or other communication required or
-------------
permitted to be given under this Agreement will be deemed given on the day when
delivered in person, or the third business day after the day on which such
notice was mailed in accordance with this Section.
5
<PAGE>
14. Arbitration.
-----------
(a) Except as provided in Section 13(c) below, the parties hereto
agree that any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof; shall be finally settled by binding
arbitration, unless otherwise required by law, to be held in Los Angeles,
California under the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association as then in effect (the "Rules"). The
arbitrator(s) may grant injunctions or other relief in such dispute or
controversy. The decision of the arbitrator(s) shall be final, conclusive and
binding on the parties to the arbitration, and judgment may be entered on the
decision of the arbitrator(s) in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law.
(c) The parties may apply to any court of competent jurisdiction for
a temporary restraining order, preliminary injunction, or other interim or
conservatory relief, as necessary, without breach of this arbitration agreement
and without abridgement of the powers of the arbitrator.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, UNLESS OTHERWISE REQUIRED
BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S
RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO
EXECUTIVE'S RELATIONSHIP WITH THE COMPANY, INCLUDING BUT NOT LIMITED TO, CLAIMS
OF HARASSMENT, DISCRIMINATION, WRONGFUL TERMINATION AND ANY STATUTORY CLAIMS.
15. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement, or any terms hereof, shall not affect the validity or
enforceability of any other provision or term of this Agreement.
16. Integration. This Agreement, the Restricted Stock Agreement, and the
-----------
Stock Agreement represent the entire agreement and understanding between the
parties as to the subject matter herein and supersede all prior or
contemporaneous agreements whether written or oral. No waiver, alteration, or
modification of any of
6
<PAGE>
the provisions of this Agreement shall be binding unless in writing and signed
by duly authorized representatives of the parties hereto.
17. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws, but not the choice of law rules,
of the state of California.
(Signatures appear on the next page.)
7
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by their duly authorized officers, as of the day and year
first above written.
PETsMART.COM, INC.
/s/ Tom McGovern
------------------------------
Tom McGovern, Jr., President
EXECUTIVE
/s/ Carina Schaldach
------------------------------
Carina Schaldach
8
<PAGE>
EXHIBIT A
---------
Target Restricted Stock Agreement
9
<PAGE>
EXHIBIT B
---------
Company Restricted Stock Agreement
10
<PAGE>
EXHIBIT 10.42
PETsMART.com, Inc.
------------------
EMPLOYMENT AGREEMENT
This Agreement is entered into as of January 24, 2000 (the "Effective Date") by
and between PETsMART.com, Inc. (the "Company"), and Gary Marcotte ("Executive").
In consideration of the promises and mutual covenants herein contained, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, it is mutually covenanted and agreed by and between the
parties as follows:
1. Position and Duties. Executive shall be employed as the Chief Financial
-------------------
Officer of the Company, reporting to the Company's Chief Executive Officer, and
assuming and discharging such responsibilities as are commensurate with
Executive's position. Executive shall perform Executive's duties faithfully and
to the best of Executive's ability and shall devote Executive's full business
time and effort to the performance of Executive's duties hereunder.
2. At-Will Employment. The parties agree that Executive's employment with the
------------------
Company shall be "at-will" employment and may be terminated at any time with or
without cause or notice at the option of either the Company or Executive. No
provision of this Agreement shall be construed as conferring upon Executive a
right to continue as an employee of the Company.
3. Compensation. For all services to be rendered pursuant to this Agreement by
------------
Executive, Executive shall receive one hundred sixty thousand dollars ($160,000)
on an annual basis (the "Base Salary"), payable semi-monthly in accordance with
the Company's normal payroll practices. Executive understands and agrees that
neither Executive's job performance nor promotions, commendations, bonuses or
the like from the Company give rise to or in any way serve as the basis for
modification, amendment, or extension by implication or otherwise, of this
Agreement.
4. Discretionary Bonus. The performance of Executive and the Company may be
-------------------
reviewed by the Board of Directors (the "Board") annually, and, on that basis,
the Board may, in its sole discretion, award Executive a bonus. All
compensation payable to Executive shall be subject to applicable withholding.
<PAGE>
5. Other Benefits. During Executive's employment hereunder, Executive shall be
--------------
entitled to participate in the employee benefit plans and programs of the
Company, if any, to the extent that Executive's position, tenure, salary, age,
health and other qualifications make him eligible to participate in such plans
or programs, subject to the rules and regulations applicable thereto. The
Company reserves the right to cancel or change the benefit plans and programs it
offers to its employees at any time.
6. Restricted Stock. Subject to approval of the Company's Board of Directors,
----------------
Executive shall be granted the right to purchase, immediately exercisable, a
total of 330,000 restricted shares (the "Shares") of the Company's Common Stock,
at a purchase price per share equal to $.75. So long as Executive is employed
by the Company, the Shares shall vest (a) 1/5th of the Shares on the Effective
Date, (b) 1/5th of the Shares on the first anniversary of the Effective Date and
(c) 1/60th of the Shares on the last day of each calendar month beginning on or
after the first anniversary of the Effective Date, so that the Shares are fully
vested on or about the fourth anniversary of the Effective Date.
One half ( 1/2) of any unvested shares shall accelerate and become
immediately vested if within six months after a Change of Control (as defined
below), Executive (a) is terminated without Cause, (b) suffers a material
diminution in compensation or duties or (c) is relocated by the company, without
Executive's written consent, to a location more than fifty (50) miles from the
Company's Pasadena office.
If Executive is terminated without Cause (as defined below) on or prior to
the six month anniversary of the Effective Date, then 3/48th of the unvested
Shares (1/20th of the Shares) shall accelerate and become immediately vested on
the date of such termination.
If Executive is terminated without Cause (a) following the six month
anniversary of the Effective Date and (b) prior to the twelve month anniversary
of the Effective Date, then 6/48th of the unvested Shares (1/10th of the Shares)
shall accelerate and become immediately vested on the date of such termination.
If Executive is terminated without Cause on or after the twelve month
anniversary of the Effective Date then that number of Shares equal to lesser of
(a) the number of then unvested Shares and (b) the product of (i) 1/60th of the
Shares and (ii) the number of full months Executive was employed by the Company
shall accelerate and become immediately vested on the date of such termination.
2
<PAGE>
Upon termination of employment for any reason, the Company or its designee
may repurchase any unvested Shares owned by Executive at the original price per
Share.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or similar change affecting the
Shares, a substitution or proportionate adjustment shall be made in the number
and kind of any Shares, as determined by the Board in its sole discretion.
The Shares shall be subject to the terms, definitions and provisions of the
Company's Stock Option Plan (the "Plan") and an applicable restricted stock
agreement (the "Restricted Stock Agreement") between the Company and Executive,
which documents are incorporated herein by reference. The Restricted Stock
Agreement shall allow for payment for the purchase price of the Shares in excess
of par value with a full recourse, interest-bearing, promissory note secured by
the Shares.
A termination "For Cause" means that Executive (i) is terminated for any
act of personal dishonesty taken by the Executive in connection with Executive's
responsibilities to the Company intended to result in personal enrichment for
Executive, (ii) is convicted of a felony, (iii) is terminated due to a willful
act that constitutes misconduct and is injurious to the Company, (iv) is
terminated as a result of gross negligence, recklessness, or willful misconduct
or malfeasance in the performance by the Executive of his duties pursuant to
this Agreement, provided, however, that unless such act or omission is not
-------- -------
capable of being remedied, the Company shall have given written notice of such
gross negligence, recklessness, or willful misconduct or malfeasance to the
Executive and the Executive shall not have cured the same within thirty (30)
days following such notice, (v) is terminated as a result of the willful and
repeated failure by the Executive to perform his duties and obligations
substantially in compliance with this Agreement, provided, however, that unless
-------- -------
such breach is not capable of being remedied, the Company shall have given
written notice of any such breach to the Executive and the Executive shall not
have cured the same within fifteen (15) days following such notice or (vi) is
terminated as a result of the breach by the Executive of any of the provisions
of Section 10 which has resulted in material damage to the business or
reputation of the Company.
A "Change in Control" shall occur upon (i) any acquisition or merger or
similar transaction (e.g., tender offer) of the Company where the stockholders
of the
3
<PAGE>
Company immediately prior to such transaction hold 50% or less of the voting
power of the surviving corporation, (ii) any transaction pursuant to which any
person or "group" (as defined in 13d-5 of the Securities Exchange Act of 1934)
acquires 51% or more of the voting power of the Company but only if such person
or group has nominated or designated 50% or more of the members of the board of
directors of the Company, (iii) any sale of all or substantially all of the
assets of the Company or (iv) stockholder approval of any liquidation of the
Company. As used in this definition, voting power means the power to vote
generally in matters considered by the stockholders of the Company.
7. Expenses. The Company shall reimburse Executive for reasonable travel,
--------
entertainment or other expenses incurred by Executive in the furtherance of or
in connection with the performance of Executive's duties hereunder, in
accordance with the Company's expense reimbursement policy as in effect from
time to time.
8. Right to Advice of Counsel. Executive acknowledges that he has had the
--------------------------
right to consult with counsel and is fully aware of Executive's rights and
obligations under this Agreement.
9. Successors.
----------
(a) Company's Successors. For all purposes under this Agreement, the term
--------------------
"Company," shall include any successor to the Company's business and/or assets
that assumes the obligation of the Company under this Agreement or which becomes
bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. Without the written consent of the Company,
----------------------
Executive shall not assign or transfer this Agreement or any right or obligation
under this Agreement to any other person or entity. Notwithstanding the
foregoing, the terms of this Agreement and all rights of Executive hereunder
---------
shall inure to the benefit of, and be enforceable by, Executive's personal or
---------
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. Confidential Information.
------------------------
(a) Company Information. Executive shall at all times during the term of
-------------------
Executive's employment with the Company and thereafter, hold in strictest
confidence, and not use, except for the benefit of the Company, or disclose to
any person, firm or corporation without written authorization of the Board, any
Confidential
4
<PAGE>
Information of the Company. As used herein, "Confidential Information" means any
Company proprietary information, technical data, trade secrets or know-how,
including, but not limited to, research, product plans, products, services,
customer lists and customers (including, but not limited to, customers of the
Company on whom Executive has called or with whom Executive became acquainted
during the term of Executive's employment), markets, software, developments,
inventions, processes, formulas, technology, designs, drawings, engineering,
hardware configuration information, marketing, finances or other business
information disclosed to Executive by the Company either directly or indirectly
in writing, orally or by drawings or observation of parts or equipment.
"Confidential Information" does not include any of the foregoing items which has
become publicly known and made generally available through no wrongful act of
Executive or of others who were under confidentiality obligations as to the item
or items involved or improvements or new versions thereof.
(b) Former Employer Information. Executive shall not, during Executive's
---------------------------
employment with the Company, improperly use or disclose any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity and Executive shall not bring onto the premises of the Company
any unpublished document or proprietary information belonging to any such
employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) Third Party Information. Executive shall hold all confidential or
-----------------------
proprietary information that the Company has received from any third party to
which it is the Company's obligation to maintain the confidentiality of such
information and to use it only for certain limited purposes in the strictest
confidence and not to disclose it to any person, firm or corporation or to use
it except as necessary in carrying out Executive's work for the Company
consistent with the Company's agreement with such third party.
11. Inventions. The Executive hereby represents, warrants and covenants with
----------
respect to Prior Inventions or Inventions, as the case may be, as follows:
(a) Inventions Retained and Licensed. Attached hereto, as Exhibit A, is a
-------------------------------- ---------
list describing all inventions, original works of authorship, developments,
improvements, and trade secrets which were made by Executive prior to
Executive's employment with the Company (collectively referred to as "Prior
Inventions"), which belong to Executive, which relate to the Company's proposed
business, products or research and development, and which are not assigned to
the Company
5
<PAGE>
hereunder; or, if no such list is attached, Executive hereby represents that
there are no such Prior Inventions. If in the course of Executive's employment
with the Company, Executive incorporates into a Company product, process or
machine a Prior Invention owned by Executive or in which the Executive has an
interest, the Company is hereby granted and shall have a nonexclusive, royalty-
free, irrevocable, perpetual, worldwide license to make, have made, modify, use
and sell such Prior Invention as part of or in connection with such product,
process or machine.
