<PAGE>
As filed with the Securities and Exchange Commission on March 13, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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Petopia.com, Inc.
(Exact name of Registrant as specified in its charter)
<TABLE>
<C> <C> <S>
Delaware 5999 94-3323667
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification code number) Identification Number)
</TABLE>
1200 Folsom Street
San Francisco, California 94103
(415) 503-2700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Andrea C. Reisman
Chief Executive Officer
Petopia.com, Inc.
1200 Folsom Street
San Francisco, California 94103
(415) 503-2700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
<TABLE>
<S> <C>
Mark S. Albert, Esq. Gerald S. Tanenbaum, Esq.
Ralph L. Arnheim III, Esq. Jonathan I. Mark, Esq.
Perkins Coie LLP Cahill Gordon & Reindel
135 Commonwealth Drive, Suite 250 80 Pine Street
Menlo Park, California 94025 New York, New York 10005-1702
(650) 752-6000 (212) 701-3000
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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, 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, please 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,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Offering
Securities to be Registered Price(1) Amount of Registration Fee
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<S> <C> <C>
Common stock, $0.0001 par
value......................... $100,000,000 $26,400
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
----------------
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 that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, 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.
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<PAGE>
Subject to Completion, Dated March 13, 2000
The information contained in this prospectus is not complete and may be
changed. These securities may not be sold 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.
Shares
[Petopia.com Logo]
Common Stock
$ per share
- -------------------------------------------------------------------------------
This is an initial public offering of common stock of Petopia.com, Inc. This
is a firm commitment underwriting.
We expect that the price to the public in the offering will be between $ and
$ per share. The market price of the shares after the offering may be higher
or lower than the offering price.
We have applied to include the common stock on the Nasdaq National Market
under the symbol "PTOP."
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 7.
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Price to the public............................................ $ $
Underwriting discount..........................................
Proceeds to Petopia.com, Inc...................................
</TABLE>
Petopia.com, Inc. has granted an over-allotment option to the underwriters.
Under this option, the underwriters may elect to purchase a maximum of
additional shares from Petopia.com, Inc. within 30 days following the date of
this prospectus to cover over-allotments.
- -------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
CIBC World Markets
SG Cowen
Wit SoundView
The date of this prospectus is , 2000.
<PAGE>
[ART WORK]
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 22
Use of Proceeds.......................................................... 23
Dividend Policy.......................................................... 23
Capitalization........................................................... 24
Dilution................................................................. 26
Selected Financial Data.................................................. 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 35
Management............................................................... 48
Certain Transactions..................................................... 60
Principal Stockholders................................................... 64
Description of Capital Stock............................................. 66
Shares Eligible for Future Sale.......................................... 69
Underwriting............................................................. 71
Legal Matters............................................................ 73
Experts.................................................................. 73
Additional Information................................................... 74
Index to Financial Statements ........................................... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operation and prospects may have changed since that date.
Petopia, Petopia.com, the Petopia.com logo, The Internet Pet Paradise, and
Bottomless Bowl are trademarks of Petopia.com. In the Company of Dogs and
inthecompanyofdogs.com are trademarks of In the Company of Dogs, Inc., a wholly
owned subsidiary of Petopia.com. All other brand names or trademarks appearing
in this prospectus are the property of their respective holders. Use or display
by Petopia.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, Petopia.com by the trademark or trade dress owners.
<PAGE>
Prospectus Summary
This summary highlights information contained in other parts of this
prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in the shares. You should read the
entire prospectus carefully.
Petopia.com is a leading online pet products retailer that integrates a "bricks
and clicks" business model with a multi-channel sales approach. We provide a
convenient, one-stop shop for all our customers' pet-related needs by offering
a comprehensive range of pet supplies, specialty items, relevant content, and
online community. We believe our online strategy, when compared to our
competitors, will allow us to achieve better margins, lower customer
acquisition costs, and increased customer satisfaction.
We are implementing our "bricks and clicks" model through our exclusive
relationship with PETCO Animal Supplies, Inc. or PETCO, a leading specialty
retailer of premium pet food and supplies with approximately 500 retail stores.
We believe this model combines the advantages of both online and offline
retailing to better serve customers through comprehensive product selection,
competitive pricing, access to expert information, around-the-clock
availability and convenient home delivery. Our strategic relationship with
PETCO also allows us to integrate our systems and operations to achieve
significant efficiencies, including rapid development of a nationwide
distribution network, ability to acquire merchandise at favorable volume-based
rates, reduced inventory and infrastructure investment, lower shipping costs,
and efficient customer acquisition through in-store promotion and database
marketing.
Our multi-channel sales approach increases the reach of our web site and
provides our customers with the flexibility and convenience of purchasing
products and accessing pet-related information through the medium of their
choice, including our web site, catalog, television program, customer call
center, and Petopia Internet stations located in PETCO stores. A key benefit of
our multi-channel sales approach is the opportunity to promote our brand and
acquire customers through active cross-marketing between our sales channels. To
help execute this plan, we have formed an exclusive partnership with
ValueVision International, Inc. or ValueVision, with whom we intend to deliver
weekly pet-related programming to approximately 30 million cable television
households. We also publish a leading high-end specialty catalog offering
approximately 6,000 pet-related product SKUs, a large portion of which are
proprietary to us. In addition, we promote and sell specialty products through
our in-store Petopia Internet stations.
The pet products and services industry represents an attractive opportunity due
to its large size and broad customer base. According to the Pet Industry Joint
Advisory Council, U.S. consumer spending on pet products was approximately $23
billion in 1997, and the market is expected to grow to $29 billion by 2001. The
American Pet Products Manufacturers Association or APPMA, estimates that over
60% of all U.S. households own at least one pet, while 40% of these households
have multiple pets. According to the American Animal Hospital Association, 70%
of pet owners consider their pets as children, and 63% celebrate their pet's
birthday. We believe this bond between pets and their owners results in a high
level of discretionary spending on pets. In addition, the care of pets requires
the regular purchase of core products, such as food and litter and offers an
attractive opportunity for an online product replenishment service.
Our solution provides the following benefits to consumers:
. Convenience of a Multi-Channel Sales Approach. By offering products,
services and information through our web site, catalog, television
program, customer call center, and Petopia Internet stations located in
PETCO stores, we allow our customers to shop through the medium of their
choice.
. Trusted Brand. We believe our customers have confidence in our product
and content offerings due to our affiliation with trusted pet industry
brands, such as PETCO and the American Society for the Prevention of
Cruelty for Animals or ASPCA. We further enhance our credibility by
offering proprietary content from respected sources, such as the
Veterinary Medicine Publishing Group.
3
<PAGE>
. Efficient Fulfillment and Distribution. We currently operate out of a
nationwide network of five distribution centers which allow us to
fulfill orders and ship products in a quick and cost efficient manner.
. Exceptional Customer Service. We believe the pet-related knowledge of
our customer service team and their ability to answer a wide variety of
both product and pet care questions reinforces customer loyalty and
enhances our brand image.
. Comprehensive Product Selection. As an Internet-based retailer, our
product offerings are not limited by in-store shelf space. As a result,
we are able to offer a comprehensive selection of both pet products and
supplies for all pet types. We are also well positioned to offer a full
range of pet- lifestyle products, including apparel, home furnishings,
and accessories for pets and their owners.
Our objective is to be the leading retailer serving pet owners and enthusiasts.
In order to achieve this goal, we intend to:
. strengthen the Petopia.com brand;
. acquire customers through multiple channels at low cost;
. leverage PETCO's buying power, merchandising expertise and operations
infrastructure;
. rapidly scale a nationwide distribution network supporting all of our
sales channels from a common platform;
. encourage customer loyalty through exceptional customer service and
subscription-based product replenishment programs; and
. further enhance our gross margin through an emphasis on higher-end
lifestyle, hobbyist and specialty products.
Other Information
Unless otherwise noted, this prospectus assumes:
. the automatic conversion of our outstanding convertible preferred stock
into common stock on a one-for-one basis upon the closing of this
offering;
. an initial public offering price of $ per share, the midpoint
of the range set forth on the cover of this prospectus;
. the filing of our amended and restated certificate of incorporation
authorizing 150,000,000 shares of common stock and a class of 10,000,000
shares of undesignated preferred stock upon the closing of the offering;
. that options and warrants to purchase 18,952,360 shares of common stock
in the aggregate will remain outstanding after the closing of the
offering; and
. no exercise by the underwriters of their option to purchase additional
shares of our common stock in the offering.
Our principal executive offices are located at 1200 Folsom Street, San
Francisco, California 94103. Our telephone number is (415) 503-2700. Our web
sites are located at www.petopia.com and www.inthecompanyofdogs.com.
Information contained in our web sites does not constitute part of this
prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Petopia.com................ shares.
Common stock to be outstanding after the offering.. shares. The
number of shares of common
stock to be outstanding
after the offering is
based on the number of
shares outstanding as of
March 10, 2000. This
number includes 2,956,760
shares which are subject
to a right of repurchase
that will expire over the
following 25 months. This
number does not include:
. 9,006,322 shares
issuable upon exercise
of outstanding
warrants;
. 9,946,038 shares
issuable upon exercise
of stock options
outstanding as of March
10, 2000, with a
weighted average
exercise price of $1.11
per share, of which
options to purchase
923,743 shares have
vested and are
exercisable;
. 6,721,957 shares
reserved for future
grant under our
employee equity plans;
and
. 585,000 shares issuable
to Loveland upon the
achievement of certain
milestones.
Use of proceeds.................................... We intend to use the net
proceeds of this offering
for:
. the repayment of
$2,000,000 of
indebtedness; and
. general corporate
purposes, including
expansion of our
marketing and brand
building efforts.
Proposed Nasdaq National Market symbol............. PTOP
</TABLE>
5
<PAGE>
Summary Financial Data
1316703 Ontario Limited, an Ontario, Canada corporation doing business as
Paw.net, was formed on September 28, 1998. On March 9, 1999, we incorporated as
a Delaware corporation under the name Spot & Jack, Inc. On April 15, 1999, the
assets of 1316703 Ontario Limited were distributed to its shareholders, who
then contributed these assets to Spot & Jack, Inc. in exchange for shares of
that company. Spot & Jack, Inc. changed its name to Petopia.com, Inc. on May 3,
1999.
The pro forma statement of operations data includes the results of operations
for 1316703 Ontario Limited, our predecessor, from January 3, 1999 to April 15,
1999, and gives effect to our acquisition of C/R Catalog Corp. (d/b/a In the
Company of Dogs) as though it had occurred on January 3, 1999. The pro forma
balance sheet data gives effect to our acquisition of C/R Catalog Corp. as
though it had occurred on January 1, 2000. The pro forma as adjusted column
gives additional effect to the sale of the shares of common stock that we are
offering under this prospectus after deducting the estimated underwriting
discounts and our estimated offering expenses and the use of the estimated net
proceeds from the sales of shares and to the automatic conversion of all of the
outstanding shares of our convertible preferred stock upon the closing of this
offering.
The following tables summarize our financial results and should be read in
conjunction with "Selected Financial Data," our financial statements and
related notes, 1316703 Ontario Limited's financial statements and related
notes, our pro forma financial information and related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in this prospectus.
<TABLE>
<CAPTION>
1316703 Ontario
Limited, our Petopia.com
predecessor, period from Pro Forma
period from March 9, period from
September 28, 1999 January 3,
1998 (inception) 1999
(inception) through through
through January 1, January 1,
April 15, 1999 2000 2000
--------------- ----------- -----------
(in thousands, except share and per
share data)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales............................. $ -- $ 3,452 $ 8,801
Gross margin.......................... -- (2,187) 335
Loss from operations(1)............... (615) (41,601) (48,527)
Net loss(1)........................... (612) (40,865) (47,987)
Basic and diluted net loss per
equivalent share(2).................. $ (7.20) $ (10.84) $ (8.74)
Pro forma basic and diluted net loss
per equivalent share(2).............. $ (2.50) $ (2.39)
Shares used to compute basic and
diluted net loss per
equivalent share(2).................. 85,000 3,770,437 5,489,681
Shares used to compute pro forma basic
and diluted net loss per equivalent
share(2)............................. 16,339,184 20,073,035
<CAPTION>
January 1, 2000
----------------------------------------
Petopia.com Pro Forma
Actual Pro Forma As Adjusted
--------------- ----------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-
term investments..................... $36,528 $36,346
Working capital....................... 30,997 25,966
Total assets.......................... 52,840 70,384
Convertible preferred stock, warrants
and related paid-in capital.......... 80,390 91,940
Total stockholders' equity............ 41,304 52,854
</TABLE>
- --------
(1) Pro forma loss from operations and pro forma net loss includes $3,600,000
and $3,517,000 of amortization of purchased intangibles and equity-based
charges, respectively.