(b) Assignment of Inventions. Executive shall, or will promptly make,
------------------------
full written disclosure to the Company, will hold in trust for the sole right
and benefit of the Company, and hereby assign to the Company, or its designee,
all of Executive's right, title, and interest in and to any and all inventions,
original works of authorship, developments, concepts, improvements, designs,
discoveries, ideas, trademarks or trade secrets, whether or not patentable or
registrable under copyright or similar laws, which Executive may solely or
jointly conceive or develop or reduce to practice, or cause to be conceived or
developed or reduced to practice, during the period of time Executive is
employed by the Company (collectively referred to as "Inventions"), except as
provided in Section 11(f) below. Executive hereby acknowledges that all
original works of authorship which are made by Executive (solely or jointly with
others) within the scope of and during the period of Executive's employment with
the Company and which are protectible by copyright are "works made for hire," as
that term is defined in the United States Copyright Act. Executive hereby
understands and agrees that the decision whether or not to commercialize or
market any invention developed by Executive solely or jointly with others is
within the Company's sole discretion and for the Company's sole benefit and that
no royalty will be due to Executive as a result of the Company's efforts to
commercialize or market any such invention.
(c) Inventions Assigned to the United States. Executive shall assign to
----------------------------------------
the United States government all Executive's right, title, and interest in and
to any and all Inventions whenever such full title is required to be in the
United States by a contract between the Company and the United States or any of
its agencies.
(d) Maintenance of Records. Executive shall keep and maintain adequate
----------------------
and current written records of all Inventions made by him (solely or jointly
with others) during the term of Executive's employment with the Company. The
records will be in the form of notes, sketches, drawings, and any other format
that may be specified by the Company. The records will be available to and
remain the sole property of the Company at all times.
6
<PAGE>
(e) Patent and Copyright Registrations. Executive shall assist the
----------------------------------
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors, assigns, and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. Executive agrees that it is Executive's obligation to execute
or cause to be executed, when it is in Executive's power to do so, any such
instrument or papers after the termination of this Agreement. If the Company is
unable because of the Executive's mental or physical incapacity or for any other
reason to secure Executive's signature to apply for or to pursue any application
for any United States or foreign patents or copyright registrations covering
Inventions or original works of authorship assigned to the Company as above,
then Executive hereby irrevocably designates and appoints the Company and its
duly authorized officers and agents as Executive's agent and attorney in fact,
to act for and in Executive's behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by Executive.
(f) Exception to Assignments. It is agreed and acknowledge that the
------------------------
provisions of this Agreement requiring assignment of Inventions to the Company
do not apply to any invention which qualifies fully under the provisions of
California Labor Code Section 2870 (attached hereto as Exhibit B). Executive
---------
covenants that Executive will advise the Company promptly in writing of any
inventions that Executive believes meet the criteria in California Labor Code
Section 2870 and not otherwise disclosed on Exhibit A.
---------
12. Conflicting Employment. Executive shall not, during the term of
----------------------
Executive's employment with the Company, engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of Executive's employment, nor will Executive engage in any other
activities that conflict with Executive's obligations to the Company.
7
<PAGE>
13. Returning Company Documents. At the time of leaving the employ of the
---------------------------
Company, Executive covenants that Executive shall deliver to the Company (and
will not keep in Executive's possession, recreate or deliver to anyone else) any
and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items developed by Executive pursuant to Executive's employment with the Company
or otherwise belonging to the Company, its successors or assigns, including,
without limitation, those records maintained pursuant to paragraph 11(d). In
the event of the termination of Executive's employment, Executive hereby
covenants to sign and deliver the "Termination Certification" attached hereto as
Exhibit C.
- ---------
14. Notification of New Employer. In the event that Executive leaves the
----------------------------
employ of the Company, Executive agrees to grant consent to notification by the
Company to Executive's new employer about Executive's rights and obligations
under this Agreement.
15. Solicitation of Employees. Executive covenants that, for a period of
-------------------------
twelve (12) months immediately following the termination of Executive's
relationship with the Company for any reason, whether with or without cause,
Executive shall not either directly or indirectly solicit, induce, recruit or
encourage any of the Company's employees to leave their employment, or take away
such employees, or attempt to solicit, induce, recruit, encourage or take away
employees of the Company, either for Executive or for any other person or
entity.
16. Conflict of Interest Guidelines. Executive covenants that Executive shall
-------------------------------
diligently adhere to the Conflict of Interest Guidelines attached as Exhibit D
---------
hereto.
17. Notice Clause.
-------------
(a) Manner. Any notice hereby required or permitted to be given shall be
------
sufficiently given if in writing and delivered in person or sent by First Class,
registered or certified mail, postage prepaid, to either party at the address of
such party or such other address as shall have been designated by written notice
by such party to the other party.
(b) Effectiveness. Any notice or other communication required or
-------------
permitted to be given under this Agreement will be deemed given on the day when
8
<PAGE>
delivered in person, or the third business day after the day on which such
notice was mailed in accordance with this Section.
18. Arbitration.
-----------
(a) Except as provided in Section 18(c) below, the parties hereto agree
that any dispute or controversy arising out of, relating to, or in connection
with this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof, shall be finally settled by binding arbitration,
unless otherwise required by law, to be held in Los Angeles, California under
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association as then in effect (the "Rules"). The arbitrator(s) may
-----
grant injunctions or other relief in such dispute or controversy. The decision
of the arbitrator(s) shall be final, conclusive and binding on the parties to
the arbitration, and judgment may be entered on the decision of the
arbitrator(s) in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law.
(c) The parties may apply to any court of competent jurisdiction for a
temporary restraining order, preliminary injunction, or other interim or
conservatory relief, as necessary, without breach of this arbitration agreement
and without abridgement of the powers of the arbitrator.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, UNLESS OTHERWISE REQUIRED
BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S
RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO
EXECUTIVE'S RELATIONSHIP WITH THE COMPANY, INCLUDING BUT NOT LIMITED TO, CLAIMS
OF HARASSMENT, DISCRIMINATION, WRONGFUL TERMINATION AND ANY STATUTORY CLAIMS.
9
<PAGE>
19. Severability. The invalidity or unenforceability of any provision of this
------------
Agreement, or any terms hereof, shall not affect the validity or enforceability
of any other provision or term of this Agreement.
20. Integration. This Agreement and the Option Agreement represent the entire
-----------
agreement and understanding between the parties as to the subject matter herein
and supersede all prior or contemporaneous agreements whether written or oral.
No waiver, alteration, or modification of any of the provisions of this
Agreement shall be binding unless in writing and signed by duly authorized
representatives of the parties hereto.
21. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws, but not the choice of law rules,
of the state of California.
22. Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which shall be an original, and all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by their duly authorized officers, as of the day and
year first above written.
PETsMART.com, Inc.
By: /s/ Tom McGovern
-----------------------
EXECUTIVE
/s/ Gary Marcotte
---------------------------
Gary Marcotte
10
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
<TABLE>
<CAPTION>
Title Date Identifying Number or Brief Description
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
_____ No inventions or improvements
_____ Additional Sheets Attached
Signature of Executive: ______________________
Date: _________________________________________
11
<PAGE>
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
INVENTION ON OWN TIME - EXEMPTION FROM AGREEMENT
"(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the Executive developed
entirely on his or her own time without using the employer's equipment,
supplies, facilities, or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the invention
to the employer's business, or actual or demonstrably anticipated research
or development of the employer; or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to
be assigned under subdivision (a), the provision is against the public
policy of this state and is unenforceable."
1
<PAGE>
EXHIBIT C
PETsMART.com, Inc.
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed to
return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items developed by me pursuant to my employment with PETsMART.com, Inc., its
subsidiaries, affiliates, successors or assigns (together, the "Company") or
otherwise belonging to the Company.
I further certify that I have complied with all the terms of the Employment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I further agree that, in compliance with the Employment Agreement, I will
preserve as confidential all trade secrets, confidential knowledge, data or
other proprietary information relating to products, processes, know-how,
designs, formulas, developmental or experimental work, computer programs, data
bases, other original works of authorship, customer lists, business plans,
financial information or other subject matter pertaining to any business of the
Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I will not either
directly or indirectly solicit, induce, recruit or encourage any of the
Company's employees to leave their employment, or take away such employees, or
attempt to solicit, induce, recruit, encourage or take away employees of the
Company, either for myself or for any other person or entity.
Date:
_________________________
2
<PAGE>
EXHIBIT D
PETsMART.com, Inc.
CONFLICT OF INTEREST GUIDELINES
It is the policy of PETsMART.com, Inc. (the "Company") to conduct its affairs in
strict compliance with the letter and spirit of the law and to adhere to the
highest principles of business ethics. Accordingly, all officers, employees and
independent contractors must avoid activities which are in conflict, or give the
appearance of being in conflict, with these principles and with the interests of
the Company. The following are potentially compromising situations which must
be avoided. Any exceptions must be reported to the President and written
approval for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing confidential
information. Unauthorized divulging of information is a violation of this policy
whether or not for personal gain and whether or not harm to the Company is
intended. (The Employment Agreement elaborates on this principle and is a
binding agreement.)
2. Accepting or offering substantial gifts, excessive entertainment, favors or
payments which may be deemed to constitute undue influence or otherwise be
improper or embarrassing to the Company.
3. Participating in civic or professional organizations that might involve
divulging confidential information of the Company.
4. Initiating or approving personnel actions affecting reward or punishment of
employees or applicants where there is a family relationship or is or appears to
be a personal or social involvement.
3
<PAGE>
5. Initiating or approving any form of personal or social harassment of
employees.
6. Investing or holding outside directorship in suppliers, customers, or
competing companies, including financial speculations, where such investment or
directorship might influence in any manner a decision or course of action of the
Company.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to the Company.
9. Improperly using or disclosing to the Company any proprietary information or
trade secrets of any former or concurrent employer or other person or entity
with whom obligations of confidentiality exist.
10. Unlawfully discussing prices, costs, customers, sales or markets with
competing companies or their employees.
11. Making any unlawful agreement with distributors with respect to prices.
12. Improperly using or authorizing the use of any inventions which are the
subject of patent claims of any other person or entity.
13. Engaging in any conduct which is not in the best interest of the Company.
Each officer, employee and independent contractor must take every necessary
action to ensure compliance with these guidelines and to bring problem areas to
the attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
4
<PAGE>
EXHIBIT 10.43
[Form of Indemnification Agreement]
AGREEMENT, effective as of [__________________________], 2000, between
PETsMART.com, Inc., a Delaware corporation (the "Company"), and [INDEMNITEE]
(the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in today's environment;
[WHEREAS, basic protection against undue risk of personal liability of
directors and officers heretofore has been provided through insurance coverage
providing reasonable protection at reasonable cost, and Indemnitee has relied on
the availability of such coverage; but as a result of substantial changes in the
marketplace for such insurance it has become increasingly more difficult to
obtain such insurance on terms providing reasonable protection at reasonable
cost];
WHEREAS, the By-laws of the Company require the Company to indemnify
and advance expenses to its directors and officers to the full extent permitted
by law and the Indemnitee has been serving and continues to serve as a director
or officer of the Company in part in reliance on such By-laws;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's continued
service to the Company in an effective manner, [the increasing difficulty in
obtaining satisfactory director and officer liability insurance coverage,] and
Indemnitee's reliance on the aforesaid By-laws, and in part to provide
Indemnitee with specific contractual assurance that the protection promised by
such By-laws will be available to Indemnitee (regardless of, among other things,
any amendment to or revocation of such By-laws or any change in the composition
of the Company's Board of Directors or acquisition transaction relating to the
Company), the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the fullest
extent (whether partial or complete) permitted by law and as set forth in this
Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies;
<PAGE>
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions:
-------------------
(a) Change in Control: shall be deemed to have occurred if (i) any
-----------------
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing [20%] or more of
the total voting power represented by the Company's then outstanding
Voting Securities, or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the Voting
Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least
[80%] of the total voting power represented by the Voting Securities
of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a
series of transactions) all or substantially all the Company's assets.
(b) Claim: any threatened, pending or completed action, suit or
-----
proceeding, or any inquiry or investigation, whether instituted by the
Company or any other party, that Indemnitee in good faith believes
might lead to the institution of any such action, suit or proceeding,
whether civil, criminal, administrative, investigative or other.
2
<PAGE>
(c) Expenses: include attorneys' fees and all other costs, expenses and
--------
obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in,
any Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence related to the fact that
-------------------
Indemnitee is or was a director, officer, employee, agent or fiduciary
of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust
or other enterprise, or by reason of anything done or not done by
Indemnitee in any such capacity.
(e) Independent Legal Counsel: an attorney or firm of attorneys, selected
-------------------------
in accordance with the provisions of Section 3, who shall not have
otherwise performed services for the Company or Indemnitee within the
last [five] years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees
under similar indemnity agreements).