(2) See note 2 of notes to our financial statements for a description of the
method that we used to compute our net loss per equivalent share, and how
we calculated the number of shares used in that computation.
6
<PAGE>
Risk Factors
This offering involves a high degree of risk. 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. If
any of the following risks actually occur, our business, results of operations
and financial condition could be harmed. This could cause the trading price of
our common stock to decline, and you might lose part or all of your investment.
Risks Related to Our Business
We are an early stage company and have a limited operating history that makes
it difficult to evaluate our business.
Our predecessor, 1316703 Ontario Limited, was formed on September 28, 1998. We
began selling products on our web site to the public in August 1999. As a
result 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. These risks include our:
. evolving and unproven business model;
. competition;
. need for increased customer acceptance of the online purchase of pet
products;
. ability to maintain and expand our customer base;
. ability to manage inventory levels and product return risks;
. need to manage growth and changing operations;
. need to continue to develop and upgrade our web site, transaction-
processing systems and network infrastructure;
. ability to scale our systems and fulfillment capabilities to accommodate
the growth of our business;
. ability to access additional capital when required;
. reliance on, and ability to continue, current strategic relationships
and ability to generate additional strategic relationships;
. dependence upon key personnel; and
. dependence on the reliability and growing use of the Internet for
commerce and communication and on general economic conditions.
We cannot be certain that our business strategy will be successful or that we
will successfully address these risks. In addition, to the extent that our
revenues and operating results fall below the expectations of investors and
securities analysts, the trading price of our common stock may be harmed.
We have a history of losses and we expect to incur losses in the future.
Since inception, we have incurred significant losses. As of January 1, 2000, we
had an accumulated deficit of $40,865,000. We began selling products to the
public in August 1999 and have yet to achieve profitability. We cannot assure
you that we will obtain enough customer traffic or a high enough volume of
purchases to generate sufficient revenues to achieve profitability. If we do
achieve profitability, we cannot be certain that we will be able to sustain or
increase profitability in the future.
7
<PAGE>
We expect that our operating losses will continue for the foreseeable future.
We anticipate that our losses will increase significantly from current levels
because we expect to incur additional costs and expenses related to:
. brand development, marketing and other promotional activities;
. expansion of our inventory management and order fulfillment
infrastructure;
. continued development of our web site, transaction-processing systems
and network infrastructure;
. expansion of our product offerings and web site content;
. development of relationships with strategic partners;
. providing shipping at prices below our actual shipping costs;
. expansion into other sales channels for our product offerings;
. charges as a result of warrants to be issued to a strategic partner on
the occurrence of certain performance milestones; and
. increases to our general and administrative functions to support our
growing operations.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Our future operating results are unpredictable.
As a result of our limited operating history, it is difficult to forecast our
operating results accurately, and we have limited meaningful historical
financial data upon which to forecast future operating expenses. Additionally,
several of our sales channels are still developing, making it difficult to
predict the level of revenue they will generate. Our expenses are based on
projections of future net sales, which are difficult to predict at this time.
Sales and operating results are difficult to forecast because they generally
depend on the volume and timing of the orders we receive. As a result, we may
be unable to adjust our spending in a timely manner to compensate for any
unexpected revenue shortfall. We may also be unable to increase our spending
and expand our operations in a timely manner to meet customer demand to the
extent such demand exceeds our expectations.
Our annual and quarterly operating results may be affected and may fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. Factors that may affect our business or cause our
operating results to fluctuate include the following:
. consumer traffic to our web site may vary as a result of the
effectiveness of our sales and marketing campaigns relative to those of
our competitors, the success of our promotions, the quality 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 or through our other sales channels, the
availability of products we have for sale and other factors;
. in addition to using our web site to promote and sell our product
offerings, we rely on multiple sales channels a number of which are
unproven and may fail to generate significant sales volume;
. our strategic partners may be unable to drive traffic to our web site or
to increase sales of our products through other sales channels;
. 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;
. we may be unable to manage fulfillment operations effectively;
. our customers may begin to return products at an increased rate;
8
<PAGE>
. our cost of online or offline advertising may increase;
. we may be unable to attract new personnel in a timely and effective
manner or retain existing personnel;
. we may be unable to achieve or maintain high online capacity data
transmission on our web site which would significantly harm the overall
customer shopping experience;
. we may incur additional operating costs and capital expenditures related
to expansion of our operations through the acquisition of businesses or
technology;
. we may experience unexpected increases in shipping costs or delivery
times;
. the United States government may enact regulations or sales taxes
related to the use of the Internet for commerce or for sales and
distribution of pet products;
. our relationship with PETCO may subject us to state sales tax in certain
states, which would leave us at a competitive disadvantage as compared
to other online pet retailers; and
. we may be affected by general economic conditions, economic conditions
specific to the Internet and online electronic commerce, and economic
conditions related to the pet product industry.
A number of factors may cause our gross margins to fluctuate in future periods,
including the mix of pet products sold by us, inventory management, inbound and
outbound shipping and handling costs, the level of product returns and the
level of discount pricing and promotional coupon usage. Our inability to
purchase our products on favorable terms could also harm our gross margins and
operating results in future periods.
As a result of these and other factors, we believe that our current operating
results are not a good indication of our future performance. It is possible
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.
Purchasers of pet products may not accept our solution.
If we do not attract and retain a high volume of customers to our web site at a
reasonable cost, either through online or offline advertising or through our
other sales channels, we will not be able to increase our revenues or achieve
profitability. We may not be able to convert a large number of customers from
traditional shopping methods to online shopping or our other sales channels.
Even if we are successful at attracting both online and offline customers, we
expect it will take several years to build a critical mass of customers.
Specific factors that could prevent widespread customer acceptance of our
solution include:
. shipping charges, which do not apply to shopping at traditional pet
stores;
. delivery time associated with Internet orders and orders from our other
sales channels, as compared to the immediate receipt of products at a
physical store;
. pricing that does not meet customer expectations;
. lack of customer awareness of our web site and other sales channels;
. customer concerns about the security of online transactions and the
privacy of their online information;
. product damage from shipping or shipments of wrong products from our
fulfillment partners or other vendors;
. our inability to differentiate our web site from those of our
competitors;
. delays in responses to customer inquiries or in deliveries to customers;
and
. difficulties in returning or exchanging orders.
9
<PAGE>
The online market for pet products, information and services is in its infancy,
as is the market for the sale of such pet products, information and services
through television programs, in-store Petopia Internet stations and phone
orders. The market is significantly less developed than the online markets for
books, auctions, music, software and numerous other consumer products. If this
market does not gain widespread acceptance, our business will fail. Demand and
market acceptance for recently introduced services and products on the Internet
are subject to a high level of uncertainty, and there are few proven services
and products. Our success will depend on our ability to engage consumers who
have historically purchased pet products through traditional 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 or other sales channels 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 sales
channels only once or twice and then return to more familiar means of
purchasing these products. In addition, selling pet products on television and
through in-store Petopia Internet stations are new and unproven channels of
distribution.
We currently sell lifestyle products, which are generally high margin products,
through our catalog division. These products include pet-themed apparel and
collectibles for people, and apparel and home furnishings for pets. Most of
these products are currently dog-focused but we intend to expand this division
into other animal categories. A portion of our marketing strategy includes the
promotion and sale of these products to mass market audiences through in-store
promotions at PETCO, Petopia Internet stations located at PETCO stores and
through our television program. If these products do not gain wide market
acceptance, we will not achieve our projected revenue targets and a portion of
our marketing strategy will fail.
We may not succeed in establishing the Petopia.com brand, which would harm our
ability to attract and retain customers.
Due to the early stage and competitive nature of the online market for pet
products, if we do not establish our brand quickly, we may lose the opportunity
to build a critical mass of customers. Promoting and positioning our brand will
depend largely on the success of our marketing efforts and our ability to
provide consistent, high quality customer experiences. To promote our brand, we
will incur substantial expenses in our advertising efforts on cable and network
television, on major web sites that our customers are likely to visit, and on
other forms of media, such as magazines. We will also need to spend money to
attract and train customer service personnel. If these brand promotion
activities do not yield increased revenues, we will incur additional losses.
We depend on a limited number of partners for purchasing and fulfillment; if
they do not perform, we will not be able to ship orders effectively.
We currently purchase a majority of our products from two vendors, Loveland and
PETCO. Although these relationships are intended to minimize our reliance on
individual vendors, if our customers experience a delay in receiving their
products, these relationships fail, or these vendors have product stock-outs,
we would be forced to find new product sources. In addition, our business could
be harmed if these third parties were to breach their contracts or suffer
adverse developments that affect their ability to supply products to us. We
rely on PETCO's volume purchasing power to receive favorable pricing on
products. If this relationship fails, our product costs could increase.
We rely to a large extent on distribution by third parties. Because we rely on
third parties to fulfill orders, we depend on their systems for tracking
inventory and financial data. If our distribution partners' systems fail or are
unable to scale or adapt to our changing needs, or if we cannot integrate
information systems with any new distributors, we may not have adequate,
accurate or timely inventory or financial information.
We also rely on third-party carriers for shipments to and from distribution
facilities. We are therefore subject to the risks, including employee strikes
and inclement weather, associated with our carriers and are dependent on our
carriers' ability to provide product fulfillment and delivery services to meet
our distribution and shipping needs. Failure to deliver products to our
customers in a timely and accurate manner would harm our reputation, the
Petopia.com brand and our results of operations.
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Our relationships with PETCO and Loveland are complex, involve many risks, and
may restrict our ability to promote, contract with or operate traditional
retail stores.
In March 1999, we entered into a fulfillment agreement with Loveland, which was
amended in May 1999. We also entered into an alliance agreement with PETCO in
July 1999. These agreements involve many aspects of our business and include
the sale of equity securities to Loveland and PETCO as well as various
arrangements relating to the operation of our respective web sites and the
fulfillment of orders for our customers. These types of arrangements are
complex and will require a great deal of effort to operate successfully. As a
result, there are many risks related to these arrangements, including some that
we may not foresee. It is difficult to assess the likelihood of occurrence of
these risks, including the lack of success of the overall arrangement to meet
the parties' objectives. In the event that we do not realize the intended
benefits of these relationships, we will have expended a great deal of time and
effort that could have been directed to the ongoing development of our
business. In addition, customer perceptions and our business may be harmed if
these relationships are not successful.
We currently sublease space in three PETCO distribution centers where we set up
and operate product storage and pick and pack fulfillment lines. This requires
us to integrate PETCO's inventory management processes and systems with our
own. Integrating different information systems is technically difficult and may
take time to implement, which could delay our fulfillment process and may harm
our business. In addition, our current fulfillment operations may not be
adequate to accommodate significant increases in customer demand that may
occur. We must also be able to scale our fulfillment operations and information
systems rapidly to accommodate significant increases in demand. If we do not
successfully scale our fulfillment operations to accommodate demand, our
business will be harmed.
PETCO has agreed to accept returns from our customers of items sold by us.
Though intended to provide convenience to our customers, it could result in our
customers purchasing the replacement item, as well as other items, from PETCO
and not from us. This would drive consumer traffic away from our web site and
other sales channels and to PETCO's stores, which would reduce our revenue. If
we permit customers to return items at PETCO stores, we risk having sales tax
collection obligations imposed on us by local, state or foreign jurisdictions
where we are not currently obligated to collect sales tax. If one or more
states or any foreign jurisdiction successfully asserts that we should collect
sales or other taxes on the sale of our products, it could put us in a
competitive disadvantage as compared to other online pet retailers and harm our
business.
While PETCO has committed to promoting the Petopia.com brand in its stores and
in its advertising, we can make no assurances that our mutual choice of
promotions and advertising will continue to result in additional customers and
revenues for us.
We have agreed to have our orders fulfilled exclusively by Loveland, PETCO and,
for certain lifestyle products, Distribution Associates, Inc. This restriction
could limit our flexibility and ability to grow our business if our
relationship with any of these distributors does not develop successfully.
Due to PETCO's significant ownership of our capital stock, one of our principal
suppliers 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. Currently, two
of our nine directors are executive officers of PETCO.
The integration of online commerce companies and their bricks and mortar
competitors is a recent phenomenon. The level of sales activity that can be
generated by in-store Petopia Internet stations that direct customers to web
sites from a traditional retail facility, is unknown. These Petopia Internet
stations placed in PETCO stores may not attract customers to our web site. The
placement of such Petopia Internet stations may not be attractive or in high
traffic area locations. People may not be inclined to use Petopia Internet
stations while shopping at PETCO stores.
For more information about our relationships with PETCO and Loveland, see
"Business--Relationship with PETCO" and "Business--Other Strategic
Relationships." See also "Certain Transactions" for a description of our
agreements with PETCO and "Principal Stockholders" for a description of PETCO's
stock ownership relative to other stockholders.
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We will need to raise additional funds, which may not be available to us on
favorable terms, if at all.
Based on our current financial projections, we will need to raise additional
funds through the issuance of equity, equity-related or debt securities or
through loans from financial institutions. We cannot be certain that these
funds will be available to us on favorable terms when required, or at all. If
we are not able to secure additional funding we may need to change our business
plan, sell or merge our business, or face bankruptcy. In addition, our issuance
of equity or equity-related securities will dilute the ownership interest of
our existing stockholders and our issuance of debt securities could increase
the financial risk or perceived financial risk of our company. Any of these
events could cause our stock price to fall.
A portion of our revenues may be seasonal.
A portion of our revenues may be seasonal in nature, with sales tending to be
higher in our fourth fiscal quarter. In addition, consumer preference may cause
shifts in purchasing patterns, resulting in significant fluctuations in our
operating results from one quarter to the next, and may result in significant
fluctuations in our common stock price. The fact that we have not yet generated
revenue for a full year and the rapid growth in our revenues since our
inception make it difficult to assess the impact of these factors.
We enter into strategic relationships to help promote our web site; if we fail
to maintain or enhance these relationships, our development could be hindered.
We believe that our ability to attract customers, facilitate broad market
acceptance of our products and the Petopia.com brand, and enhance our sales and
marketing capabilities depends on our ability to develop and maintain strategic
relationships with web destinations, distributors, PETCO, Loveland, industry
experts and established pet-related entities such as the ASPCA. If we are
unable to develop or maintain key relationships, we may have difficulty
attracting customers.
We need to manage growth in operations.
Our ability to offer products and services successfully and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We continue to increase the scope of our operations and
have increased our headcount substantially. As of January 1, 2000, we had a
total of 153 employees and at March 10, 2000, we had a total of 205 employees.
Our growth and our anticipated growth will place a significant strain on our
management, information systems and resources.
We expect that we will need to continue to improve our financial and managerial
controls and reporting systems and procedures. In addition, we will need to
continue to expand, train and manage our workforce. Furthermore, we expect that
we will be required to manage multiple relationships with various vendors and
other third parties, as well as multiple fulfillment centers located throughout
the country.
Our markets are highly competitive.
The electronic commerce market is new, rapidly evolving and intensely
competitive and we expect competition to intensify in the future. Barriers to
entry are minimal, and current and new competitors can launch new web sites at
a relatively low cost. In particular, the pet product industry is intensely
competitive.
We currently face competition from a number of online pet product retailers, as
well as from a diverse group of organizations serving this marketplace,
including the following:
. store-based product retailers such as PETsMART and PETCO;
. mass market retailers such as Wal-Mart;
. supermarkets and warehouse clubs;
. mail order catalog retailers, such as Doctors Foster & Smith; and
. local pet stores, veterinarians' offices, and agricultural feed stores.
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Many of our traditional 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.
Many of these current and potential competitors can devote substantially more
resources to web site and systems development than we can. In addition, larger,
well-established and well-financed entities may acquire, invest in or form
joint ventures with online competitors of pet product manufacturers or
suppliers as the use of the Internet and other online services increases.
Certain of 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. Traditional
store-based retailers also enable customers to see and feel products in a
manner that is not possible over the Internet or through our other sales
channels. Some of our competitors have significantly greater experience in
selling pet food and pet supplies.
Our online competitors are able to use the Internet as a marketing medium to
reach significant numbers of potential customers. Finally, new technologies and
the expansion of existing technologies, such as price comparison programs that
select item prices from multiple web sites, may direct customers to the sites
of other online retailers.
Promotional offers by our competitors may cause us to lose customers and our
revenues may decline. We may also need to increase spending on our promotional
offers to retain our customers or to attract new customers to our web site. If
we face increased competition, our operating results may be harmed.
We may incur significant expenses if we enter new and unproven business
categories.
We may choose to expand our operations by developing new departments or product
categories, promoting new or complementary products or sales formats, 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,
although we have no present understandings, commitments or agreements with
respect to any material acquisitions or investments. We may not be successful
in our efforts to expand our operations, and potential customers may not react
favorably to these efforts. Furthermore, any new department or product category
that is launched by us but not favorably received by consumers could damage our
brand or reputation. An expansion of our business in this manner would also
require significant additional expenses, expose us to additional inventory,
development and operational risks, and strain our management, financial and
operational resources.
Acquisitions may disrupt our business and dilute our stockholders.
As part of our business strategy, we may acquire or make investments in several
businesses, products and technologies that complement ours. We may experience
difficulties integrating an acquired company's operations into ours. As a
result, we may divert management attention to the integration that would
otherwise be available for the ongoing development of our business.
Acquisitions have additional inherent risks, including:
. difficulties assimilating acquired operations, technologies or products;
. unanticipated costs or liabilities; and
. negative impact on relationships with customers, suppliers and
employees.
Failure to manage our growth could significantly strain our personnel and other
resources.
We have experienced, and expect to continue to experience, significant growth
in our headcount and in the scope, complexity and geographic reach of our
operations. Our future success will depend, in part, on our ability to continue
to integrate new operations and personnel. To support this expansion, we must
continue to hire, train, motivate and manage our workforce and improve our
management controls, reporting systems and procedures. Our current and planned
personnel, systems, procedures and controls may not be adequate to
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support our future operations. Failure to forecast our needs accurately or to
manage our growth appropriately could harm our business, financial condition
and results of operations.
Competition for personnel in our industry is intense.
We may be unable to retain our key employees or to attract, assimilate or
retain other highly qualified employees in the future. We have from time to
time experienced, and we expect in the future to continue to experience,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications. There is significant competition for qualified employees in the
Internet industry and in Northern California. If we do not succeed in
attracting new personnel or retaining and motivating our current personnel, our
business will be harmed.
We depend on our key personnel.
Our future success depends to a significant extent on the continued services of
our senior management and other key personnel, particularly Andrea C. Reisman,
our Chief Executive Officer, Scott Vertrees, our President, and David A. Fraze,
our Chief Financial Officer. The loss of the services of any person on our
management team or any other key employees would likely harm our business. We
have no employment agreements that prevent any of our key personnel from
terminating their employment at any time. We have obtained, or are obtaining,
"key-person" life insurance for some of our personnel. However, we believe this
coverage will not be sufficient to compensate us for the loss of these
personnel.
Many members of our management team are new to our company, to the pet products
and services industry or to online business.
We have recently experienced significant growth in our management team. Many of
the members of our senior management team do not have prior experience in the
pet products and services industry, 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 have capacity constraint and system development risks associated with our
computer and communication systems.
Our success, in particular our ability to receive and fulfill orders
successfully and provide high quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications
systems. Our success also depends on our ability to expand our web site,
transaction-processing systems and network infrastructure rapidly without any
systems interruptions in order to accommodate significant increases in visitors
to our web site and significant increases in customer orders. Many of our
software systems are custom-developed and we rely on our employees and certain
third-party contractors to develop and maintain these systems. If certain of
these employees or contractors become unavailable to us, we may experience
difficulty in improving and maintaining such systems. Although we are
continually enhancing and expanding our web site, transaction-processing
systems and network infrastructure, we have experienced periodic systems
interruptions, which we believe will continue to occur. Our failure to achieve
or maintain high capacity data transmission without system downtime would harm
our business. In addition, we are in the process of upgrading our enterprise
resource planning or ERP systems with PeopleSoft. If PeopleSoft is unable to
complete the upgrade in a timely manner, we will be forced to continue to
perform certain financial and accounting tasks manually, which would strain
administrative resources and make it difficult to scale our operations.
We face the risks of system failures.
All of our primary product development, information management systems and
computer and communications hardware systems are located at our headquarters in
San Francisco, California and at Exodus Communications, Inc. in Santa Clara,
California. Our systems and operations, including our fulfillment
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operations, are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, software bugs, mudslides,
earthquakes 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. The occurrence of a natural disaster or unanticipated problems
at our facilities in San Francisco, California or at the facilities of Exodus
Communications, Inc. in Santa Clara, California could cause interruptions or
delays in our business, loss of data, or render us unable to accept and fulfill
customer orders. The occurrence of any of these events could harm our
reputation, brand and business.
Intellectual property claims against us could be costly and result in the loss
of significant rights.
Other parties may assert infringement or unfair competition claims against us.
In the past, other parties have sent us notice of claims of infringement of
proprietary rights, and we expect to receive other notices in the future. As of
March 10, 2000, no such claims have been pursued by any of the claimants. We
cannot predict whether third parties will assert claims of infringement against
us, or whether any past or future assertions or prosecutions will harm our
business. If we are forced to defend against any such claims, whether they are
with or without merit or are determined in our favor, then we may face costly
litigation, diversion of technical and management personnel, or product
shipment delays. As a result of such a dispute, we may have to develop non-
infringing technology or enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us, or at all. If there is a successful claim of copyright or
intellectual property infringement against us and we are unable to develop non-
infringing technology or proprietary rights, or license the infringed or
similar technology on a timely basis, it could harm our business.
Protection of our trademarks and proprietary rights is uncertain.
We regard our copyrights, service marks, trademarks, trade dress, trade secrets
and similar intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers, partners and others to
protect our proprietary rights. These efforts afford only limited protection.
In spite of our efforts to protect these proprietary rights, unauthorized
parties may attempt to copy aspects of our web site, including the look and
feel of our web pages, products that we sell, product organization, product
information and sales mechanics or to obtain and use information that we regard
as proprietary, such as the technology used to operate our web site, our
content and our trademarks. Moreover, effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which we intend to sell our products and services online.
We have filed applications for the registration of Petopia, Petopia.com, the
Petopia.com logo, The Internet Pet Paradise(TM), Bottomless Bowl(TM), and other
trademarks in the United States, although we have not secured registration of
our marks to date. In the Company of Dogs, Inc. has secured registration for In
the Company of Dogs and other trademarks. We may be unable to secure our
pending registrations. It is also possible that our competitors or others will
adopt service names similar to ours, thereby impeding our ability to build
brand identity and possibly leading to customer confusion. In addition, there
could be potential trade name or trademark infringement claims brought by
owners of other registered trademarks, or trademarks that incorporate
variations of the term Petopia.com or our other trademark applications. Any
claims or customer confusion related to our trademarks, or our failure to
obtain any trademark registration, would negatively affect our business.
Litigation or proceedings before the U.S. Patent and Trademark Office may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets and domain names, and to determine the validity and scope of
the proprietary rights of others. Any litigation or adverse priority
proceedings could result in substantial costs and diversion of resources and
could seriously harm our business and operating results. Finally, we intend to
sell our products internationally, and the laws of many countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States.
Third parties may also claim infringement by us with respect to past, 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 claim, whether meritorious or
not, could be time consuming,
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result in costly litigation, cause service upgrade delays or require us to
enter into royalty or licensing agreements. These royalty or licensing
agreements might not be available on terms acceptable to us or at all.
Protection of domain names are uncertain.
We currently hold various web domain names relating to our brand, including the
"petopia.com" and "inthecompanyofdogs.com" domain names. The acquisition and
maintenance of domain names generally is regulated by governmental agencies and
their designees. The regulation of domain names in the United States and in
foreign countries is subject to change. As a result, we may be unable to
acquire or maintain relevant domain names in all countries in which we intend
to conduct business. Furthermore, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear. Therefore, we may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon or otherwise decrease
the value of our trademarks and other proprietary rights.
We may become subject to product liability claims.