[(f) Potential Change in Control: shall be deemed to have occurred if (i)
---------------------------
the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to
consider taking actions which if consummated would constitute a Change
in Control; (iii) any person, other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company, who is or becomes the beneficial owner, directly
or indirectly, of securities of the Company representing [9.5%] or
more of the combined voting power of the Company's then outstanding
Voting Securities, increases his beneficial ownership of such
securities by [five percentage points (5%)] or more over the
percentage so owned by such person; or (iv) the Board adopts a
resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.]
(g) Reviewing Party: any appropriate person or body consisting of a
---------------
member or members of the Company's Board of Directors or any other
person or body appointed by the Board who is not a party to the
3
<PAGE>
particular Claim for which Indemnitee is seeking indemnification, or
Independent Legal Counsel.
(h) Voting Securities: any securities of the Company which vote generally
-----------------
in the election of directors.
2. Basic Indemnification Arrangement. (a) In the event Indemnitee was,
---------------------------------
is or becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent permitted by law/1/ as soon as practicable but
in any event no later than thirty days after written demand is presented to the
Company, against any and all Expenses, judgments, fines, penalties and amounts
paid in settlement (including all interest, assessments and other charges paid
or payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Claim./2/ If so requested by
Indemnitee, the Company shall advance (within two business days of such request)
any and all Expenses to Indemnitee (an "Expense Advance").
_________________________
/1/ Notwithstanding GCL (S) 145(f) (which provides that statutory
indemnification rights are not exclusive), it should be presumed that, as
a matter of Delaware public policy, indemnification in respect of actions
by or in the right of the Company (including derivative lawsuits) would
not be available, other than for Expenses. Consideration might be given
to specifying certain clear exclusions to the basic indemnification
obligation, e.g.: liability under Section 16(b) of the Exchange Act or
----
under federal or state securities laws for "insider trading"; conduct
finally adjudged as constituting active or deliberate dishonesty or
willful fraud or illegality; or conduct finally adjudged as producing an
unlawful personal benefit.
/2/ The indemnification agreement may be construed to require advancement of
expenses, including attorneys' fees, in litigation initiated by an
Indemnitee. For example, in a proxy contest, a dissident director might
claim that the corporation was required to advance expenses to him in
connection with litigation filed against other directors or the
corporation. See Hibbert v. Hollywood Part, Inc., Del. Supr., 457 A.2d
-----------------------------------
339 (1983). If a particular company wishes to foreclose this possibility,
consideration should be given to adding a provision such as the
following: "Notwithstanding anything in this Agreement to the contrary,
[prior to a Change in Control] Indemnitee shall not be entitled to
indemnification pursuant to this Agreement in connection with any Claim
initiated by Indemnitee unless the Board of Directors has authorized or
consented to the initiation of such Claim."
4
<PAGE>
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under Section 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
Section 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has not been a Change in Control, the Reviewing Party shall be
selected by the Board of Directors, and if there has been such a Change in
Control (other than a Change in Control which has been approved by a majority of
the Company's Board of Directors who were directors immediately prior to such
Change in Control), the Reviewing Party shall be the Independent Legal Counsel
referred to in Section 3 hereof. If there has been no determination by the
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, Indemnitee shall have the right to commence litigation in any
court in the State of [California] or Delaware having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in
-----------------
Control of the Company (other than a Change in Control which has been approved
by a majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control) then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or Company By-law now or
hereafter in effect relating to Claims for Indemnifiable Events, the Company
shall seek legal advice only from Independent Legal Counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld). Such counsel, among other things, shall render its written opinion
to the Company and Indemnitee
5
<PAGE>
as to whether and to what extent the Indemnitee would be permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the Independent Legal Counsel referred to above and to indemnify fully such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
[4. Establishment of Trust. In the event of a Potential Change in
----------------------
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee and from time to time upon written request of
Indemnitee shall fund such trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Claim relating
to an Indemnifiable Event, and any and all judgments, fines, penalties and
settlement amounts of any and all Claims relating to an Indemnifiable Event from
time to time actually paid or claimed, reasonably anticipated or proposed to be
paid [, provided that in no event shall more than $[______________________] be
required to be deposited in any trust created hereunder in excess of amounts
deposited in respect of reasonably anticipated Expenses]. The amount or amounts
to be deposited in the trust pursuant to the foregoing funding obligation shall
be determined by the Reviewing Party, in any case in which the Independent Legal
Counsel referred to above is involved. The terms of the trust shall provide
that upon a Change in Control (i) the trust shall not be revoked or the
principal thereof invaded, without the written consent of the Indemnitee, (ii)
the trustee shall advance, within two business days of a request by the
Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby
agrees to reimburse the trust under the circumstances under which the Indemnitee
would be required to reimburse the Company under Section 2(b) of this
Agreement), (iii) the trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above, (iv) the trustee shall
promptly pay to Indemnitee all amounts for which Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (v) all unexpended
funds in such trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that Indemnitee has been fully indemnified under the terms of this Agreement.
The trustee shall be chosen by Indemnitee. Nothing in this Section 4 shall
relieve the Company of any of its obligations under this Agreement.]
5. Indemnification for Additional Expenses. The Company shall indemnify
---------------------------------------
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee, which are incurred by Indemnitee in
connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or Company By-law now or hereafter in effect relating to Claims for
Indemnifiable Events and/or
6
<PAGE>
(ii) recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
6. Partial Indemnity, Etc. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim
but not, however, for all of the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is
entitled. Moreover, notwithstanding any other provision of this Agreement, to
the extent that Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating in whole or in part to an Indemnifiable
Event or in defense of any issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.
7. Burden of Proof. In connection with any determination by the
---------------
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
8. No Presumptions. For purposes of this Agreement, the termination of
---------------
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
9. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be
--------------------
in addition to any other rights Indemnitee may have under the Company's By-laws
or the Delaware General Corporation Law or otherwise. To the extent that a
change in the Delaware General Corporation Law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the Company's By-laws and this Agreement, it is the intent of
the parties hereto that
7
<PAGE>
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change.
10. Liability Insurance. To the extent the Company maintains an insurance
-------------------
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer.
11. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action such
shorter period shall govern.
12. Amendments, Etc. No supplement, modification or amendment of this
----------------
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
13. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
14. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
indemnifiable hereunder.
15. Binding Effect, Etc. This Agreement shall be binding upon and inure
--------------------
to the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to
8
<PAGE>
serve as an officer or director of the Company or of any other enterprise at the
Company's request.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.
17. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this [______] day of [______________________], 2000.
PETSMART.COM, INC.
By _____________________________
Name:
Title:
_____________________________
[Indemnitee]
10
<PAGE>
EXHIBIT 10.44
PETsMART.com, Inc.
[FORM OF EXECUTIVE CONFIDENTIALITY & NON-DISCLOSURE AGREEMENT]
This Agreement is entered into as of [Startdate] (the "Effective Date") by
and between PETsMART.com, Inc. (the "Company"), and [First Name Last Name]
("Executive").
In consideration of the promises and mutual covenants herein contained, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, it is mutually covenanted and agreed by and between the
parties as follows:
1. Position and Duties. Executive shall be employed as the [Position] of
-------------------
the Company, reporting to the Company's Board of Directors, and assuming and
discharging such responsibilities as are commensurate with Executive's position.
Executive shall perform Executive's duties faithfully and to the best of
Executive's ability and shall devote Executive's full business time and effort
to the performance of Executive's duties hereunder.
2. At-Will Employment. The parties agree that Executive's employment
------------------
with the Company shall be "at-will" employment and may be terminated at any time
with or without cause or notice at the option of either the Company or
Executive. No provision of this Agreement shall be construed as conferring upon
Executive a right to continue as an employee of the Company.
3. Compensation. For all services to be rendered pursuant to this
------------
Agreement by Executive, Executive shall receive [Salary] on an annual basis (the
"Base Salary"), payable monthly in accordance with the Company's normal payroll
practices. Executive understands and agrees that neither Executive's job
performance nor promotions, commendations, bonuses or the like from the Company
give rise to or in any way serve as the basis for modification, amendment, or
extension by implication or otherwise, of this Agreement.
4. Discretionary Bonus. The performance of Executive and the Company may
-------------------
be reviewed by the Board of Directors (the "Board") annually, and, on that
basis, the Board may, in its discretion, award the Executive a bonus. Any such
bonus shall be subject to applicable withholding.
5. Other Benefits. During Executive's employment hereunder, Executive
--------------
shall be entitled to participate in the employee benefit plans and programs of
the Company, if any, to the extent that Executive's position, tenure, salary,
age, health and other qualifications make him eligible to participate in such
plans or programs, subject to the rules and regulations applicable
<PAGE>
thereto. The Company reserves the right to cancel or change the benefit plans
and programs it offers to its employees at any time.
6. Options. Subject to approval of the Company's Board of Directors,
-------
Executive shall be granted an option (the "Option") to purchase a total of
[Stock options] shares of the Company's Common Stock, at a purchase price per
share equal to the fair market value of the Common Stock on the date of approval
of the grant by the Company's Board of Directors. The shares subject to the
Option (the "Shares") shall vest (a) 20% on the Effective Date (provided,
however, that the Company shall have a right of repurchase with respect to
Shares issued upon exercise of the Option at the original exercise price per
share if (A) before the three month anniversary of the Effective Date
Executive's employment is terminated for any reason or (B) before the sixth
month anniversary of the Effective Date Executive (i) voluntarily terminates, or
(ii) is terminated for Cause (as defined below)), and (b) 20% on each
anniversary of the Effective Date, so that the shares are fully vested on the
fourth anniversary of the Effective Date. Fifty percent (50%) of any unvested
shares shall accelerate and become immediately vested if within six months after
a change of control, Executive is terminated or suffers a material diminution in
compensation or duties. Vesting of the Shares shall be subject to Executive's
continued employment with the Company on the relevant vesting dates. The Option
shall be subject to the terms, definitions and provisions of the Company's Stock
Option Plan (the "Plan") and an applicable option agreement (the "Option
Agreement") between the Company and Executive, which documents are incorporated
herein by reference.
Cause shall mean (i) any act of personal dishonesty taken by the Executive
in connection with Executive's responsibilities to the Company which is intended
to result in substantial personal enrichment of the Executive, (ii) conviction
of a felony, (iii) a willful act that constitutes misconduct and is injurious to
the Company or (iv) continued willful violations by the Optionee of his
obligations to the Company after there has been delivered to Optionee a written
demand for performance from the Company which describes the basis for the
Company's belief that Optionee has not substantially performed his duties.
7. Expenses. The Company shall reimburse Executive for reasonable
--------
travel, entertainment or other expenses incurred by Executive in the furtherance
of or in connection with the performance of Executive's duties hereunder, in
accordance with the Company's expense reimbursement policy as in effect from
time to time.
2
<PAGE>
8. Right to Advice of Counsel. Executive acknowledges that he has had
--------------------------
the right to consult with counsel and is fully aware of Executive's rights and
---------------------------------------------------------
obligations under this Agreement.
- --------------------------------
9. Successors.
----------
(a) Company's Successors. For all purposes under this Agreement,the
--------------------
term "Company" shall include any successor to the Company's business and/or
assets that assumes the obligation of the Company under this Agreement or which
becomes bound by the terms of this Agreement by operation of law.
(b) Executive's Successors. Without the written consent of the
----------------------
Company, Executive shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Executive hereunder
shall inure to the benefit of, and be enforceable by, Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. Confidential Information.
------------------------
(a) Company Information. Executive shall at all times during the
-------------------
term of employment with the Company and thereafter, hold in strictest
confidence, and not use, except for the benefit of the Company, or disclose to
any person, firm or corporation without written authorization of the Board, any
Confidential Information of the Company. As used herein, "Confidential
Information" means any Company proprietary information, technical data, trade
secrets or know-how, including, but not limited to, research, product plans,
products, services, customer lists and customers (including, but not limited to,
customers of the Company on whom Executive has called or with whom Executive
became acquainted during the term of Executive's employment), markets, software,
developments, inventions, processes, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing, finances or other
business information disclosed to Executive by the Company either directly or
indirectly in writing, orally or by drawings or observation of parts or
equipment. "Confidential Information" does not include any of the foregoing
items which has become publicly known and made generally available through no
wrongful act of Executive or of others who were under confidentiality
obligations as to the item or items involved or improvements or new versions
thereof.
3
<PAGE>
(b) Former Employer Information. Executive shall not, during
---------------------------
Executive's employment with the Company, improperly use or disclose any
proprietary information or trade secrets of any former or concurrent employer or
other person or entity and Executive shall not bring onto the premises of the
Company any unpublished document or proprietary information belonging to any
such employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) Third Party Information. Executive shall hold all confidential or
-----------------------
proprietary information that the Company has received from any third party to
which it is the Company's obligation to maintain the confidentiality of such
information and to use it only for certain limited purposes in the strictest
confidence and not to disclose it to any person, firm or corporation or to use
it except as necessary in carrying out Executive's work for the Company
consistent with the Company's agreement with such third party.