We may become subject to product liability claims resulting from injuries to
persons and animals caused by the products we sell. We maintain limited product
liability insurance. To the extent these claims are not covered by or are in
excess of our product liability insurance, a successful product liability claim
could harm our financial condition and liquidity. Although we would seek
reimbursement from manufacturers or suppliers, there can be no assurance that
such reimbursement, if any, would be sufficient.
We may be liable for content.
We believe that our future success will depend in part upon our ability to
deliver original and compelling descriptive content for pet owners on our web
site, in our catalogs and on our television programs. 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. In the past, plaintiffs
have brought such claims and sometimes successfully litigated them against
other online services. Although we carry general liability insurance, our
insurance may not cover claims of these types or may be inadequate to indemnify
us for all liability that may be imposed on us. If we face liability,
particularly liability that is not covered by our insurance, or is in excess of
our insurance coverage, then our reputation and our business may suffer.
Problems related to Year 2000 issues could harm our business.
Prior to January 1, 2000 we devoted substantial resources to ensure that our
proprietary software, the third party software on which we rely, and the
underlying systems and protocols did not contain errors associated with year
2000 date functions. Since January 1, 2000, we have not experienced any
significant disruption in our operations as a result of, nor has any third-
party vendor on whom we depend been affected by the commencement of the year
2000. Although we do not anticipate that our products and services will be
affected by the year 2000, if we, or our third-party providers, fail to remedy
any year 2000 issues that may arise, the result could be lost revenues,
increased operating expenses, the loss of customers, and other business
interruptions, any of which could harm our business. The failure to adequately
address year 2000 compliance issues in the delivery of products to our
customers could result in claims against us for breach of contract and related
litigation, any of which could be costly and time consuming to defend.
In light of our experiences to date, we have not developed any specific
contingency plans for year 2000 issues. Our worst case scenario for year 2000
problems would be our inability to provide our products to our customers and a
resultant decline in our total revenues.
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Risks Related to Electronic Commerce
We depend on the Internet and the development of the Internet infrastructure.
Our success will depend in large part on continued growth in, and the use of,
the Internet, particularly for commerce. There are critical issues concerning
the commercial use of the Internet which remain unresolved. The issues
concerning the commercial use of the Internet which we expect to affect the
development of the market for our services include:
. security;
. reliability;
. cost;
. ease of access;
. quality of service;
. increases in bandwidth availability; and
. taxability of transactions.
If the Internet develops as a commercial or business medium more slowly than we
expect, it will harm our business. In addition, companies that control access
to Internet transactions through network access or web browsers could promote
our competitors or charge us a substantial fee for inclusion in their product
or service offerings. Either of these developments could harm our business.
We are exposed to risks associated with online commerce security, credit card
fraud and "hacking."
Consumer concerns over the security of transactions conducted on the Internet
or the privacy of users may inhibit the growth of the Internet and electronic
commerce. To transmit confidential information such as customer credit card
numbers securely, we rely on encryption 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 software we use to protect
customer transaction data. Furthermore, our servers may be vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions.
Recently, visitors at a number of popular web destinations received so-called
"denial of service" errors and were unable to receive and transmit data as a
result of malicious code originating from multiple untraceable sources. We may
need to expend significant additional capital and other resources to protect
against such security breaches or to alleviate problems caused by any breaches.
Our business may be harmed if our security measures do not prevent security
breaches and we cannot assure that we can prevent all security breaches.
Under current credit card practices, a merchant is liable for fraudulent credit
card transactions where, as is the case with the transactions we process, that
merchant does not obtain a cardholder's signature. A failure to guard
adequately against fraudulent credit card transactions would harm our business.
We may be unable to adjust to rapid technological changes.
To remain competitive, we must continue to enhance and improve the
functionality and features of our online store. The Internet and the electronic
commerce industry are rapidly changing. If competitors introduce new products
and services embodying new technologies, or if new industry standards and
practices emerge, our existing web site and proprietary technology and systems
may become obsolete. Our future success will depend on our ability to do the
following:
. both license and internally develop leading technologies useful in our
business;
. enhance our existing services;
. develop new services and technologies that address the increasingly
sophisticated and varied needs of our prospective customers; and
. respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
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The development of 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, transaction-processing
systems and network infrastructure to customer requirements or emerging
industry standards. If we face material delays in introducing new services,
products and enhancements, our customers may forego the use of our services and
use those of our competitors.
We are subject to federal and state government regulations.
Our business is subject to federal, state and local government regulations
relating to the shipment of pet food and pet products, advice relating to
animal care, and other matters. Regulations in this area often require
subjective interpretation, and we cannot be certain that our attempts to comply
with these regulations will be deemed sufficient by the appropriate regulatory
agencies. Violations of applicable regulations could result in various civil
and criminal penalties, including suspension or revocation of our licenses or
registrations, seizure of our inventory, or monetary fines, which could harm
our operations.
Laws and regulations directly applicable to electronic commerce, relating to
online content, user privacy, access charges, liability for third-party
activities, jurisdiction and taxation, may become more prevalent in the future.
It is uncertain as to how existing laws will be applied toward the Internet.
Such legislation could dampen the growth in Internet usage generally and
decrease the acceptance of the Internet as a commercial medium. Although our
business is based in California, the governments of other states or foreign
countries might attempt to regulate our activities or levy sales or other taxes
on us.
We do not collect sales or other similar taxes in connection with sales of our
products, other than from purchasers located in California, Illinois, New York,
New Jersey, Ohio and Tennessee. However, one or more state taxing authorities
may seek to impose sales tax collection obligations on out-of-state companies
engaged in online commerce, and 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 Internet Tax Information Act
was signed into law by the U.S. government, placing a three-year moratorium on
new state and local taxes on Internet commerce, 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
under existing tax rules. A successful assertion by one or more states or any
foreign country that we should collect sales or other taxes on the exchange of
merchandise on our web site could harm our business. 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, any of which events could
substantially impair the growth of electronic commerce. Additionally, we intend
to lease a portion of several of PETCO's distribution centers in other states
and, regardless of the outcome of this federal tax moratorium, we may be
required to collect sales or other similar taxes in connection with sales and
returns of our products in these states. We also have the right to require
PETCO to accept returns of our products at PETCO stores. If we were to elect to
take advantage of this, we may be required to collect sales or other similar
taxes in connection with sales of our products in any state in which PETCO
maintains a store.
The laws governing the Internet remain 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,
telecommunications, privacy and taxation apply to the Internet. In addition,
the growth and development of the market for electronic commerce may prompt
calls for more stringent consumer protection laws, both in the United States
and abroad, that may impose additional burdens on companies conducting business
over the Internet. In the event the Federal Trade Commission, Federal
Communications Commission or other governmental authorities adopt or modify
laws or regulations relating to the Internet, our business could suffer.
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Internet service providers may become subject to Internet access fees.
Some local telephone carriers have asserted that the increasing popularity and
use of the Internet have burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet service
providers and online service providers. If access fees are imposed, the costs
of communicating on the Internet could increase substantially, potentially
slowing the increasing use of the Internet. This slowing could in turn decrease
demand for our services or increase our cost of doing business.
Risks Related to this Offering
Our stock price could be volatile and could decline following this offering.
The stock markets, particularly the Nasdaq National Market on which we will
apply to have our common stock listed, have experienced significant price and
volume fluctuations, and the market prices of technology companies,
particularly Internet-related companies, have been highly volatile. The trading
prices of many technology companies' stocks are at or near historical highs.
These high trading prices may not be sustained. Investors may not be able to
resell their shares at or above the initial public offering price. In the past,
securities class action litigation has often been instituted against companies
following periods of volatility in the market price of their securities. Such
litigation could result in substantial costs and a diversion of management's
attention and resources.
An active trading market for our common stock may never develop or be
sustained. Furthermore, the market price of our common stock could decline
below the initial public offering price. Even if an active trading market
develops, the market price of our common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors such as:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new product or service
offerings by us or our competitors;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
. changes in the economic performance and/or market valuations of other
Internet, electronic commerce or retail companies;
. changes in financial estimates by securities analysts;
. additions or departures of key personnel;
. release of lock-up or other transfer restrictions on our outstanding
shares of common stock;
. potential litigation;
. conditions and trends in the Internet and electronic commerce
industries; and
. general economic conditions.
There has been no prior market for our common stock and an active trading
market may not develop following this offering.
Before this offering, there has not been a public market for our common stock
and the trading market price for our common stock may decline below the initial
public offering price. We cannot predict the extent to which a market will
develop or how liquid that market might become. The initial public offering
price for the shares of our common stock will be determined by negotiations
between us and the representatives of the underwriters and may not be
indicative of prices that will prevail in the trading market. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.
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<PAGE>
Certain existing stockholders own a large percentage of our voting stock.
Upon completion of this offering, we anticipate that our executive officers,
directors and greater than 5% stockholders (including PETCO, one of our
strategic partners), and their affiliates, will, in the aggregate, own
approximately % of our outstanding common stock. As a result, such persons,
acting together, will have the ability to influence all matters submitted to
the stockholders for approval, including the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our
assets, and to control our management and affairs. Accordingly, such
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control, impeding a merger, consolidation, takeover or
other business combination involving us or discouraging a potential acquirer
from making a tender offer or otherwise attempting to obtain control of our
business, even if such a transaction would be beneficial to other stockholders.
See "Principal Stockholders."
Future sales of our common stock may cause our stock price to decline.
Sales of significant amounts of our common stock in the public market after
this offering or the perception that such sales will occur could reduce the
market price of our common stock or our future ability to raise capital through
an offering of our equity securities. After the closing of this offering, we
will have shares of common stock outstanding. Of the outstanding shares,
the shares sold in this offering will be freely tradable, except for any shares
purchased by our "affiliates" as defined in Rule 144 of the Securities Act of
1933, as amended. These shares will be restricted securities and will become
eligible for sale subject to the limitations of Rule 144. Sales of a large
number of shares held by affiliates could significantly reduce the market price
for our common stock. 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 under the Securities Act. Almost all of the holders of
these restricted securities, including our officers and directors, have entered
into lock-up agreements providing that, subject to certain limited exceptions,
they will not sell, directly or indirectly, any common stock without the prior
consent of CIBC World Markets Corp. for a period of 180 days from the date of
this prospectus. Subject to the provisions of Rules 144, 144(k) and 701, an
additional 681,400 shares of common stock will be available for sale in the
public market, subject to compliance with certain volume restrictions in the
case of shares held by affiliates, upon expiration of this 180-day period.
In addition, as of March 10, 2000, there were outstanding options to purchase
9,946,038 shares of common stock which will be eligible for sale in the public
market from time to time subject to vesting and the expiration of lock-up
agreements. We have committed to issue up to 9,006,322 shares of common stock
upon the exercise or conversion of outstanding warrants. An additional 585,000
shares of common stock have been reserved for issuance to Loveland upon the
occurrence of certain milestones under our fulfillment agreement. See
"Business--Other Strategic Relationships" and "Certain Transactions." Certain
stockholders, representing approximately 52,854,732 shares of common stock,
including shares issuable upon the exercise of certain warrants to purchase
common stock, will be entitled to certain demand and piggy-back registration
rights, subject to certain conditions. See "Management--Stock Plans,"
"Description of Capital Stock--Registration Rights," "Shares Eligible for
Future Sale" and "Underwriting."
New investors will experience immediate substantial dilution from this
offering.
Investors in this offering will experience an immediate dilution of $
per share, based on the pro forma number of outstanding shares as of March 10,
2000. This offering will also create a public market for the resale of shares
held by existing investors, and may substantially increase the market value of
those shares. See "Dilution" and "Principal Stockholders."
We have adopted anti-takeover provisions that could affect the sale of our
company.
Provisions of our amended and restated certificate of incorporation, which will
become effective upon the closing of the offering, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. See "Description of Capital Stock--
Effect of Certain Provisions of Our Certificate of Incorporation and Bylaws,
and the Delaware Anti-Takeover Law" for more detailed information.
20
<PAGE>
We have discretion as to use of proceeds.
Our management can spend the proceeds from this offering in ways with which the
stockholders may not agree. We cannot predict that the proceeds will be
invested to yield a favorable return. See "Use of Proceeds."
We do not intend to pay dividends.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future. See
"Dividend Policy."
21
<PAGE>
Special Note Regarding Forward-Looking Statements
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute forward-
looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, level of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue," the negative of these
terms or other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risk Factors."
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 these
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.
22
<PAGE>
Use of Proceeds
We estimate that the net proceeds from the sale of shares of
common stock offered by us at an assumed initial public offering price of
$ per share will be approximately $ million, after deducting the
underwriting discounts and estimated offering expenses. If the underwriters
exercise in full their option to purchase an additional shares of
common stock, we estimate that such net proceeds will be approximately $
million.
We intend to use the net proceeds of this offering for:
. repayment of $2,000,000 of indebtedness to the former stockholders of
C/R Catalog Corp. pursuant to a secured promissory note dated as of
January 18, 2000; and
. general corporate purposes, including expansion of our marketing and
brand building efforts.
In addition, we may use a portion of the net proceeds of this offering to
acquire complementary technologies or businesses or enter into additional
strategic alliances. We have no current agreements or commitments with respect
to any such acquisition or strategic alliance. The amounts actually expended
for such working capital purposes may vary significantly and will depend on a
number of factors, including the amount of our future revenues and the other
factors described under "Risk Factors." Accordingly, we will retain broad
discretion in the allocation of the net proceeds of this offering. Pending such
uses, we will invest the net proceeds of this offering in short-term interest-
bearing, investment grade securities.
Dividend Policy
We have never declared or paid any dividends on our capital stock. We currently
intend to retain all of our earnings to finance our operations and do not
anticipate paying any cash dividends on our capital stock in the foreseeable
future. The terms of the financing documents that we entered into with Greyrock
Capital, a division of Banc of America Commercial Finance Corporation, or
Greyrock Capital, limit our ability to pay dividends on our outstanding capital
stock without their prior written consent. We may incur additional indebtedness
in the future which may prohibit or effectively restrict the payment of
dividends.
23
<PAGE>
Capitalization
The table below sets forth the following information:
. our actual capitalization as of January 1, 2000;
. our pro forma capitalization after giving effect to the acquisition of
C/R Catalog Corp.; and
. our pro forma as adjusted capitalization after giving effect to the sale
of shares of our common stock in this offering at an assumed
initial public offering price of $ per share, less underwriting
discounts and commissions and estimated offering expenses payable by us
and the conversion of all outstanding shares of our convertible
preferred stock.
None of the columns set forth below reflect:
. 4,691,191 shares issuable upon the exercise of options outstanding at
January 1, 2000 at a weighted average exercise price of $0.68 per share;
. 5,463,269 shares issuable upon the exercise of options granted
subsequent to January 1, 2000 at a weighted average exercise price of
$1.46;
. 3,842,766 shares issuable to PETCO;
. 585,000 shares issuable to Loveland upon the achievement of certain
milestones;
. 6,919,987 shares issuable upon the exercise of warrants outstanding at
January 1, 2000 at exercise prices ranging from $1.75 to $10.00 per
share;
. 2,086,335 shares issuable upon the exercise of warrants issued
subsequent to January 1, 2000 at exercise prices ranging from $5.6061 to
$7.50 per share;
. 6,721,957 shares available for issuance under our 1999 stock plan, our
2000 stock incentive plan and our 2000 employee stock purchase plan; and
. 3,567,542 shares issued subsequent to January 1, 2000 in connection with
the strategic agreements reached with the National Broadcast Company,
Inc. or NBC and ValueVision.
The table below should be read in conjunction with our balance sheet as of
January 1, 2000 and the related notes, which are included elsewhere in this
prospectus:
<TABLE>
<CAPTION>
January 1, 2000
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
and per share amounts)
<S> <C> <C> <C>
Stockholders' Equity:
Series A convertible preferred stock, $0.0001
par value; 11,555,000 shares authorized,
9,755,000 shares issued and outstanding
(actual and pro forma); no shares
authorized, issued or outstanding (pro forma
as adjusted) ................................ $ 1 $ 1 $
Series B convertible preferred stock, $0.0001
par value; 8,000,000 shares authorized,
7,736,345 shares issued and outstanding
(actual and pro forma); no shares
authorized, issued or outstanding (pro forma
as adjusted)................................. 1 1
Series C convertible preferred stock, $0.0001
par value; 12,940,620 shares authorized,
3,977,867 shares issued and outstanding
(actual and pro forma); no shares
authorized, issued or outstanding (pro forma
as adjusted)................................. -- --
Series D convertible preferred stock, $0.0001
par value; 10,000,000 shares authorized,
6,270,262 shares issued and outstanding
(actual and pro forma); no shares
authorized, issued or outstanding (pro forma
as adjusted)................................. 1 1
Series E convertible preferred stock, $0.0001
par value; no shares authorized or issued
(actual); 2,330,000 shares authorized (pro
forma); 2,014,607 issued and outstanding
(pro forma); no shares authorized, issued or
outstanding (pro forma as adjusted).......... -- --
Preferred Stock, $0.0001 par value; 4,380
shares authorized, no shares issued or
outstanding (actual and pro forma);
10,000,000 shares authorized, no shares
issued and outstanding (pro forma as
adjusted).................................... -- --
Common stock, $0.0001 par value; 65,000,000
shares authorized, 9,793,796 shares issued
and outstanding (actual); 39,754,877 shares
issued and outstanding (pro forma); and
150,000,000 shares authorized (pro forma as
adjusted), shares issued and
outstanding (pro forma as adjusted).......... 1 1
Additional paid in capital..................... 84,762 96,312
Notes receivable from stockholders............. (293) (293)
Deferred stock compensation.................... (2,304) (2,304)
Accumulated deficit............................ (40,865) (40,865)
-------- -------- -------
Total capitalization........................ $ 41,304 $ 52,854 $
======== ======== =======
</TABLE>
24
<PAGE>
On January 18, 2000, in connection with our acquisition of C/R Catalog Corp. we
issued 2,014,607 shares of Series E convertible preferred stock to 25
individuals and assumed warrants held by thirteen individuals, which thereupon
became exercisable for 69,647 shares of Series E convertible preferred stock.
For additional information regarding this transaction see "Certain
Transactions."
On January 21, 2000, in connection with strategic agreements with NBC and
ValueVision, we issued an additional 3,567,542 shares of Series D convertible
preferred stock to ValueVision and a subsidiary of NBC, warrants to purchase an
additional 918,939 shares of Series D convertible preferred stock at an
exercise price of $5.6061 per share to a subsidiary of NBC, ValueVision and
eighteen existing holders of our Series D convertible preferred stock, and
warrants to purchase 917,749 shares of common stock at an exercise price of
$7.50 per share to a subsidiary of NBC. For additional information regarding
this transaction see "Business--Other Strategic Relationships" and "Certain
Transactions."
On January 31, 2000, we issued a warrant to purchase an additional 180,000
shares of Series E convertible preferred stock at an exercise price of $5.6061
per share to Greyrock Capital.
Upon consummation of this offering, all of the issued and outstanding shares of
Series A, Series B, Series C, Series D and Series E convertible preferred
stock, and the warrants therefor will convert into shares of common stock and
warrants to purchase shares of common stock, respectively.
In February 2000, we issued 960,692 shares of Series C convertible preferred
stock to PETCO. Additionally, in March 2000, we accelerated vesting of the
remaining 2,882,074 shares of Series C convertible preferred stock that was
subject to issuance upon the achievement of certain milestones. For additional
information regarding this transaction, see "Business--Relationship with PETCO"
and "Certain Transactions."
25
<PAGE>
Dilution
Our pro forma net tangible book value as of January 1, 2000 (pro forma for the
acquisition of C/R Catalog Corp. on January 18, 2000) was approximately
$35,994,000, or $0.91 per share of common stock. Pro forma net tangible book
value per share represents the amount of total pro forma tangible assets less
total pro forma liabilities, divided by the shares of common and pro forma
convertible preferred stock (pro forma for the convertible preferred stock
issued in the acquisition of C/R Catalog Corp. on January 18, 2000) outstanding
as of January 1, 2000. Our pro forma net tangible book value as of January 1,
2000, after giving effect to the issuance and sale of the shares of
common stock offered hereby after deducting underwriting discounts and
commissions and estimated offering expenses and the conversion of Series A,
Series B, Series C, Series D and Series E convertible preferred stock into
common stock upon closing of this offering would have been $ , or $
per share.
This represents an immediate increase in pro forma net tangible book value per
share of $ to existing stockholders and an immediate dilution per share of
$ to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $
Pro forma net tangible book value per share before this offering.. $0.91
Increase in pro forma net tangible book value per share
attributable to new investors....................................
-----
Pro forma net tangible book value per share after offering................
Dilution per share to new investors.......................................
----
$
====
</TABLE>
The following table summarizes, on a pro forma basis, as of January 1, 2000,
the number of shares of common stock purchased in this offering, the aggregate
cash consideration paid and the average price per share paid by existing
stockholders for common stock and by new investors purchasing shares of common
stock in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 37,533,270 % $73,906,349 % $1.97
New investors..............
---------- --- ----------- --- -----
Total.................... % % $
========== === =========== === =====
</TABLE>
The foregoing discussion and tables exclude:
. 4,691,191 shares issuable upon the exercise of options outstanding at
January 1, 2000 at a weighted average exercise price of $0.68 per share;
. 5,463,269 shares issuable upon the exercise of options granted
subsequent to January 1, 2000 at a weighted average exercise price of
$1.46;
. 3,842,766 shares issuable to PETCO;
. 585,000 shares issuable to Loveland upon the achievement of certain
milestones;
. 6,919,987 shares issuable upon the exercise of warrants outstanding at
January 1, 2000 at exercise prices ranging from $1.75 to $10.00 per
share; and
. 2,086,335 shares issuable upon the exercise of warrants issued
subsequent to January 1, 2000 at exercise prices ranging from $5.6061 to
$7.50 per share;
. 6,721,957 shares of common stock available for issuance under our 1999
stock plan, our 2000 stock incentive plan and our 2000 employee stock
purchase plan; and
. 3,567,542 shares issued subsequent to January 1, 2000 in connection with
the strategic agreement reached with NBC and ValueVision.
To the extent that any of these shares are issued, there may be further
dilution to new investors.
26
<PAGE>
Selected Financial Data
The following selected financial data is qualified by reference to, and should
be read in conjunction with, our financial statements, the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The selected statement of
operations data presented below for 1316703 Ontario Limited, our predecessor,
from the period September 28, 1998 (inception) through April 15, 1999 and our
statement of operations data from March 9, 1999 (inception) through January 1,
2000 and our balance sheet data as of January 1, 2000 are derived from our
audited financial statements included elsewhere in this prospectus. The
historical operating results are not necessarily indicative of the operating
results for any future period.
Our unaudited pro forma statement of operations data includes the results of
operations for 1316703 Ontario Limited from January 3, 1999 to April 15, 1999
and gives effect to our acquisition of C/R Catalog Corp. as though it had
occurred on January 3, 1999. The unaudited pro forma balance sheet data gives
effect to our acquisition of C/R Catalog Corp. as though it had occurred on
January 1, 2000. Our unaudited pro forma financial data should be read in
conjunction with our unaudited pro forma financial information and the related
notes included elsewhere in this prospectus. Our unaudited pro forma financial
data is not necessarily indicative of what the actual operating results or
financial position would have been, had the acquisition actually taken place on
January 3, 1999 or January 1, 2000 and does not purport to indicate our future
operating results.
The pro forma as adjusted column gives additional effect to the sale of the
shares of common stock that we are offering under this prospectus after
deducting the estimated underwriting discounts and our estimated offering
expenses and the use of the estimated net proceeds from the sale of shares and
to the automatic conversion of all of the outstanding shares of our convertible
preferred stock upon the closing of this offering.