11. Inventions. The Executive hereby represents, warrants and covenants
----------
with respect to Prior Inventions or Inventions, as the case may be, as follows:
(a) Inventions Retained and Licensed. Attached hereto, as Exhibit A,
-------------------------------- ---------
is a list describing all inventions, original works of authorship, developments,
improvements, and trade secrets which were made by Executive prior to
Executive's employment with the Company (collectively referred to as "Prior
Inventions"), which belong to Executive, which relate to the Company's proposed
business, products or research and development, and which are not assigned to
the Company hereunder; or, if no such list is attached, Executive hereby
represents that there are no such Prior Inventions. If in the course of
Executive's employment with the Company, Executive incorporates into a Company
product, process or machine a Prior Invention owned by Executive or in which the
Executive has an interest, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make,
have made, modify, use and sell such Prior Invention as part of or in connection
with such product, process or machine.
(b) Assignment of Inventions. Executive shall, or will promptly make,
------------------------
full written disclosure to the Company, will hold in trust for the sole right
and benefit of the Company, and hereby assign to the Company, or its designee,
all of Executive's right, title and interest in and to any and all inventions,
original works of authorship, developments, concepts, improvements, designs,
discoveries, ideas, trademarks or trade secrets, whether or not patentable or
registrable under copyright or similar laws, which Executive may solely or
jointly conceive or develop or reduce to practice, or cause to be conceived or
developed or reduced to practice, during the period of time Executive is
employed by the Company (collectively referred to as "Inventions"), except as
provided in Section 11(f) below. Executive hereby acknowledges that
4
<PAGE>
all original works of authorship which are made by Executive (solely or jointly
with others) within the scope of and during the period of Executive's employment
with the Company and which are protectible by copyright are "works made for
hire," as that term is defined in the United States Copyright Act. Executive
hereby understands and agrees that the decision whether or not to commercialize
or market any invention developed by Executive solely or jointly with others is
within the Company's sole discretion and for the Company's sole benefit and that
no royalty will be due to Executive as a result of the Company's efforts to
commercialize or market any such invention.
(c) Inventions Assigned to the United States. Executive shall assign
----------------------------------------
to the United States government all Executive's right, title, and interest in
and to any and all Inventions whenever such full title is required to be in the
United States by a contract between the Company and the United States or any of
its agencies.
(d) Maintenance of Records. Executive shall keep and maintain adequate
----------------------
and current written records of all Inventions made by him (solely or jointly
with others) during the term of Executive's employment with the Company. The
records will be in the form of notes, sketches, drawings, and any other format
that may be specified by the Company. The records will be available to and
remain the sole property of the Company at all times.
(e) Patent and Copyright Registrations. Executive shall assist the
----------------------------------
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors, assigns, and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. Executive agrees that it is Executive's obligation to execute
or cause to be executed, when it is in Executive's power to do so, any such
instrument or papers after the termination of this Agreement. If the Company is
unable because of the Executive's mental or physical incapacity or for any other
reason to secure Executive's signature to apply for or to pursue any application
for any United States or foreign patents or copyright registrations covering
Inventions or original works of authorship assigned to the Company as above,
then Executive hereby irrevocably designates and appoints the Company and its
duly authorized officers and agents as Executive's agent and attorney in fact,
to act for and in Executive's behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to
5
<PAGE>
further the prosecution and issuance of letters patent or copyright
registrations thereon with the same legal force and effect as if executed by
Executive.
(f) Exception to Assignments. It is agreed and acknowledged that the
------------------------
provision of this Agreement requiring assignment of Inventions to the Company do
not apply to any invention which qualifies fully under the provisions of
California Labor Code Section 2870 (attached hereto as Exhibit B). Executive
---------
covenants that Executive will advise the Company promptly in writing of any
inventions that Executive believes meet the criteria in California Labor Code
Section 2870 and not otherwise disclosed on Exhibit A.
---------
12. Conflicting Employment. Executive shall not, during the term of
----------------------
Executive's employment with the Company, engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of Executive's employment, nor will Executive engage in any other
activities that conflict with Executive's obligations to the Company.
13. Returning Company Documents. At the time of leaving the employ of the
---------------------------
Company, Executive covenants that Executive shall deliver to the Company (and
will not keep in Executive's possession, recreate or deliver to anyone else) any
and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items developed by Executive pursuant to Executive's employment with the Company
or otherwise belonging to the Company, its successors or assigns, including,
without limitation, those records maintained pursuant to paragraph 11(d). In
the event of the termination of Executive's employment, Executive hereby
covenants to sign and deliver the "Termination Certification" attached hereto as
Exhibit C.
- ---------
14. Notification of New Employer. In the event that Executive leaves the
----------------------------
employ of the Company, Executive agrees to grant consent to notification by the
Company to Executive's new employer about Executive's rights and obligations
under this Agreement.
15. Solicitation of Employees. Executive covenants that, for a period of
-------------------------
twelve (12) months immediately following the termination of Executive's
relationship with the Company for any reason, whether with or without cause,
Executive shall not either directly or indirectly solicit, induce, recruit or
encourage any of the Company's employees to leave their employment, or take away
such employees, or attempt to solicit, induce, recruit, encourage or take away
employees of the Company, either for Executive or for any other person or
entity.
6
<PAGE>
16. Conflict of Interest Guidelines. Executive covenants that Executive
-------------------------------
shall diligently adhere to the Conflict of Interest Guidelines attached as
Exhibit D hereto.
- ---------
17. Notice Clause.
-------------
(a) Manner. Any notice hereby required or permitted to be given shall
------
be sufficiently given if in writing and delivered in person or sent by First
Class, registered or certified mail, postage prepaid, to either party at the
address of such party or such other address as shall have been designated by
written notice by such party to the other party.
(b) Effectiveness. Any notice or other communication required or
-------------
permitted to be given under this Agreement will be deemed given on the day when
delivered in person, or the third business day after the day on which such
notice was mailed in accordance with this Section.
18. Arbitration.
-----------
(a) Except as provided in Section 18(c) below, the parties hereto
agree that any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be finally settled by binding
arbitration, unless otherwise required by law, to be held in Los Angeles,
California under the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association as then in effect (the "Rules"). The
-----
arbitrator(s) may grant injunctions or other relief in such dispute or
controversy. The decision of the arbitrator(s) shall be final, conclusive and
binding on the parties to the arbitration, and judgment may be entered on the
decision of the arbitrator(s) in any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law.
(c) The parties may apply to any court of competent jurisdiction for a
temporary restraining order, preliminary injunction, or other interim or
conservatory relief, as necessary, without breach of this arbitration agreement
and without abridgement of the powers of the arbitrator.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTER-
7
<PAGE>
PRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO
BINDING ARBITRATION, UNLESS OTHERWISE REQUIRED BY LAW, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO EXECUTIVE'S RELATIONSHIP WITH THE
COMPANY, INCLUDING BUT NOT LIMITED TO, CLAIMS OF HARASSMENT, DISCRIMINATION,
WRONGFUL TERMINATION AND ANY STATUTORY CLAIMS.
19. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement, or any terms hereof; shall not affect the validity or
enforceability of any other provision or term of this Agreement.
20. Integration. This Agreement and the Option Agreement represent the
-----------
entire agreement and understanding between the parties as to the subject matter
herein and supersede all prior or contemporaneous agreements whether written or
oral. No waiver, alteration, or modification of any of the provisions of this
Agreement shall be binding unless in writing and signed by duly authorized
representatives of the parties hereto.
21. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws, but not the choice of law rules,
of the state of California.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all of which together
shall constitute one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by their duly authorized officers, as of the day and year
first above written.
PETsMART.com, Inc.
By:___________________________________
[Signing Officer]
[Title of Signing Officer]
EXECUTIVE
______________________________________
[First Name Last Name]
9
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Title Date Identifying Number or Brief Description
_____ No inventions or improvements
_____ Additional Sheets Attached
Signature of Executive:
[First Name Last Name]
Date: ____________________
10
<PAGE>
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
INVENTION ON OWN TIME - EXEMPTION FROM AGREEMENT
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
Executive developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
11
<PAGE>
EXHIBIT C
PETsMART.com, Inc.
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to PETsMART.com, Inc., its subsidiaries, affiliates, successors
or assigns (together, the "Company").
I further certify that I have complied with all the terms of the Employment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I further agree that, in compliance with the Employment Agreement, I will
preserve as confidential all trade secrets, confidential knowledge, data or
other proprietary information relating to products, processes, know-how,
designs, formulas, developmental or experimental work, computer programs, data
bases, other original works of authorship, customer lists, business plans,
financial information or other subject matter pertaining to any business of the
Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I will not hire
any employees of the Company and I will not solicit, induce, recruit or
encourage any of the Company's employees to leave their employment.
Date:
[First Name Last Name]
12
<PAGE>
EXHIBIT D
PETsMART.com, Inc.
CONFLICT OF INTEREST GUIDELINES
It is the policy of PETsMART.com, Inc. (the "Company') to conduct its
affairs in strict compliance with the letter and spirit of the law and to adhere
to the highest principles of business ethics. Accordingly, all officers,
employees and independent contractors must avoid activities which are in
conflict, or give the appearance of being in conflict, with these principles and
with the interests of the Company. The following are potentially compromising
situations which must be avoided. Any exceptions must be reported to the
President and written approval for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information
is a violation of this policy whether or not for personal gain
and whether or not harm to the Company is intended. (The
Employment Agreement elaborates on this principle and is a
binding agreement.)
2. Accepting or offering substantial gifts, excessive entertainment,
favors or payments which may be deemed to constitute undue
influence or otherwise be improper or embarrassing to the
Company.
3. Participating in civic or professional organizations that might
involve divulging confidential information of the Company.
4. Initiating or approving personnel actions affecting reward or
punishment of employees or applicants where there is a family
relationship or is or appears to be a personal or social
involvement.
5. Initiating or approving any form of personal or social harassment
of employees.
6. Investing or holding outside directorship in suppliers,
customers, or competing companies, including financial
speculations, where
<PAGE>
such investment or directorship might influence in any manner a
decision or course of action of the Company.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to the Company.
9. Improperly using or disclosing to the Company any proprietary
information or trade secrets of any former or concurrent employer
or other person or entity with whom obligations of
confidentiality exist.
10. Unlawfully discussing prices, costs, customers, sales or markets
with competing companies or their employees.
11. Making any unlawful agreement with distributors with respect to
prices.
12. Improperly using or authorizing the use of any inventions which
are the subject of patent claims of any other person or entity.
13. Engaging in any conduct which is not in the best interest of the
Company.
Each officer, employee and independent contractor must take every necessary
action to ensure compliance with these guidelines and to bring problem areas to
the attention of higher management for review. Violations of this conflict of
interest policy may result in discharge without warning.
14
<PAGE>
EXHIBIT 10.45
PETsMART.COM
where pets are family
[FORM OF EMPLOYEE CONFIDENTIALITY & NON-DISCLOSURE AGREEMENT]
This Agreement is entered into as of [Startdate] (the "Effective
Date") by and between [COMPANYNAME] (the "Company"), and [First Name Last Name]
("Employee").
In consideration of the promises and mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by and between the parties as follows:
1. Position and Duties. Employee shall be employed as the [Position]
-------------------
of the Company, reporting to [Reports to], and assuming and discharging such
responsibilities as are commensurate with Employee's [Position]. Employee shall
perform employee's duties faithfully and to the best of employee's ability and
shall devote employee's full business time and effort to the performance of
employee's duties hereunder.
2. At-Will Employment. The parties agree that Employee's employment with
------------------
the Company shall be "at-will" employment and may be terminated at any time with
or without cause or notice at the option of either the Company or Employee. No
provision of this Agreement shall be construed as conferring upon Employee a
right to continue as an employee of the Company.
3. Compensation. For all services to be rendered pursuant to this
------------
Agreement by Employee, Employee shall receive [Salary] on an annual basis (the
"Base Salary"), payable semi-monthly in accordance with the Company's normal
payroll practices. Employee understands and agrees that neither employee's job
performance nor promotions, commendations, bonuses or the like from the Company
give rise to or in any way serve as the basis for modification, amendment, or
extension by implication or otherwise, of this Agreement.
4. Discretionary Bonus. The performance of Employee and the Company may
-------------------
be reviewed by the Board of Directors (the "Board") annually, and, on that
basis, the Board may, in its discretion, award the Employee a bonus. Any such
bonus shall be subject to applicable withholding.