<TABLE>
<CAPTION>
1316703 Ontario Petopia.com
Limited, our period from Pro Forma
predecessor, March 9, period from
period from 1999 January 3,
September 28, (inception) 1999
1998 (inception) through through
through January 1, January 1,
April 15, 1999 2000 2000
---------------- ----------- -----------
(in thousands, except share and per
Statement of Operations Data: share data)
<S> <C> <C> <C>
Net sales............................. $ -- $ 3,452 $ 8,801
Cost of sales:
Product and shipping costs........... -- 5,616 8,443
Equity-based charges................. -- 23 23
------- ---------- ----------
Total cost of sales................ 5,639 8,466
------- ---------- ----------
Gross margin.......................... -- (2,187) 335
------- ---------- ----------
Operating expenses:
Marketing and sales.................. 51 24,215 27,517
Content and product development...... 226 7,494 8,192
General and administrative........... 338 4,016 6,036
Amortization of purchased
intangibles......................... -- 172 3,600
Equity-based charges................. -- 3,517 3,517
------- ---------- ----------
Total operating expenses........... 615 39,414 48,862
------- ---------- ----------
Loss from operations............... (615) (41,601) (48,527)
Interest income, net.................. 3 736 540
------- ---------- ----------
Net loss.............................. $ (612) $ (40,865) $ (47,987)
======= ========== ==========
Basic and diluted net loss per
equivalent share(1).................. $ (7.20) $ (10.84) $ (8.74)
Pro forma basic and diluted net loss
per equivalent share(1).............. $ (2.50) $ (2.39)
Shares used to compute pro forma basic
and diluted net loss per equivalent
share(1)............................. 85,000 3,770,437 5,489,681
Shares used to compute pro forma basic
and diluted net loss per equivalent
share(1)............................. 16,339,184 20,073,035
<CAPTION>
January 1, 2000
-----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------------- ----------- -----------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C>
Cash and cash equivalents and short-
term investments..................... $36,528 $36,346
Working capital....................... 30,997 25,966
Total assets.......................... 52,840 70,384
Convertible preferred stock, warrants
and related paid-in capital.......... 80,390 91,940
Total stockholders' equity............ 41,304 52,854
</TABLE>
- --------
(1) See note 2 of notes to our financial statements for a description of the
method that we used to compute our net loss per equivalent share, and how
we calculated the number of shares used in that computation.
27
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the financial
statements and the related notes contained elsewhere in this prospectus. The
following discussion contains forward-looking statements that involve risks and
uncertainties. 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.
Petopia.com is a leading online retailer of pet products that integrates a
"bricks and clicks" business model with a multi-channel sales approach. We
offer our customers a convenient, one-stop shopping experience for all of their
pet-related needs, ranging from food and supplies to expert content and live
community chats. Our mix of products extends beyond traditional pet food and
supplies into high margin specialty products, such as hobbyist products for
fish, bird and reptile owners, as well as pet lifestyle products, including
pet-themed apparel, home furnishings and gift items for both people and pets.
We believe our "bricks and clicks" business model combines the advantages of
both online and offline retailing to better serve our customers. Our multi-
channel sales approach provides our customers with greater convenience and
flexibility by enabling them to acquire information and purchase products
through their preferred method of shopping, including our web site, catalog,
television program, customer call center, and Petopia Internet stations located
in PETCO stores.
Our predecessor was incorporated in September 1998 as 1316703 Ontario Limited.
We incorporated as a Delaware corporation on March 9, 1999. Since our
inception, we have been primarily focused on launching an aggressive sales and
marketing campaign to establish our brand, implementing a multi-channel sales
strategy, designing our web site, forming strategic alliances, deploying a
nationwide fulfillment and distribution infrastructure, building our customer
base, raising funds and recruiting and training employees.
Since inception, we have entered into a number of key strategic relationships:
. In July 1999, we formed a strategic alliance with PETCO as their
exclusive online partner. We believe our relationship with PETCO
provides us with advantages in purchasing, operations and distribution,
customer acquisition and marketing.
. In January 2000, we acquired C/R Catalog Corp. (d/b/a In the Company of
Dogs), a premier catalog and web-based retailer that features high-end
lifestyle products for dogs and dog owners.
. In January 2000, we entered into strategic relationships with NBC and
ValueVision, each of which made equity investments in us. Pursuant to
their agreement, ValueVision agreed to produce at least 45 one-hour
television programs per year featuring Petopia.com. These programs will
initially be available in approximately 30 million cable television
homes and will be devoted to building our brand and the sale of pet-
related products, including premium food and supplies and pet-themed
lifestyle merchandise.
To date, our revenues have primarily been derived from the sale of pet-related
products through our web site and catalog. We generate a significant portion of
our revenue from our product replenishment subscription service, the Bottomless
Bowl. Participants in this program request pre-scheduled periodic shipments of
a broad range of pet products. This service provides us with a recurring
revenue stream and an opportunity to upsell other relevant and useful pet
products. In the second quarter of 2000, we intend to launch our weekly
television program on ValueVision, which we expect to generate additional sales
revenue through direct sales of pet-related products to program viewers. We
also intend to derive revenues from sales of our products through our in-store
Petopia Internet stations, which allow PETCO customers to purchase products
that are complementary to PETCO products.
28
<PAGE>
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 electronic commerce. See "Risk Factors" for a more complete description of
the many risks we face. Because we have a short operating history, we cannot
make period-to-period comparisons and can only provide an analysis of recent
quarterly operating results. We have incurred net losses of $40,865,000 from
inception to January 1, 2000. Our pro forma net loss for the same period
including the results of operations for 1316703 Ontario Limited from January 3,
1999 to April 15, 1999 and our acquisition of C/R Catalog Corp. as if it had
closed on January 3, 1999 was $47,987,000. 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
The following table sets forth our unaudited quarterly operations data for the
three quarters ended July 3, 1999, October 2, 1999 and January 1, 2000, our
results of operations for the period from March 9, 1999 (inception) through
January 1, 2000, and our pro forma operating results for the fiscal year ended
January 1, 2000 including our acquisition of C/R Catalog Corp. as if it had
closed on January 3, 1999. The unaudited quarterly information has been derived
from our unaudited financial statements not included in this prospectus and, in
the opinion of management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such information.
Our operating results presented below for the period from March 9, 1999
(inception) through January 1, 2000 have been derived from audited financial
statements included elsewhere in this prospectus. Our pro forma operating
results presented below for the period from January 3, 1999 through January 1,
2000 have been derived from the unaudited pro forma condensed combined
financial information included in this prospectus.
Our operating results and the operating results of 1316703 Ontario Limited for
the fiscal quarter ended April 3, 1999 were not significant, and therefore have
not been presented for comparative purposes. The operating results presented
below are not necessarily indicative of the operating results for any future
period.
<TABLE>
<CAPTION>
Period from Pro Forma
March 9, 1999 period from
Quarters Ended (inception) January 3,
------------------------------ through 1999 through
July 3, October 2, January 1, January 1, January 1,
1999 1999 2000 2000 2000
------- ---------- ---------- ------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 585 $ 2,867 $ 3,452 $ 8,801
Cost of sales:
Product and shipping
costs................ -- 938 4,678 5,616 8,443
Equity-based charges.. -- 23 -- 23 23
------- ------- -------- -------- --------
Total cost of
sales.............. -- 961 4,678 5,639 8,466
------- ------- -------- -------- --------
Gross margin.......... -- (376) (1,811) (2,187) 335
------- ------- -------- -------- --------
Operating expenses:
Marketing and sales... 410 6,369 17,429 24,215 27,517
Content and product
development.......... 839 1,507 5,138 7,494 8,192
General and
administrative....... 199 1,026 2,787 4,016 6,036
Amortization of
purchased
intangibles.......... 57 57 58 172 3,600
Equity-based charges.. 141 619 2,757 3,517 3,517
------- ------- -------- -------- --------
Total operating
expenses........... 1,646 9,578 28,169 39,414 48,862
------- ------- -------- -------- --------
Loss from operations.... (1,646) (9,954) (29,980) (41,601) (48,527)
Interest income, net.... 35 339 362 736 540
------- ------- -------- -------- --------
Net loss................ $(1,611) $(9,615) $(29,618) $(40,865) $(47,987)
======= ======= ======== ======== ========
</TABLE>
29
<PAGE>
The following table sets forth our operating results as a percentage of net
sales:
<TABLE>
<CAPTION>
Period from Pro Forma
March 9, 1999 period from
Quarters Ended (inception) January 3,
----------------------------- through 1999 through
July 3, October 2, January 1, January 1, January 1,
1999 1999 2000 2000 2000
------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... -- 100% 100% 100% 100%
Cost of sales:
Product and shipping
costs................ -- 160 163 162 96
Equity-based charges.. -- 4 -- 1 --
---- ------ ------ ------ ----
Total cost of
sales.............. -- 164 163 163 96
---- ------ ------ ------ ----
Gross margin.......... -- (64) (63) (63) 4
---- ------ ------ ------ ----
Operating expenses:
Marketing and sales... -- 1,089 608 702 313
Content and product
development.......... -- 258 180 217 93
General and
administrative....... -- 175 97 116 68
Amortization of
purchased
intangibles.......... -- 10 2 5 41
Equity-based charges.. -- 106 96 102 40
---- ------ ------ ------ ----
Total operating
expenses........... -- 1,638 983 1,142 555
---- ------ ------ ------ ----
Loss from operations.... -- (1,702) (1,046) (1,205) (551)
Interest income, net.... -- 58 13 21 6
---- ------ ------ ------ ----
Net loss................ -- (1,644)% (1,033)% (1,184)% (545)%
==== ====== ====== ====== ====
</TABLE>
Net Sales. We derive our revenues principally from product sales and charges to
customers for outbound shipping, net of allowances for product returns,
promotional discounts and coupons. Sales are recognized upon shipment. Most
customer orders are processed through our web site and billed to a customer's
credit card. Generally, we collect cash from credit card sales in one to two
days from the date shipped. We routinely offer promotional discounts and
coupons to customers. In addition, if a customer is not satisfied with a
particular product, we generally refund all or a portion of the sale within 30
days of the sale of the product.
Pro forma net sales in relation to historical net sales represents the
inclusion of net sales from C/R Catalog Corp., which sells lifestyle products
through its web site and catalog.
Cost of Sales and Gross Margin. Cost of sales consists primarily of the costs
of products sold to customers, outbound and inbound shipping costs charged to
us by the carrier, and equity-based charges that are related to product
purchases. There were no net sales or cost of sales prior to the quarter ended
July 3, 1999. The negative gross margins experienced in the quarters ended
October 2, 1999 and January 1, 2000 were primarily the result of promotional
sales discounts associated with the commercial launch of our web site.
Additionally, in order to attract new customers and encourage repeat orders, we
have provided our customers on a promotional basis with shipping below our cost
which has negatively impacted our gross margin. From the period November 1999
through January 2000, our blended product margin, excluding discounts and
promotions, ranged from 30% to 40%. We expect our product margins to increase
as we leverage PETCO's purchasing power and drive favorable shifts in product
mix. We expect cost of sales to increase in absolute dollars to the extent that
our sales volume increases. Our gross margin will fluctuate based on a number
of factors, including, but not limited to, the cost of our products, including
the extent of purchase volume discounts that we are able to obtain from
suppliers, our pricing strategy relative to the cost of our products, the mix
of products our customers purchase, our shipping pricing strategy relative to
the cost of shipping, our distribution and fulfillment strategy, the extent to
which we are able to control product damage, shrinkage and expiration though
inventory management practices and the amount of equity-based charges we
recognize.
Pro forma cost of sales and gross margin compared to the historical results
were positively affected by the gross margins of C/R Catalog Corp. due to their
focus on the sale of higher margin specialty products through their website and
catalog.
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Marketing and Sales Expense. Marketing and sales expense consists primarily of
advertising and promotional expenditures, distribution expenses, including
order processing and fulfillment charges, equipment and supplies, and payroll
and related expenses for personnel engaged in marketing, merchandising,
customer service, distribution and fulfillment activities. Marketing and sales
expense increased in each of the three quarters ended July 3, 1999, October 2,
1999, and January 1, 2000, primarily due to television, radio, billboard and
web portal advertising expense which we incur as part of our strategy to
develop our brand. In addition, we incurred costs to acquire customers as part
of our customer referral program. Marketing and sales expense also increased
during the three quarters ended July 3, 1999, October 2, 1999, and January 1,
2000 due to the addition of marketing and sales personnel. We intend to
continue to pursue an aggressive branding and marketing campaign and,
therefore, expect marketing and sales expense to increase. Marketing and sales
expense may also vary considerably from quarter to quarter depending on the
timing of our advertising campaigns and the rate at which we expand our
distribution and fulfillment activities.
Pro forma marketing and sales expense in comparison to historical marketing and
sales expense primarily represents additional costs incurred by C/R Catalog
Corp. for catalog production and related activities, advertising, merchandising
and fulfillment operations.
Content and Product Development Expense. Content and product development
expense consists primarily of payroll, consulting and related expenses for web
site development and information technology personnel, Internet access and
hosting charges and web site content and design expenses. Content and product
development expense increased in each of the three quarters ended July 3, 1999,
October 2, 1999, and January 1, 2000, primarily due to increased expenses
associated with the use of consultants and contract labor as a result of an
increase in the number of web site development projects in which we were
involved. Over the next several months, we plan to continue to work on a number
of projects that will result in increased content product development expenses.
Such projects include increased order management functionality to reduce
shipping costs and customer delivery times, enhanced customer features,
including improvements to our Bottomless Bowl subscription service, tools to
better manage and control promotional offerings, enhanced search tools to
facilitate the customer experience, an integrated PeopleSoft ERP system for
financial and order management, extensive security features, and a three tier
modular design including middleware to provide greater performance and design
flexibility. We believe that continued investment in product development is
critical to attaining our strategic objectives.
Pro forma content and product development expense increased compared to
historical content and product development expense primarily due to the
inclusion of consulting expenses to develop C/R Catalog Corp.'s
inthecompanyofdogs.com web site.
General and Administrative Expense. General and administrative expense consists
primarily of payroll and related expenses for executive and administrative
personnel, corporate facility expenses, professional services expenses, travel
and other general corporate expenses. General and administrative expense
increased in each of the three quarters ended July 3, 1999, October 2, 1999,
and January 1, 2000 primarily due to increased expenses associated with the
addition of general and administrative personnel, additional professional fees
and the cost of corporate facilities. We expect general and administrative
expense to increase as we expand our staff and incur additional costs related
to the anticipated growth of our business and being a public company.
Pro forma general and administrative expense includes additional payroll,
facilities and professional services expenses incurred by C/R Catalog Corp. as
compared to historical general and administrative expense.
Pro Forma Amortization of Purchased Intangibles. Pro forma amortization of
purchased intangibles represents the estimated amortization charge for goodwill
and identifiable intangible assets that would have been recorded had C/R
Catalog Corp. been acquired on January 3, 1999.
Equity-Based Charges. We recorded total equity-based charges of $3,517,000 for
the period from March 9, 1999 (inception) to January 1, 2000 in connection with
stock options granted to employees and preferred stock, restricted common stock
and warrants issued to non-employees. Equity-based charges related to stock
options for employees represents the difference between the exercise price of
stock options and the deemed fair value
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of our common stock at the time of such grants. The amount is amortized to
expense according to the vesting period of the stock option. In the case of
convertible preferred stock, restricted common stock and warrants, equity-
based charges represent the difference between the purchase price of the
convertible preferred stock, restricted common stock or warrants, as the case
may be, and the deemed fair value of our common, convertible preferred stock
or the related warrant on the date of grant. The amount is recognized as an
expense based on the related period of service or contract. In some cases this
results in recording a deferred cost and amortizing the amount over time,
while in others, the amount is recognized completely upon grant of the
convertible preferred stock, restricted common stock or warrant.
Equity-based charges increased in each of the three quarters ended July 3,
1999, October 2, 1999, and January 1, 2000, primarily due to the recognition
of a $2,181,000 charge relating to a convertible preferred stock grant to
PETCO in December 1999. In addition, we amortized $276,000 and $309,000 of the
accrued expenses relating to a warrant to purchase convertible preferred stock
granted to PETCO in the quarters ended October 2, 1999 and January 1, 2000,
respectively. The remaining increase in equity-based charges in each of the
three quarters ended July 3, 1999, October 2, 1999 and January 1, 2000, is due
to the grant of stock options to new employees in such quarters as well as an
increase in the difference between the grant price and the deemed fair value
of our common stock during such quarters.
Equity-based charges for convertible preferred stock, stock options,
restricted common stock and warrants issued through January 1, 2000 that will
be subsequently recognized as expense for each of the next four fiscal years
is estimated to be as follows:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- --------------
(in thousands)
<S> <C>
2000...................................................... $617
2001...................................................... 617
2002...................................................... 617
2003...................................................... 373
</TABLE>
Interest Income, net. Interest income consists of earnings on our cash, cash
equivalents and short-term investments. Interest expense consists of interest
associated with a bridge financing that was repaid in full prior to January 1,
2000.
Income Taxes. There was no provision or benefit for income taxes for any
period since our inception due to our operating losses. As of January 1, 2000,
we had $33,663,000 of net operating loss carry forwards for federal and state
income tax purposes, which expire in 2019 for federal income tax purposes and
2007 for state income tax purposes. Since it is uncertain that we will be able
to realize any benefit from these net operating loss carry forwards, we have
provided a full valuation allowance on the deferred tax assets. See Note 9 of
notes to our financial statements.
Liquidity and Capital Resources.
Since inception through January 1, 2000, we have financed our operations
primarily through private sales of common and convertible preferred stock,
which yielded net cash proceeds of $73,129,000. During the period from March
9, 1999 to January 1, 2000, net cash used in operating activities was
$31,420,000 and consisted primarily of a net loss of $40,865,000, offset by
non-cash charges to income of $4,286,000 and a decrease in net operating
assets and liabilities of $5,159,000. Net cash used in investing activities
was $18,727,000 and consisted primarily of the purchase of short-term
investments of $13,546,000 and fixed assets of $3,502,000. Net cash provided
by financing activities was $73,129,000 and consisted primarily of cash
proceeds from the following issuances of convertible preferred stock:
. In May 1999, we issued 9,755,000 shares of Series A convertible
preferred stock in exchange for an aggregate of $9,755,000 in cash
including conversion of promissory note. In May 1999, we also issued
eight warrants to purchase an aggregate of 1,800,000 shares of Series A
convertible preferred stock, with an exercise price of $1.75 per share.
. In July 1999, we issued 7,736,345 shares of Series B convertible
preferred stock in exchange for an aggregate purchase price of
$19,999,999.
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. In July 1999, we issued 3,017,175 shares of Series C convertible
preferred stock in exchange for an aggregate purchase price of
$7,800,000. In connection with this purchase and sale of Series C
convertible preferred stock, we also issued three warrants to purchase
an aggregate of 1,637,486, 1,705,715 and 1,776,786 shares of Series C
convertible preferred stock with an exercise price of $5.00, $7.50 and
$10.00, respectively.
. In November 1999, we issued 6,270,262 shares of Series D convertible
preferred stock in exchange for an aggregate purchase price of
$35,151,716.
As of January 1, 2000, we had $36,528,000 of cash, cash equivalents and short-
term investments. Additionally, in January 2000, we issued 3,567,542 shares of
Series D convertible preferred stock for an aggregate purchase price of
$10,000,000 in cash and $10,000,000 worth of advertising inventory from NBC. In
connection with this transaction, we also issued a warrant to purchase 917,749
shares of common stock, with an exercise price of $7.50 per share, and warrants
to purchase an aggregate of 918,939 shares of Series D convertible preferred
stock, with an exercise price of $5.6061 per share.
In February 2000, we borrowed $10,000,000 from Greyrock Capital, which is
payable in 12 equal monthly installments beginning on February 28, 2001, and
for which interest accrues at the rate of the higher of 8% or prime plus 2%. In
connection with this transaction, we also issued a warrant to purchase 180,000
shares of Series E convertible preferred stock, with an exercise price of
$5.6061 per share. Our principal commitments consisted of obligations
outstanding under operating leases aggregating approximately $3,067,000 through
2004. Although we have no material commitments for capital expenditures, we
anticipate a substantial increase in capital expenditures, in part as a result
of the implementation of our planned financial and order management ERP system,
and lease commitments in anticipation of growth in operations, infrastructure
and personnel.
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
twelve months. We may need to raise additional funds prior to the expiration of
such period if, for example, we grow more rapidly than expected, 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.
Year 2000 Readiness Disclosure
To date, we have not experienced any significant disruption in our operations
as a result of, nor has any third-party vendor on whom we depend been affected
by, the commencement of the year 2000. Although we do not anticipate that our
products and services will be affected by the year 2000, if we, or our third-
party providers, fail to remedy any year 2000 issues that may arise, the result
could be lost revenues, increased operating expenses, the loss of customers and
other business interruptions, any of which could harm our business. The failure
to adequately address year 2000 compliance issues in the delivery of products
to our customers could result in claims against us for breach of contract and
related litigation, any of which could be costly and time consuming to defend.
In light of our experiences to date, we have not developed any specific
contingency plans for year 2000 issues. Our worst case scenario for year 2000
problems would be our inability to provide our products to our customers and a
resultant decline in our total revenues.
Impact of the Year 2000 Computer Problem
Prior to January 1, 2000, we devoted substantial resources in an effort to
ensure that our proprietary software, the third-party software on which we
rely, and the underlying systems and protocols did not contain errors
associated with Year 2000 date functions. Since January 1, 2000, we have not
experienced any disruption as a result of any Year 2000 problems.
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Qualitative and Quantitative Disclosures about Market Risks
We have limited exposure to financial market risks, including changes in
interest rates. Our interest income, net is sensitive to changes in the general
level of U.S. interest rates. An increase or decrease in interest rates would
not significantly increase or decrease interest income on cash balances due to
our cash being primarily invested in short-term deposits.
Due to the short-term nature of our investments, we believe that there is no
material exposure to interest rate fluctuation. Therefore, no accompanying
table has been provided.
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Business
Overview
Petopia.com is a leading online pet products retailer that integrates a "bricks
and clicks" business model with a multi-channel sales approach. We provide a
convenient, one-stop shop for all our customers' pet-related needs by offering
a comprehensive range of pet supplies, specialty items, relevant content, and
online community. We believe our online strategy, when compared to our
competitors, will allow us to achieve better margins, lower customer
acquisition costs, and increased customer satisfaction. We are implementing our
"bricks and clicks" model through our exclusive relationship with PETCO, a
leading specialty retailer of premium pet food and supplies with approximately
500 retail stores. Our multi-channel sales approach increases the reach of our
web site and provides our customers with the flexibility and convenience of
purchasing products and accessing pet-related information through the medium of
their choice, including our web site, catalog, television program, customer
call center, and Petopia Internet stations located in PETCO stores. An
additional benefit of our multi-channel sales approach is the opportunity to
promote our brand and acquire customers through active cross marketing between
our sales channels.
Industry Background
The Growth of the Internet and Electronic Commerce
The Internet has become an important medium for communicating, finding
information and purchasing products and services. International Data
Corporation or IDC, estimates that there were approximately 81 million web
users in the United States at the end of 1999 and anticipates this number will
grow to approximately 177 million users and to over 502 million users worldwide
by the end of 2003. The rapid growth of the Internet has given businesses and
consumers the opportunity to conduct an increasing amount of commerce online.
According to IDC, worldwide transactions on the Internet are expected to
increase from approximately $111 billion in 1999 to approximately $1.3 trillion
in 2003, with the total number of users who purchase products and services
online increasing from approximately 48 million to approximately 182 million
worldwide during the same period.
We believe electronic commerce companies offer numerous advantages to both
businesses and consumers. Consumers benefit from increased product selection,
access to broad and deep product information, competitive pricing, and the
convenience of shopping 24 hours a day, 7 days a week from any location with
Internet access. The Internet enables businesses to reach a global audience, to
operate with less investment in physical infrastructure, to reduce overhead and
to create greater economies of scale. Businesses can customize web site content
to match the needs and preferences of individual shoppers by personalizing
content for each user. These advantages are resulting in a dramatic increase in
the amount of commerce conducted over the Internet and the number of businesses
and merchants advertising and selling goods and services online.
Consumer Markets for Pet Products and Services
The U.S. pet products and services industry is large and has a broad customer
base. According to the Pet Industry Joint Advisory Council, U.S. consumer
spending on pet products was approximately $23 billion in 1997, and the market
is expected to grow to $29 billion by 2001. The APPMA estimates that over 60%
of all U.S. households own at least one pet, while 40% of these households have
multiple pets.
We believe the strong emotional ties between pet owners and their pets makes
them attractive customers not only because they are likely to invest
significant time to assure the well-being of their pets but also because they
are likely to purchase premium products and services that extend beyond their
pets' basic needs. There have been a number of studies by pet organizations
that support this premise. For example, according to an APPMA survey, 62% of
pet owners buy their pets gifts and according to the American Animal Hospital
Association, 70% of pet owners consider their pets as children, and 63%
celebrate their pet's birthday.
To meet the purchasing requirements of pet owners, we believe the market has
divided the pet products and services industry into the following four sectors:
. Pet Food and Treats. The pet food and treats sector, primarily for dogs
and cats, represents the largest sales volume category of pet products.
A significant portion of this sector is comprised of commodity products
sold through high-volume retailers, such as supermarkets and mass
merchandisers.