5. Other Benefits. During employee's employment hereunder, Employee shall
--------------
be entitled to participate in the employee benefit plans and programs of the
Company, if any, to the extent that employee's [Position], tenure, [Salary],
age, health and other qualifications make employee eligible to participate in
such plans or programs, subject to the rules and regulations
<PAGE>
applicable thereto. The Company reserves the right to cancel or change the
benefit plans and programs it offers to its employees at any time.
6. Options. Subject to approval of the Company's Board of Directors,
-------
Employee shall be granted an option (the "Option") to purchase a total of [Stock
Options] shares of the Company's Common Stock, at a purchase price per share
equal to the fair market value of the Common Stock on the date of approval of
the grant by the Company's Board of Directors. The shares subject to the Option
(the "Shares") shall vest (a) 20% on the six-month anniversary of the Effective
Date (provided, however, that vesting of such 20% of the Shares shall accelerate
as if vested on the Effective Date if Employee's employment with the Company
terminates before the six-month anniversary of the Effective Date, unless
Employee (i) voluntarily terminates, (ii) is terminated during a three-month
probation period from the Effective Date, or (iii) is terminated for Cause (as
defined below) before six-months from the Effective Date; (b) 20% on first year
anniversary of the Effective Date, and (c) the remaining 60% shall vest 1/36th
on the last date of each calendar month beginning on or after the first
anniversary of the Effective Date, so that the shares are fully vested on the
fourth anniversary of the Effective Date. Vesting of the Shares shall be subject
to Employee's continued employment with the Company on the relevant vesting
dates. The Option shall be subject to the terms, definitions and provisions of
the Company's Stock Option Plan (the "Plan") and an applicable option agreement
(the "Option Agreement") between the Company and Employee, which documents are
incorporated herein by reference.
Cause shall mean (i) any act of personal dishonesty taken by the
Employee in connection with Employee's responsibilities to the Company which is
intended to result in substantial personal enrichment of the Employee, (ii)
conviction of a felony, (iii) a willful act that constitutes misconduct and is
injurious to the Company or (iv) continued willful violations by the Optionee of
his obligations to the Company after there has been delivered to Optionee a
written demand for performance from the Company which describes the basis for
the Company's belief that Optionee has not substantially performed his duties.
7. Expenses. The Company shall reimburse Employee for reasonable travel,
--------
entertainment or other expenses incurred by Employee in the furtherance of or in
connection with the performance of Employee's duties hereunder, in accordance
with the Company's expense reimbursement policy as in effect from time to time.
8. Right to Advice of Counsel. Employee acknowledges that he has had the
--------------------------
right to consult with counsel and is fully aware of employee's rights and
obligations under this Agreement.
9. Successors.
----------
(a) Company's Successors. For all purposes under this Agreement,
--------------------
the term "Company" shall include any successor to the Company's business and/or
assets that assumes the
2
<PAGE>
obligation of the Company under this Agreement or which becomes bound by the
terms of this Agreement by operation of law.
(b) Employee's Successors. Without the written consent of the
---------------------
Company, Employee shall not assign or transfer this Agreement or any right or
obligation under this Agreement to any other person or entity. Notwithstanding
the foregoing, the terms of this Agreement and all rights of Employee hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
10. Confidential Information.
------------------------
(a) Company Information. Employee shall at all times during the term
-------------------
of employee's employment with the Company and thereafter, hold in strictest
confidence, and not use, except for the benefit of the Company, or disclose to
any person, firm or corporation without written authorization of the Board, any
Confidential Information of the Company. As used herein, "Confidential
Information" means any Company proprietary information, technical data, trade
secrets or know-how, including, but not limited to, research, product plans,
products, services, customer lists and customers (including, but not limited to,
customers of the Company on whom Employee has called or with whom he became
acquainted during the term of employee's employment), markets, software,
developments, inventions, processes, formulas, technology, designs, drawings,
engineering, hardware configuration information, marketing, finances or other
business information disclosed to Employee by the Company either directly or
indirectly in writing, orally or by drawings or observation of parts or
equipment. "Confidential Information" does not include any of the foregoing
items which has become publicly known and made generally available through no
wrongful act of Employee or of others who were under confidentiality obligations
as to the item or items involved or improvements or new versions thereof.
(b) Former Employer Information. Employee shall not, during
---------------------------
employee's employment with the Company, improperly use or disclose any
proprietary information or trade secrets of any former or concurrent employer or
other person or entity and Employee shall not bring onto the premises of the
Company any unpublished document or proprietary information belonging to any
such employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) Third Party Information. Employee shall hold all confidential or
-----------------------
proprietary information that the Company has received from any third party to
which it is the Company's obligation to maintain the confidentiality of such
information and to use it only for certain limited purposes in the strictest
confidence and not to disclose it to any person, firm or corporation or to use
it except as necessary in carrying out employee's work for the Company
consistent with the Company's agreement with such third party.
3
<PAGE>
11. Inventions. The Employee hereby represents, warrants and covenants
----------
with respect to Prior Inventions or Inventions, as the case may be, as follows:
(a) Inventions Retained and Licensed. Attached hereto, as Exhibit A,
-------------------------------- ---------
is a list describing all inventions, original works of authorship, developments,
improvements, and trade secrets which were made by Employee prior to employee's
employment with the Company (collectively referred to as "Prior Inventions"),
which belong to Employee, which relate to the Company's proposed business,
products or research and development, and which are not assigned to the Company
hereunder; or, if no such list is attached, Employee hereby represents that
there are no such Prior Inventions. If in the course of Employee's employment
with the Company, Employee incorporates into a Company product, process or
machine a Prior Invention owned by Employee or in which the Employee has an
interest, the Company is hereby granted and shall have a nonexclusive, royalty-
free, irrevocable, perpetual, worldwide license to make, have made, modify, use
and sell such Prior Invention as part of or in connection with such product,
process or machine.
(b) Assignment of Inventions. Employee shall, or will promptly make,
------------------------
full written disclosure to the Company, will hold in trust for the sole right
and benefit of the Company, and hereby assign to the Company, or its designee,
all of employee's right, title, and interest in and to any and all inventions,
original works of authorship, developments, concepts, improvements, designs,
discoveries, ideas, trademarks or trade secrets, whether or not patentable or
registrable under copyright or similar laws, which Employee may solely or
jointly conceive or develop or reduce to practice, or cause to be conceived or
developed or reduced to practice, during the period of time Employee is employed
by the Company (collectively referred to as "Inventions"), except as provided in
Section 11(f) below. Employee hereby acknowledges that all original works of
authorship which are made by Employee (solely or jointly with others) within the
scope of and during the period of employee's employment with the Company and
which are protectible by copyright are "works made for hire," as that term is
defined in the United States Copyright Act. Employee hereby understands and
agrees that the decision whether or not to commercialize or market any invention
developed by Employee solely or jointly with others is within the Company's sole
discretion and for the Company's sole benefit and that no royalty will be due to
Employee as a result of the Company's efforts to commercialize or market any
such invention.
(c) Inventions Assigned to the United States. Employee shall assign
----------------------------------------
to the United States government all employee's right, title, and interest in and
to any and all Inventions whenever such full title is required to be in the
United States by a contract between the Company and the United States or any of
its agencies.
(d) Maintenance of Records. Employee shall keep and maintain
----------------------
adequate and current written records of all Inventions made by him (solely or
jointly with others) during the term of employee's employment with the Company.
The records will be in the form of notes,
4
<PAGE>
sketches, drawings, and any other format that may be specified by the Company.
The records will be available to and remain the sole property of the Company at
all times.
(e) Patent and Copyright Registrations. Employee shall assist the
----------------------------------
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors, assigns, and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. Employee agrees that it is employee's obligation to execute or
cause to be executed, when it is in employee's power to do so, any such
instrument or papers after the termination of this Agreement. If the Company is
unable because of the Employee's mental or physical incapacity or for any other
reason to secure employee's signature to apply for or to pursue any application
for any United States or foreign patents or copyright registrations covering
Inventions or original works of authorship assigned to the Company as above,
then Employee hereby irrevocably designates and appoints the Company and its
duly authorized officers and agents as employee's agent and attorney in fact, to
act for and in Employee's behalf and stead to execute and file any such
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letters patent or copyright registrations thereon
with the same legal force and effect as if executed by Employee.
(f) Exception to Assignments. It is agreed and acknowledged that the
------------------------
provisions of this Agreement requiring assignment of Inventions to the Company
do not apply to any invention which qualifies fully under the provisions of
California Labor Code Section 2870 (attached hereto as Exhibit B). Employee
----------
covenants that he will advise the Company promptly in writing of any inventions
that he believes meet the criteria in California Labor Code Section 2870 and not
otherwise disclosed on Exhibit A.
---------
12. Conflicting Employment. Employee shall not, during the term of
----------------------
employee's employment with the Company, engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of employee's employment, nor will he engage in any other activities that
conflict with employee's obligations to the Company.
13. Returning Company Documents. At the time of leaving the employ of the
---------------------------
Company, Employee covenants that he shall deliver to the Company (and will not
keep in employee's possession, recreate or deliver to anyone else) any and all
devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings blueprints, sketches, materials, equipment, other
documents or property, or reproductions of any aforementioned items developed by
Employee pursuant to employee's employment with the Company or otherwise
5
<PAGE>
belonging to the Company, its successors or assigns, including, without
limitation, those records maintained pursuant to paragraph 11(d). In the event
of the termination of Employee's employment, Employee hereby covenants to sign
and deliver the "Termination Certification" attached hereto as Exhibit C.
---------
14. Notification of New Employer. In the event that Employee leaves the
----------------------------
employ of the Company, Employee agrees to grant consent to notification by the
Company to Employee's new employer about Employee's rights and obligations under
this Agreement.
15. Solicitation of Employees. Employee covenants that, for a period of
-------------------------
twelve (I2) months immediately following the termination of employee's
relationship with the Company for any reason, whether with or without cause,
employee shall not either directly or indirectly solicit, induce, recruit or
encourage any of the Company's employees to leave their employment, or take away
such employees, or attempt to solicit, induce, recruit, encourage or take away
employees of the Company, either for Employee or for any other person or entity.
16. Conflict of Interest Guidelines. Employee covenants that employee
-------------------------------
shall diligently adhere to the Conflict of Interest Guidelines attached as
Exhibit D hereto.
- ---------
17. Notice Clause.
-------------
(a) Manner. Any notice hereby required or permitted to be given shall
------
be sufficiently given if in writing and delivered in person or sent by First
Class, registered or certified mail, postage prepaid, to either party at the
address of such party or such other address as shall have been designated by
written notice by such party to the other party.
(b) Effectiveness. Any notice or other communication required or
-------------
permitted to be given under this Agreement will be deemed given on the day when
delivered in person, or the third business day after the day on which such
notice was mailed in accordance with this Section.
18. Arbitration.
-----------
(a) Except as provided in Section 18(c) below, the parties hereto
agree that any dispute or controversy arising out of, relating to, or in
connection with this Agreement, or the interpretation, validity, construction,
performance, breach, or termination thereof, shall be finally settled by binding
arbitration, unless otherwise required by law, to be held in Los Angeles,
California under the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association as then in effect (the "Rules"). The
arbitrator(s) may grant injunctions or other relief in such dispute or
controversy. The decision of the arbitrator(s) shall be final, conclusive and
binding on the parties to the arbitration, and judgment may be entered on the
decision of the arbitrator(s) in any court having jurisdiction.
6
<PAGE>
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law.
(c) The parties may apply to any court of competent jurisdiction for
a temporary restraining order, preliminary injunction, or other interim or
conservatory relief, as necessary, without breach of this arbitration agreement
and without abridgement of the powers of the arbitrator.
(d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EMPLOYEE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, UNLESS OTHERWISE REQUIRED
BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF EMPLOYEE'S
RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO
EMPLOYEE'S RELATIONSHIP WITH THE COMPANY, INCLUDING BUT NOT LIMITED TO, CLAIMS
OF HARASSMENT, DISCRIMINATION, WRONGFUL TERMINATION AND ANY STATUTORY CLAIMS.
19. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement, or any terms hereof, shall not affect the validity or
enforceability of any other provision or term of this Agreement.
20. Integration. This Agreement and the Option Agreement represent the
-----------
entire agreement and understanding between the parties as to the subject matter
herein and supersede all prior or contemporaneous agreements whether written or
oral. No waiver, alteration, or modification of any of the provisions of this
Agreement shall be binding unless in writing and signed by duly authorized
representatives of the parties hereto.
21. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws, but not the choice of law rules,
of the state of California.
22. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all of which together
shall constitute one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by their duly authorized officers, as of the day and
year first above written.
COMPANYNAME
By:___________________________
Signing Officer
Title of Signing Officer
EMPLOYEE
______________________________
[First Name LastName]
[Address]
[City, State, Postal Code]
8
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Title Date Identifying Number or Brief Description
----- ---- ---------------------------------------
_____ No inventions or improvements
_____ Additional Sheets Attached
Signature of Employee:_________________________
[FirstName LastName]
Date: ___________________
<PAGE>
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
INVENTION ON OWN TIME - EXEMPTION FROM AGREEMENT
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of employee's rights in an
invention to employee's employer shall not apply to an invention that the
employee developed entirely on employee's own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer; or
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
<PAGE>
EXHIBIT C
COMPANY NAME
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I failed
to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to Company Name, its subsidiaries, affiliates, successors or
assigns (together, the "Company").
I further certify that I have complied with all the terms of the Employment
Agreement signed by me, including the reporting of any inventions and original
works of authorship (as defined therein), conceived or made by me (solely or
jointly with others) covered by that agreement.
I further agree that, in compliance with the Employment Agreement, I will
preserve as confidential all trade secrets, confidential knowledge, data or
other proprietary information relating to products, processes, know-how,
designs, formulas, developmental or experimental work, computer programs, data
bases, other original works of authorship, customer lists, business plans,
financial information or other subject matter pertaining to any business of the
Company or any of its employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I will not hire
any employees of the Company and I will not solicit, induce, recruit or
encourage any of the Company's employees to leave their employment.
Date: _________________________________
____________________________________
[FirstName LastName]
<PAGE>
EXHIBIT D
COMPANYNAME
CONFLICT OF INTEREST GUIDELINES
It is the policy of [Company Name] (the "Company") to conduct its affairs
in strict compliance with the letter and spirit of the law and to adhere to the
highest principles of business ethics. Accordingly, all officers, employees and
independent contractors must avoid activities which are in conflict, or give the
appearance of being in conflict, with these principles and with the interests of
the Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information is a
violation of this policy whether or not for personal gain and whether
or not harm to the Company is intended. (The Employment Agreement
elaborates on this principle and is a binding agreement.)
2. Accepting or offering substantial gifts, excessive entertainment,
favors or payments which may be deemed to constitute undue influence
or otherwise be improper or embarrassing to the Company.
3. Participating in civic or professional organizations that might
involve divulging confidential information of the Company.
4. Initiating or approving personnel actions affecting reward or
punishment of employees or applicants where there is a family
relationship or is or appears to be a personal or social involvement.
5. Initiating or approving any form of personal or social harassment of
employees.
6. Investing or holding outside directorship in suppliers, customers, or
competing companies, including financial speculations, where such
investment or directorship might influence in any manner a decision or
course of action of the Company.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to the Company.
<PAGE>
9. Improperly using or disclosing to the Company any proprietary
information or trade secrets of any former or concurrent employer or
other person or entity with whom obligations of confidentiality exist.
10. Unlawfully discussing prices, costs, customers, sales or markets with
competing companies or their employees.
11. Making any unlawful agreement with distributors with respect to
prices.
12. Improperly using or authorizing the use of any inventions which are
the subject of patent claims of any other person or entity.
13. Engaging in any conduct which is not in the best interest of the
Company.
Each officer, employee and independent contractor must take every
necessary action to ensure compliance with these guidelines and to bring problem
areas to the attention of higher management for review. Violations of this
conflict of interest policy may result in discharge without warning.
2
<PAGE>
EXHIBIT 10.46
THIS WARRANT AND ANY SHARES OF SERIES C PREFERRED STOCK ISSUED UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
WARRANT EVIDENCED HEREBY IS TRANSFERABLE ONLY PURSUANT TO SECTION 5(a) HEREOF.
No. WC-4 PETsMART.COM, INC. February 3, 2000
SERIES C PREFERRED STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, idealab! Capital
Partners I-A, L.P. (and, with its permitted transferees, the "Holder"), is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
acquire from PETsMART.com, Inc. (the "Company"), in whole or from time to time
in part, up to 54,285 fully paid and nonassessable shares of Series C Preferred
Stock, par value $0.001 per share, of the Company ("Warrant Stock") at a
purchase price per share equal to $13.07 per share of Series C Preferred Stock
(the "Exercise Price"). Such number of shares, type of security and Exercise
Price are subject to adjustment as provided herein, and all references to
"Warrant Stock" and "Exercise Price" herein shall be deemed to include any such
adjustment or series of adjustments.
1. Exercise of Warrant
(a) Expiration Time. The term "Expiration Time" means the earliest to
---------------
occur of the following: (i) immediately prior to the closing of an IPO (as
defined below); or (ii) immediately prior to the closing of a Change of Control
Transaction (as defined below); or (iii) 11:59 p.m., Pacific Time, on the date
18 months from the date hereof. As used herein, "IPO" shall mean the first firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933, as amended (the "Securities Act"); a "Change
of Control Transaction" shall mean the Company's sale or lease of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company for securities or consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary, unless the
stockholders of the Company immediately prior to the transaction hold at least
50% of the voting power of the surviving corporation in such a transaction.
<PAGE>
(b) Exercise Procedure. The purchase rights represented by this
------------------
Warrant are exercisable, in whole or in part, at any time and from time to time
at or after the date hereof and at or prior to the Expiration Time, by the
surrender of this Warrant and the Notice of Exercise form attached hereto duly
executed to the office of the Company at 130 West Union Street, Pasadena, CA
91103 (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company), and upon payment of the Exercise Price
for the shares thereby purchased by (i) wire transfer or certified bank check
payable to the order of the Company, in an amount, payable in United States
dollars, equal to the purchase price of the shares thereby purchased or (ii)
exercise of the Conversion Right set forth in Section 1(d); whereupon the Holder
shall be entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased, and a new
Warrant in substantially identical form for the purchase of that number of
shares of Warrant Stock equal to the difference, if any, between the number of
shares of Warrant Stock subject hereto and the number of shares of Warrant Stock
as to which this Warrant is so exercised.
(c) Minimum Exercise. The Holder shall purchase a minimum of 1,000
----------------
shares of Warrant Stock upon any exercise hereunder.
(d) Conversion Right. In addition to and without limiting the
----------------
rights of the Holder under the terms of this Warrant, immediately prior to the
closing of an IPO or immediately prior to the closing of a Change of Control
Transaction, the Holder shall have the right to convert this Warrant or any
portion thereof into shares of Series C Preferred Stock prior to the Expiration
Time (the "Conversion Right"). Upon exercise of the Conversion Right with
respect to the number of shares of Warrant Stock that are exercisable pursuant
to this Warrant, the Company shall deliver to the Holder (without payment by the
Holder of the Exercise Price or any cash or other consideration) that number of
shares of fully paid and nonassessable Series C Preferred Stock equal to the
quotient obtained by dividing (i) the Fair Market Value (as defined in Section
2) of aggregate shares of Warrant Stock exercisable pursuant to this Warrant on
the date of conversion, which value shall be equal to (A) the aggregate Fair
Market Value of the shares of Warrant Stock on the date of conversion less (B)
the aggregate Exercise Price of the shares of Warrant Stock immediately prior to
the exercise of the Conversion Right by (ii) the Fair Market Value of one share
of Series C Preferred Stock on the date of conversion.
2. Issuance of Shares; No Fractional Shares or Scrip
Certificates for shares of Warrant Stock purchased hereunder shall be
delivered to the Holder promptly after the date on which this Warrant shall have
been exercised in accordance with the terms hereof. The Company hereby
represents and warrants that all shares of Warrant Stock which may be issued
upon the exercise of this Warrant have been duly authorized and will, upon such
exercise, be duly and validly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
holder of the Warrant Stock). The
2
<PAGE>
Company agrees that the shares so issued shall be and shall for all purposes be
deemed to have been issued as of the close of business on the date on which this
Warrant shall have been exercised in accordance with the terms hereof. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. With respect to any fraction of a share called for
upon the exercise of this Warrant, an amount equal to such fraction multiplied
by the Fair Market Value of a share of Warrant Stock on the date of exercise
shall be paid in cash or check to the holder of this Warrant. "Fair Market
Value" shall mean (i) the fair market value as determined in good faith by the
Board of Directors of the Company, or (ii) in the event of an IPO, the Fair
Market Value shall equal the initial public offering price of the Company's
Common Stock multiplied by 3.5650.
3. Charges, Taxes and Expenses
The Holder shall pay all issue and transfer taxes and other incidental
expenses in respect of the issuance of certificates for shares of Warrant Stock
upon the exercise of this Warrant, and such certificates shall be issued in the
name of the Holder.
4. No Rights as a Stockholder
This Warrant does not entitle the Holder to any voting rights or other
rights as a stockholder of the Company prior to the exercise hereof.
5. Restrictions on Transfer; Lock-Up
(a) Restrictions on Warrant. This Warrant is not transferable,
-----------------------
except to affiliates of Holder, whether by sale, pledge or other disposition,
voluntarily or by operation of law or otherwise to any competitor of the Company
(as determined in good faith by the Board of Directors of the Company) without
the prior written consent of the Company, which consent may be withheld in the
Company's sole discretion. Any transfer in violation hereof shall be void and
the Warrant shall terminate immediately upon any such purported transfer.
(b) Restrictions on Transfer of Warrant Stock. In no event will the
-----------------------------------------
Holder make a disposition of the Warrant Stock unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the Securities Act provisions relating to
sale of an unregistered security has been taken, or (B) an exemption from the
registration requirements of the Securities Act is available. Notwithstanding
the foregoing, the restrictions imposed upon the transferability of the Warrant
Stock shall terminate as to any particular share of Warrant Stock when (1) such
security shall have been sold without registration in compliance with Rule 144
under the Securities Act, or (2) a letter shall have been issued to the Holder
at its request by the staff of the Securities and Exchange Commission or a
ruling shall have been issued to the Holder at its request by such Commission
stating that no action shall be
3
<PAGE>
recommended by such staff or taken by such Commission, as the case may be, if
such security is transferred without registration under the Securities Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required, or (3) such security shall have been registered under the Securities
Act and sold by the Holder in accordance with such registration.
(c) Lock-Up. In the event of any registration of the Company's
-------
securities, the Holder will not, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of the Warrant Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Warrant Stock, whether or not any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of such Warrant Stock, in cash or otherwise, without the prior written consent
of the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters.
(d) Restrictive Legends. The certificates representing the Warrant
-------------------
Stock and any securities of the Company issued with respect thereto shall be
imprinted with legends restricting transfer except in compliance with the terms
hereof and with applicable Federal and state securities laws.
6. Exchange and Registry of Warrant
The Company shall maintain at the office or agency referred to in Section
1(b) a registry showing the name and address of the registered holder of this
Warrant. This Warrant may be surrendered for exercise in accordance with its
terms at such office or agency of the Company, and the Company shall be entitled
to rely in all respects upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company will execute and deliver to the Holder, in lieu thereof, a
new Warrant in substantially identical form.
8. Saturdays, Sundays and Holidays
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If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday in the United States or the State of California, then such
action may be taken or such right may be exercised on the next succeeding
business day.
9. Adjustment to Number and Type of Securities and Exercise Price
The type and number of securities of the Company issuable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as set forth
below:
(a) Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
----------------------------------------------------------------
etc. The Exercise Price and the number and type of securities and/or other
- ---
property issuable upon exercise of this Warrant shall be appropriately and
proportionately adjusted to reflect any stock dividend, stock split, combination
of shares, reclassification, recapitalization or other similar event affecting
the number or character of outstanding shares of Warrant Stock or underlying
common stock, so that the number and type of securities and/or other property
issuable upon exercise of this Warrant shall be equal to that which would have
been issuable with respect to the number of shares of Warrant Stock subject
hereto at the time of such event, had such shares of Warrant Stock then been
outstanding.
(b) Adjustment for Reorganization, Consolidation, Merger, etc. In
---------------------------------------------------------
case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, the Holder, on exercise
hereof at any time after the consummation or effective date of such
Reorganization shall receive, in lieu of the Warrant Stock issuable on such
exercise prior to the date of such Reorganization, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon the date of such Reorganization if the Holder had exercised this
Warrant immediately prior thereto.
(c) Certificate as to Adjustments. In case of any adjustment in the
-----------------------------
Exercise Price or number and type of securities issuable on the exercise of this
Warrant, the Company will promptly give written notice thereof to the Holder in
the form of a certificate, certified and confirmed by an officer of the Company,
setting forth such adjustment and showing in reasonable detail the facts upon
which such adjustment is based.