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. Pet Supplies and Hobbyist Products. The pet supplies and hobbyist sector
includes staples such as dog and cat toys, collars and leashes, as well
as specialty products such as fish, bird and reptile accessories.
. Pet Lifestyle Products. The pet lifestyle products sector includes pet-
themed products for people such as apparel, home furnishings, jewelry
and collectibles. This sector also includes luxury products for pets,
such as apparel for dogs, custom-made pet beds, and hand-baked treats.
We believe that statistical data defining the pet market does not
include pet lifestyle products which represent an attractive growth
segment in the pet industry.
. Pet Services. The pet services sector includes veterinarian services,
grooming, boarding, pet health insurance, travel-related services,
adoption and other services.
Limitations in the Online and Offline Pet Product Market
Due to a number of challenges, it is difficult for pet retailers focused
exclusively on either offline or online sales channels to fully meet the
purchasing needs of pet owners. Challenges specific to traditional offline pet
retailers include:
. Difficulty in Offering Both Commodity and Specialty Products. In the
current offline retail environment, retailers must choose between
offering products at value prices, and offering a niche of products at
premium prices to satisfy pet owners' needs. This choice can be
inconvenient for the consumer, as it is difficult to find both value
pricing and specialty products from the same source.
. Poor Access to Pet Care and Other Pet-Related Information. Traditional
offline retailers, particularly volume retailers, do not provide broad
and consistent access to information or knowledgeable advice to assist
pet owners in making pet care or purchasing decisions.
. Emergence of Online Retail. Online methods are rapidly changing the
retail environment in many different industries which have led retailers
to consider pursuing online strategies. Few traditional retailers have
the expertise or resources necessary to successfully implement online
retailing strategies.
Additionally, online retailers, while attempting to address the deficiencies of
the traditional offline retail models, have encountered significant challenges,
including:
. Rapid Deployment of Fully Scaled Distribution Infrastructure. The
ability to fulfill customer orders in a timely, accurate and cost-
effective manner has proven difficult for many online retailers. Many
existing online retailers will require significant time and expenditures
to build or acquire the infrastructure necessary to handle their
distribution needs.
. Poor Leverage with Suppliers. Because many online retailers are small,
they are finding it difficult to purchase merchandise from suppliers at
rates that are competitive with the terms attained by more established
offline retailers.
. Transitioning and Maintaining Customers using the Online Channel. Since
online commerce is an emerging sales channel, Internet retailers need to
develop consumer trust by providing a complete shopping experience,
including informative, friendly and timely customer support services.
Moreover, we believe that a pure Internet sales model may only reach a
portion of the available market as some consumers prefer the shopping
experience of more traditional channels, such as catalogs, retail stores
or other means.
We feel there is a significant market opportunity for an online pet products
retailer that can offer consumers trusted information and a broad selection of
merchandise through an integrated combination of online and offline sales
channels, coupled with an efficient order processing and distribution
infrastructure.
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The Petopia.com Solution
We strive to be the definitive source for pet-related products and information.
To achieve this goal, we combine comprehensive product selection, accurate and
timely order fulfillment, and superior customer service, with the convenience
of shopping across multiple sales channels.
Our solution provides the following benefits to consumers:
Convenience of Integrated Multi-Channel Sales Approach. We have expanded the
reach of our web site using a multi-channel sales strategy. This provides our
customers with the convenience and flexibility to shop using our web site,
catalog, television program, customer call center, and Petopia Internet
stations located in PETCO stores. Across all of our sales channels, our product
offerings are coupled with integrated, timely content to educate our customers
and to suggest relevant products and services to solve common problems
experienced by pet owners.
Trusted Brand. To satisfy our customers' desire to make informed purchasing
decisions and to support the well being of their pets, we provide comprehensive
expert content from trusted industry sources such as Veterinary Medicine
Publishing Group, the ASPCA, and renowned veterinarians and animal health and
behavior specialists such as Dr. Marty Becker and Dr. Rolan Tripp. Our largely
proprietary content is focused on topics we believe are relevant to our
customers' pet-related interests and, according to Media Metrix, has translated
into longer average user sessions than other online pet retailers. We also
believe our exclusive partnerships with trusted brands like PETCO and the ASPCA
increase our customers'confidence in our product and content offerings.
Efficient Fulfillment and Distribution. Our customers benefit from the
operating efficiencies we gain from our partnerships with pet-oriented offline
retailers and distributors such as PETCO and Loveland. We leverage their
existing distribution capabilities and infrastructure to quickly and
efficiently fulfill orders and distribute products to our customers. This has
enabled us to quickly build a coast-to-coast distribution network and an
automated logistics and inventory management system, resulting in minimized
shipping time and costs.
Exceptional Customer Service. Our customer service team provides fast and
efficient support to our customer base. They are capable of taking and
processing orders and answering questions on pet care and other matters. We
believe that the ability of our customer service team to answer a wide variety
of questions reinforces customer loyalty and enhances our brand image.
Comprehensive Product Selection. As an Internet retailer, we intend to
efficiently merchandise both staple and specialty products to our customers. We
believe the breadth of our product offering increases our appeal to customers
by providing them one convenient location for all of their pet needs, ranging
from food to toys, from grooming products to health care supplies, from expert
advice to live community chats. In addition to traditional pet staple products,
our In the Company of Dogs division carries approximately 6,000 pet-related
product SKUs in the pet lifestyle category.
Strategy
Our objective is to be the leading retailer serving pet owners and pet
enthusiasts. To achieve our objective, we intend to provide our customers with
a personalized experience integrating content, commerce and community. Key
elements of our strategy include:
Strengthen the Petopia.com Brand. We intend to establish Petopia.com as the
leading brand in the pet retail category. We plan to continue our aggressive
branding campaign by promoting our web site in print and broadcast advertising
and on major Internet portals and destinations, such as AOL.com, Yahoo.com, and
Petfinder.org. We seek to enhance our credibility by partnering with well known
industry leaders like PETCO and the ASPCA. We actively promote our brand across
our multiple sales channels to maximize the efficiency and scalability of our
marketing efforts. We plan to actively leverage our television program, catalog
and physical presence in PETCO stores to drive customers to our web site,
increase our customer conversion rate, and reduce our average customer
acquisition cost.
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Utilize PETCO's Buying Power. Through our exclusive strategic relationship with
PETCO, we are able to purchase pet products at PETCO's net cost, as well as to
obtain favorable terms on a variety of services including media buys, direct
mailings, and creative advertising development. We intend to further utilize
PETCO's volume-based purchasing terms by increasing the breadth of products and
services we currently buy through their suppliers.
Integrate Distribution Platform. Our ability to utilize PETCO and Loveland
distribution centers significantly reduces our cost and time to develop a fully
scaled and operational distribution network. We intend to support all of our
sales channels from a single common distribution platform. Key advantages of
this strategy include broader geographic distribution to reduce shipping costs
and delivery times, lower inventory carrying costs, lower capital investment in
distribution facilities, increased inventory availability and increased ability
to handle peak demand.
Maximize Lifetime Value of Our Customers. We will continue to employ strategies
to optimize our customers' shopping experience and increase the frequency and
size of their purchases. We intend to drive customer loyalty and repeat
purchases through initiatives like our Bottomless Bowl subscription service. We
also intend to encourage repeat visits and purchases by continually updating
and expanding our content, improving the ease of navigation on our site, and
providing customer-valued features such as our shopping and reorder lists, pet
profiles and e-mail reminders.
Acquire Customers Through Multiple Sources. We intend to continue to enter into
business relationships to help us acquire and maintain customers. We have
already implemented a number of programs to accomplish this objective. For
example, we have exclusive rights to use PETCO's PALS customer loyalty
database, which we believe is the largest customer list in the pet retail
industry with several million members. We have also created marketing campaigns
targeting the visitors to Petfinder.org's online network of more than 800
animal shelters, members of the ASPCA and members of several large pet industry
associations. Further, we plan to cross-promote our brand and product offerings
throughout all of our sales channels to acquire customers and drive repeat
purchases.
Continue to Expand Product Selection. We are committed to providing a full
selection of high-quality products that satisfy all the pet-related needs of
our customers. We intend to selectively expand our existing product mix as well
as offer additional high-margin products throughout all the major pet product
sectors, including food, supplies, hobbyist and lifestyle products.
The Petopia.com Experience
We have designed our shopping experience to provide our customers, whom we
affectionately refer to as Petopians, with convenience, selection and
compelling content. Our multi-channel sales model allows consumers to
experience Petopia.com through the medium of their choice, including our web
site, catalog, television program, customer call center, and presence in PETCO
stores.
Our customers purchase our products and services using one or more of the
following sales channels:
Petopia.com Web Site. We designed our web site to showcase the breadth and
depth of our product selection, to integrate timely content that helps shoppers
make informed buying decisions, and to reinforce our playful brand image. By
clicking on the pet category of their choice, our customers can view featured
products, promotions, and links to content customized for each pet type. The
following highlights key features on our site:
Home Page and Pet-Specific Categories. Our homepage highlights our monthly
theme, new developments, and selected products, and is the gateway to our
six pet categories (dogs, cats, fish, birds, reptiles and small animals).
Each pet category is organized into the following sections:
. Shop. Our Shop facilitates intuitive navigation through the use of
subheadings such as food, treats, toys, and pet specialty stores, so
that customers can quickly and easily browse our product selection. It
also provides features to streamline the ordering process by allowing
our customers to select and store lists of frequently purchased items as
well as order processing information to expedite check out.
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. Lifestyle. Our Lifestyle area provides our customers with useful
information on relevant pet topics including traveling with companion
animals, pets and children, and other lifestyle-oriented articles.
. Care. Our Care area includes articles and expert advice on health, care
and maintenance, behavior and socialization, growth and nutrition, and
other general health related matters of interest to pet owners.
. New Pet. Our New Pet area is an interactive tool designed to help
prospective pet owners choose between breeds, make preparations for a
new pet arrival and bond with a new companion animal.
. Community. Our Community area provides our customers with a forum in
which to discuss pet ownership, receive expert advice, share their
experiences with other pet owners and post pictures of their pets. Pet
owners can communicate in the Community area via chat rooms, e-mail and
on-line message boards.
My Petopia. Our My Petopia area is designed to provide a personalized
experience for our registered users. In addition to storing billing,
shipping and other account information that expedites checkout, our
customers can store profiles on their pets, including pet type, name, age
and other information. This information allows us to tailor promotions and
personalize newsletters that will be relevant to our users. The users may
also enroll their pet in our Pet Birthday Club to receive special birthday
benefits. To date, over 325,000 people have registered on our site.
Subscription Service. Our product replenishment subscription service,
Bottomless Bowl, helps create customer loyalty and drive repeat purchases
by providing convenient, periodic shipments of a broad range of products,
including food, treats, toys and litter, which are all offered at a
discount from regularly advertised prices. This service provides us with
multiple opportunities to contact subscribers through periodic shipment
notifications. We plan to use these opportunities to cross-sell other
relevant and useful products which can be added to a specific shipment or
regularly scheduled shipments. In March 2000, we expanded this service by
offering an auto-renew option to ensure continuous, uninterrupted service.
We also implemented a subscription management system allowing customers to
change their delivery schedule or destination. We believe this service will
help us continue to build our base of loyal customers who purchase products
on a predictable basis.
Pet Business Directory. In our pet business directory, our customers can
search for a veterinarian, groomer, pet-friendly hotel, and other pet-
related businesses by zip code or city. We are evaluating an expansion of
this section to include other pet-related services, such as a travel
section where our customers would be able to book pet-friendly
transportation and accommodations, and an insurance section where our
customers would be able to purchase health insurance for their pets.
In the Company of Dogs Catalog and Web Site. Our In the Company of Dogs catalog
and web site carry a wide variety of high-end lifestyle products for dogs and
dog enthusiasts, including pet-themed apparel and gifts. A large portion of the
items sold through our catalog and related web site are proprietary. We also
intend to promote these products through our television program, Petopia
Internet stations located in PETCO stores, on our inthecompanyofdogs.com web
site. We also distribute our catalog in PETCO stores and insert them in order
shipments. Visitors to the inthecompanyofdogs.com web site can send dog-related
electronic postcards, receive notices of important dates using our DOGeMAIL
service, and take advantage of our last-minute Gift Rescue e-mail service. We
plan to integrate this site as a specialty store within the