10. Representations and Covenants of the Holder.
The Holder represents and covenants to the Company as follows:
(a) Investment Purpose. This Warrant and the Warrant Stock will be
------------------
acquired for investment for the Holder's own account, and not as a nominee or
agent and not with a view to the distribution of any part thereof. The Holder
further represents that it does not
5
<PAGE>
have any contract, undertaking agreement or arrangement with any person to sell,
transfer or grant participation to such person, or to any third person, with
respect to this Warrant.
(b) Private Issue. The Holder understands (i) that the Warrant and
-------------
the Warrant Stock issuable upon exercise of this Warrant are not registered
under the Securities Act, or qualified under applicable state securities laws on
the ground that the issuance of this Warrant will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Sales of Series C Preferred Stock. The Holder represents and
---------------------------------
warrants that the Holder is familiar with the provisions of Rule 144 promulgated
under the Securities Act which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer) in a non-public offering subject
to the satisfaction of certain conditions, including, among other things: (i)
the availability of certain public information about the Company; (ii) the
resale occurring not less than one year after the party has purchased, and made
full payment for, within the meaning of Rule 144, the securities to be sold; and
(iii) in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as such term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable. The
Holder acknowledges that in the event the applicable requirements of Rule 144
are not met, registration under the Securities Act or compliance with another
exemption from registration will be required for any disposition of the Series C
Preferred Stock issuable upon exercise of this Warrant.
(d) No Public Market. The Holder understands that no public market
----------------
now exists for any of the securities issued by the Company and that a public
market may never exist for the Series C Preferred Stock.
(e) Financial Risk. The Holder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(f) Receipt of Information. The Holder has received and reviewed this
----------------------
Warrant; it, its attorney and its accountant have had access to, and an
opportunity to review all documents and other materials requested of, the
Company; it and they have been given an opportunity to ask any and all questions
of, and receive answers from, the Company concerning the terms and conditions of
this Warrant and to evaluate the suitability of an investment in this Warrant;
and, in evaluating the suitability of an investment in this Warrant; it and they
have not relied upon any representations or other information (whether oral or
written) other than as set forth herein.
6
<PAGE>
11. Notices of Record Date, etc.
In the event of:
(a) any taking by the Company of a record of the holders of Series C
Preferred Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution,
(b) an IPO, or
(c) a Change of Control Transaction;
then and in each such event the Company will mail to the Holder a notice
specifying, if then known, (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and if known stating
the amount and character of such dividend, distribution or right, (ii) the date
on which the IPO is anticipated to close, or (iii) the anticipated date on which
any Change of Control Transaction is to take place, and if known the time, if
any is to be fixed, as to which the holders of record of Series C Preferred
Stock shall be entitled to exchange their shares for securities or other
property deliverable on such Change of Control Transaction. Such notice shall
be delivered to the Holder at least ten (10) days prior to the date therein
specified.
12. Governing Law
This Warrant shall be governed by and construed in accordance with the laws
of the State of California applicable to contracts made and to be performed
wholly within such state.
13. Complete Agreement and Modifications
This Warrant and any documents referred to herein or executed
contemporaneously herewith constitute the Company's and the Holder's entire
agreement with respect to the subject matter hereof and supersede all
agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the Company and the Holder.
14. Authorization
All corporate action on the part of the Company and its directors necessary
for the authorization, execution, delivery and performance of the Warrant by the
Company, the authorization, sale, issuance and delivery of the Warrant Stock.
The Warrant, when executed
7
<PAGE>
and delivered by the Company, shall constitute valid and binding obligations of
the Company, enforceable in accordance with its terms. The Warrant Stock, when
issued in compliance with the provisions of this Warrant, will be validly
issued, fully paid and nonassessable, and will have the rights, preferences,
privileges and restrictions described in the Company's Amended and Restated
Certificate of Incorporation (the "Certificate"); the common stock issuable upon
conversion of the Warrant Stock has been duly and validly reserved and, when
issued in compliance with the provisions of the Certificate, will be validly
issued, fully paid and nonassessable; and the Warrant Stock and the common stock
issued upon conversion thereof will be free of any liens or encumbrances
(assuming the Warrantholder takes the Warrant Stock with no notice thereof)
other than any liens or encumbrances created by or imposed on the
Warrantholders; provided, however, that the Warrant Stock and the common stock
issuable upon conversion thereof may be subject to restrictions on transfer
under state or federal securities laws and restrictions.
15. Governmental Consent
No consent, approval order or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with offer, sale
or issuance of the Warrant Stock or the common stock issued upon conversion
thereof, or the consummation of any other transaction contemplated hereby,
except the qualification (or taking of such action as may be necessary to secure
an exemption from qualification, if available) of the offer and sale of the
Warrant Stock and the common stock issued upon conversion thereof under
applicable Blue Sky laws, which filings and qualifica tions, if required, will
be accomplished in a timely manner.
16. Notices
Except as otherwise provided herein, all notices under this Warrant shall
be in writing and shall be delivered by personal service, facsimile, courier
service promising overnight delivery or certified mail (if such service is not
available, then by first class mail), postage prepaid. Notices shall be
addressed as follows:
If to the Holder: idealab! Capital Partners I-A, L.P.
130 West Union Street
Pasadena, CA 91103
Attention: William Elkus
Phone: (626) 535-2880
Fax: (626) 535-2741
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry Sonsini, Esq.
8
<PAGE>
Phone: (650) 493-9300
Fax: (650) 493-6811
If to the Company: PETsMART.com, Inc.
35 Hugus Alley, Suite 210
Pasadena, CA 91103
Attention: Chief Executive Officer
Phone: (626) 817-7111
Fax: (626) 817-7101
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 S. Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Michael A. Woronoff, Esq.
Phone: (213) 687-5253
Fax: (213) 687-5600
17. Waivers Strictly Construed
With regard to any power, remedy or right provided herein or otherwise
available to any party hereunder (i) no waiver or extension of time shall be
effective unless expressly contained in a writing signed by the waiving party;
and (ii) no alteration, modification or impairment shall be implied by reason of
any previous waiver, extension of time, delay or omission in exercise, or other
indulgence.
18. Severability
The validity, legality or enforceability of the remainder of this Warrant
shall not be affected even if one or more of its provisions shall be held to be
invalid, illegal or unenforceable in any respect.
* * *
9
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be executed by their duly authorized representatives.
PETsMART.COM, INC.,
a Delaware corporation
/s/ Tom McGovern
------------------------------
Tom McGovern, Jr., President
IDEALAB! CAPITAL PARTNERS, I-A, L.P.
/s/ William Elkus
------------------------------
Name: William Elkus
Title: Managing Member
[Signature Page to idealab! Warrant]
10
<PAGE>
NOTICE OF EXERCISE
To: PETsMART.com, Inc., a Delaware corporation
(1) The undersigned hereby elects to purchase __________ shares of Series
C Preferred Stock of PETsMART.com, Inc., a Delaware corporation, pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full.
(2) The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
except in compliance with applicable Federal and state securities laws.
(3) The undersigned accepts such shares subject to the restrictions on
transfer set forth in the attached Warrant.
Holder: ____________________________
________________________ By: ________________________________
(Date)
Name: ______________________________
Title: _____________________________
11
<PAGE>
EXHIBIT 10.47
THIS WARRANT AND ANY SHARES OF SERIES C PREFERRED STOCK ISSUED UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION
WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE
AFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
WARRANT EVIDENCED HEREBY IS TRANSFERABLE ONLY PURSUANT TO SECTION 5(a) HEREOF.
No. WC-5 PETsMART.COM, INC. February 3, 2000
SERIES C PREFERRED STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, idealab! Capital
Partners I-B, L.P. (and, with its permitted transferees, the "Holder"), is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
acquire from PETsMART.com, Inc. (the "Company"), in whole or from time to time
in part, up to 284,993 fully paid and nonassessable shares of Series C Preferred
Stock, par value $0.001 per share, of the Company ("Warrant Stock") at a
purchase price per share equal to $13.07 per share of Series C Preferred Stock
(the "Exercise Price"). Such number of shares, type of security and Exercise
Price are subject to adjustment as provided herein, and all references to
"Warrant Stock" and "Exercise Price" herein shall be deemed to include any such
adjustment or series of adjustments.
1. Exercise of Warrant
(a) Expiration Time. The term "Expiration Time" means the earliest to
---------------
occur of the following: (i) immediately prior to the closing of an IPO (as
defined below); or (ii) immediately prior to the closing of a Change of Control
Transaction (as defined below); or (iii) 11:59 p.m., Pacific Time, on the date
18 months from the date hereof. As used herein, "IPO" shall mean the first firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933, as amended (the "Securities Act"); a "Change
of Control Transaction" shall mean the Company's sale or lease of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company for securities or consideration issued, or
caused to be issued, by the acquiring corporation or its subsidiary, unless the
stockholders of the Company immediately prior to the transaction hold at least
50% of the voting power of the surviving corporation in such a transaction.
<PAGE>
(b) Exercise Procedure. The purchase rights represented by this
------------------
Warrant are exercisable, in whole or in part, at any time and from time to time
at or after the date hereof and at or prior to the Expiration Time, by the
surrender of this Warrant and the Notice of Exercise form attached hereto duly
executed to the office of the Company at 130 West Union Street, Pasadena, CA
91103 (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company), and upon payment of the Exercise Price
for the shares thereby purchased by (i) wire transfer or certified bank check
payable to the order of the Company, in an amount, payable in United States
dollars, equal to the purchase price of the shares thereby purchased or (ii)
exercise of the Conversion Right set forth in Section 1(d); whereupon the Holder
shall be entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased, and a new
Warrant in substantially identical form for the purchase of that number of
shares of Warrant Stock equal to the difference, if any, between the number of
shares of Warrant Stock subject hereto and the number of shares of Warrant Stock
as to which this Warrant is so exercised.
(c) Minimum Exercise. The Holder shall purchase a minimum of 1,000
----------------
shares of Warrant Stock upon any exercise hereunder.
(d) Conversion Right. In addition to and without limiting the
----------------
rights of the Holder under the terms of this Warrant, immediately prior to the
closing of an IPO or immediately prior to the closing of a Change of Control
Transaction, the Holder shall have the right to convert this Warrant or any
portion thereof into shares of Series C Preferred Stock prior to the Expiration
Time (the "Conversion Right"). Upon exercise of the Conversion Right with
respect to the number of shares of Warrant Stock that are exercisable pursuant
to this Warrant, the Company shall deliver to the Holder (without payment by the
Holder of the Exercise Price or any cash or other consideration) that number of
shares of fully paid and nonassessable Series C Preferred Stock equal to the
quotient obtained by dividing (i) the Fair Market Value (as defined in Section
2) of aggregate shares of Warrant Stock exercisable pursuant to this Warrant on
the date of conversion, which value shall be equal to (A) the aggregate Fair
Market Value of the shares of Warrant Stock on the date of conversion less (B)
the aggregate Exercise Price of the shares of Warrant Stock immediately prior to
the exercise of the Conversion Right by (ii) the Fair Market Value of one share
of Series C Preferred Stock on the date of conversion.
2. Issuance of Shares; No Fractional Shares or Scrip
Certificates for shares of Warrant Stock purchased hereunder shall be
delivered to the Holder promptly after the date on which this Warrant shall have
been exercised in accordance with the terms hereof. The Company hereby
represents and warrants that all shares of Warrant Stock which may be issued
upon the exercise of this Warrant have been duly authorized and will, upon such
exercise, be duly and validly authorized and issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the
issuance thereof (other than liens or charges created by or imposed upon the
holder of the Warrant Stock). The
2
<PAGE>
Company agrees that the shares so issued shall be and shall for all purposes be
deemed to have been issued as of the close of business on the date on which this
Warrant shall have been exercised in accordance with the terms hereof. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant. With respect to any fraction of a share called for
upon the exercise of this Warrant, an amount equal to such fraction multiplied
by the Fair Market Value of a share of Warrant Stock on the date of exercise
shall be paid in cash or check to the holder of this Warrant. "Fair Market
Value" shall mean (i) the fair market value as determined in good faith by the
Board of Directors of the Company, or (ii) in the event of an IPO, the Fair
Market Value shall equal the initial public offering price of the Company's
Common Stock multiplied by 3.5650.
3. Charges, Taxes and Expenses
The Holder shall pay all issue and transfer taxes and other incidental
expenses in respect of the issuance of certificates for shares of Warrant Stock
upon the exercise of this Warrant, and such certificates shall be issued in the
name of the Holder.
4. No Rights as a Stockholder
This Warrant does not entitle the Holder to any voting rights or other
rights as a stockholder of the Company prior to the exercise hereof.
5. Restrictions on Transfer; Lock-Up
(a) Restrictions on Warrant. This Warrant is not transferable,
-----------------------
except to affiliates of Holder, whether by sale, pledge or other disposition,
voluntarily or by operation of law or otherwise to any competitor of the Company
(as determined in good faith by the Board of Directors of the Company) without
the prior written consent of the Company, which consent may be withheld in the
Company's sole discretion. Any transfer in violation hereof shall be void and
the Warrant shall terminate immediately upon any such purported transfer.
(b) Restrictions on Transfer of Warrant Stock. In no event will the
-----------------------------------------
Holder make a disposition of the Warrant Stock unless and until (i) it shall
have notified the Company of the proposed disposition, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the Securities Act provisions relating to
sale of an unregistered security has been taken, or (B) an exemption from the
registration requirements of the Securities Act is available. Notwithstanding
the foregoing, the restrictions imposed upon the transferability of the Warrant
Stock shall terminate as to any particular share of Warrant Stock when (1) such
security shall have been sold without registration in compliance with Rule 144
under the Securities Act, or (2) a letter shall have been issued to the Holder
at its request by the staff of the Securities and Exchange Commission or a
ruling shall have been issued to the Holder at its request by such Commission
stating that no action shall be
3
<PAGE>
recommended by such staff or taken by such Commission, as the case may be, if
such security is transferred without registration under the Securities Act in
accordance with the conditions set forth in such letter or ruling and such
letter or ruling specifies that no subsequent restrictions on transfer are
required, or (3) such security shall have been registered under the Securities
Act and sold by the Holder in accordance with such registration.
(c) Lock-Up. In the event of any registration of the Company's
-------
securities, the Holder will not, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of the Warrant Stock or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Warrant Stock, whether or not any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of such Warrant Stock, in cash or otherwise, without the prior written consent
of the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters.
(d) Restrictive Legends. The certificates representing the Warrant
-------------------
Stock and any securities of the Company issued with respect thereto shall be
imprinted with legends restricting transfer except in compliance with the terms
hereof and with applicable Federal and state securities laws.
6. Exchange and Registry of Warrant
The Company shall maintain at the office or agency referred to in Section
1(b) a registry showing the name and address of the registered holder of this
Warrant. This Warrant may be surrendered for exercise in accordance with its
terms at such office or agency of the Company, and the Company shall be entitled
to rely in all respects upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
Warrant, the Company will execute and deliver to the Holder, in lieu thereof, a
new Warrant in substantially identical form.
8. Saturdays, Sundays and Holidays
4
<PAGE>
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday in the United States or the State of California, then such
action may be taken or such right may be exercised on the next succeeding
business day.
9. Adjustment to Number and Type of Securities and Exercise Price
The type and number of securities of the Company issuable upon exercise of
this Warrant and the Exercise Price are subject to adjustment as set forth
below:
(a) Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
----------------------------------------------------------------
etc. The Exercise Price and the number and type of securities and/or other
- ---
property issuable upon exercise of this Warrant shall be appropriately and
proportionately adjusted to reflect any stock dividend, stock split, combination
of shares, reclassification, recapitalization or other similar event affecting
the number or character of outstanding shares of Warrant Stock or underlying
common stock, so that the number and type of securities and/or other property
issuable upon exercise of this Warrant shall be equal to that which would have
been issuable with respect to the number of shares of Warrant Stock subject
hereto at the time of such event, had such shares of Warrant Stock then been
outstanding.
(b) Adjustment for Reorganization, Consolidation, Merger, etc. In
---------------------------------------------------------
case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, the Holder, on exercise
hereof at any time after the consummation or effective date of such
Reorganization shall receive, in lieu of the Warrant Stock issuable on such
exercise prior to the date of such Reorganization, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon the date of such Reorganization if the Holder had exercised this
Warrant immediately prior thereto.
(c) Certificate as to Adjustments. In case of any adjustment in the
-----------------------------
Exercise Price or number and type of securities issuable on the exercise of this
Warrant, the Company will promptly give written notice thereof to the Holder in
the form of a certificate, certified and confirmed by an officer of the Company,
setting forth such adjustment and showing in reasonable detail the facts upon
which such adjustment is based.
10. Representations and Covenants of the Holder.
The Holder represents and covenants to the Company as follows:
5
<PAGE>
(a) Investment Purpose. This Warrant and the Warrant Stock will be
------------------
acquired for investment for the Holder's own account, and not as a nominee or
agent and not with a view to the distribution of any part thereof. The Holder
further represents that it does not have any contract, undertaking agreement or
arrangement with any person to sell, transfer or grant participation to such
person, or to any third person, with respect to this Warrant.
(b) Private Issue. The Holder understands (i) that the Warrant and
-------------
the Warrant Stock issuable upon exercise of this Warrant are not registered
under the Securities Act, or qualified under applicable state securities laws on
the ground that the issuance of this Warrant will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Sales of Series C Preferred Stock. The Holder represents and
---------------------------------
warrants that the Holder is familiar with the provisions of Rule 144 promulgated
under the Securities Act which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer) in a non-public offering subject
to the satisfaction of certain conditions, including, among other things: (i)
the availability of certain public information about the Company; (ii) the
resale occurring not less than one year after the party has purchased, and made
full payment for, within the meaning of Rule 144, the securities to be sold; and
(iii) in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as such term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable. The
Holder acknowledges that in the event the applicable requirements of Rule 144
are not met, registration under the Securities Act or compliance with another
exemption from registration will be required for any disposition of the Series C
Preferred Stock issuable upon exercise of this Warrant.
(d) No Public Market. The Holder understands that no public market
----------------
now exists for any of the securities issued by the Company and that a public
market may never exist for the Series C Preferred Stock.
(e) Financial Risk. The Holder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(f) Receipt of Information. The Holder has received and reviewed this
----------------------
Warrant; it, its attorney and its accountant have had access to, and an
opportunity to review all documents and other materials requested of, the
Company; it and they have been given an opportunity to ask any and all questions
of, and receive answers from, the Company concerning the terms and conditions of
this Warrant and to evaluate the suitability of an investment in this
6
<PAGE>
Warrant; and, in evaluating the suitability of an investment in this Warrant; it
and they have not relied upon any representations or other information (whether
oral or written) other than as set forth herein.
11. Notices of Record Date, etc.
In the event of:
(a) any taking by the Company of a record of the holders of Series C
Preferred Stock for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution,
(b) an IPO, or
(c) a Change of Control Transaction;
then and in each such event the Company will mail to the Holder a notice
specifying, if then known, (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and if known stating
the amount and character of such dividend, distribution or right, (ii) the date
on which the IPO is anticipated to close, or (iii) the anticipated date on which
any Change of Control Transaction is to take place, and if known the time, if
any is to be fixed, as to which the holders of record of Series C Preferred
Stock shall be entitled to exchange their shares for securities or other
property deliverable on such Change of Control Transaction. Such notice shall
be delivered to the Holder at least ten (10) days prior to the date therein
specified.
12. Governing Law
This Warrant shall be governed by and construed in accordance with the laws
of the State of California applicable to contracts made and to be performed
wholly within such state.
13. Complete Agreement and Modifications
This Warrant and any documents referred to herein or executed
contemporaneously herewith constitute the Company's and the Holder's entire
agreement with respect to the subject matter hereof and supersede all
agreements, representations, warranties, statements, promises and
understandings, whether oral or written, with respect to the subject matter
hereof. This Warrant may not be amended, altered or modified except by a
writing signed by the Company and the Holder.
14. Authorization
7
<PAGE>
All corporate action on the part of the Company and its directors necessary
for the authorization, execution, delivery and performance of the Warrant by the
Company, the authorization, sale, issuance and delivery of the Warrant Stock.
The Warrant, when executed and delivered by the Company, shall constitute valid
and binding obligations of the Company, enforceable in accordance with its
terms. The Warrant Stock, when issued in compliance with the provisions of this
Warrant, will be validly issued, fully paid and nonassessable, and will have the
rights, preferences, privileges and restrictions described in the Company's
Amended and Restated Certificate of Incorporation (the "Certificate"); the
common stock issuable upon conversion of the Warrant Stock has been duly and
validly reserved and, when issued in compliance with the provisions of the
Certificate, will be validly issued, fully paid and nonassessable; and the
Warrant Stock and the common stock issued upon conversion thereof will be free
of any liens or encumbrances (assuming the Warrantholder takes the Warrant Stock
with no notice thereof) other than any liens or encumbrances created by or
imposed on the Warrantholders; provided, however, that the Warrant Stock and the
common stock issuable upon conversion thereof may be subject to restrictions on
transfer under state or federal securities laws and restrictions.
15. Governmental Consent
No consent, approval order or authorization of or registration,
qualification, designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with offer, sale
or issuance of the Warrant Stock or the common stock issued upon conversion
thereof, or the consummation of any other transaction contemplated hereby,
except the qualification (or taking of such action as may be necessary to secure
an exemption from qualification, if available) of the offer and sale of the
Warrant Stock and the common stock issued upon conversion thereof under
applicable Blue Sky laws, which filings and qualifications, if required, will
be accomplished in a timely manner.
16. Notices
Except as otherwise provided herein, all notices under this Warrant shall
be in writing and shall be delivered by personal service, facsimile, courier
service promising overnight delivery or certified mail (if such service is not
available, then by first class mail), postage prepaid. Notices shall be
addressed as follows:
If to the Holder: idealab! Capital Partners I-A, L.P.
130 West Union Street
Pasadena, CA 91103
Attention: William Elkus
Phone: (626) 535-2880
Fax: (626) 535-2741
8
<PAGE>
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry Sonsini, Esq.
Phone: (650) 493-9300
Fax: (650) 493-6811
If to the Company: PETsMART.com, Inc.
35 Hugus Alley, Suite 210
Pasadena, CA 91103
Attention: Chief Executive Officer
Phone: (626) 817-7111
Fax: (626) 817-7101
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
300 S. Grand Avenue, Suite 3400
Los Angeles, CA 90071
Attention: Michael A. Woronoff, Esq.
Phone: (213) 687-5253
Fax: (213) 687-5600
17. Waivers Strictly Construed
With regard to any power, remedy or right provided herein or otherwise
available to any party hereunder (i) no waiver or extension of time shall be
effective unless expressly contained in a writing signed by the waiving party;
and (ii) no alteration, modification or impairment shall be implied by reason of
any previous waiver, extension of time, delay or omission in exercise, or other
indulgence.
18. Severability
The validity, legality or enforceability of the remainder of this Warrant
shall not be affected even if one or more of its provisions shall be held to be
invalid, illegal or unenforceable in any respect.
* * *
9
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be executed by their duly authorized representatives.
PETsMART.COM, INC.,
a Delaware corporation
/s/ Tom McGovern
------------------------------------
Tom McGovern, Jr., President
IDEALAB! CAPITAL PARTNERS, I-B, L.P.
/s/ William Elkus
------------------------------------
Name: William Elkus
Title: Managing Member
[Signature Page to idealab! Warrant]
10
<PAGE>
NOTICE OF EXERCISE
To: PETsMART.com, Inc., a Delaware corporation
(1) The undersigned hereby elects to purchase __________ shares of Series
C Preferred Stock of PETsMART.com, Inc., a Delaware corporation, pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price in full.
(2) The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
except in compliance with applicable Federal and state securities laws.
(3) The undersigned accepts such shares subject to the restrictions
on transfer set forth in the attached Warrant.
Holder: ____________________________
________________________ By: ________________________________
(Date)
Name: ______________________________
Title: _____________________________
11
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-1 of our
reports dated February 1, 2000, relating to the financial statements of
PETsMART.com, Inc. and Digital Communities, Inc., which appear in such
Registration Statement. We also consent to the references to us under the
headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Century City, California
February 1, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-1 of our
report dated January 31, 2000, relating to the financial statements of K&K
Hansen, Inc. dba Mason Distributing Company, which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
in such Registration Statement.
/s/ Lesley, Thomas, Schwarz &
Postma, Inc.
Lesley, Thomas, Schwarz & Postma,
Inc.
A Professional Accountancy
Corporation
Newport Beach, California
February 3, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PETsMART.COM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> FEB-25-1999
<PERIOD-END> JAN-02-2000
<CASH> 26,350
<SECURITIES> 0
<RECEIVABLES> 153
<ALLOWANCES> 29
<INVENTORY> 359
<CURRENT-ASSETS> 28,174
<PP&E> 1,632
<DEPRECIATION> 233
<TOTAL-ASSETS> 38,269
<CURRENT-LIABILITIES> 19,439
<BONDS> 0
0
19
<COMMON> 2
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 38,269
<SALES> 10,446
<TOTAL-REVENUES> 10,446
<CGS> 16,739
<TOTAL-COSTS> 55,925
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> (47,495)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,495)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,495)
<EPS-BASIC> (65.38)
<EPS-DILUTED> (2.34)
</TABLE>
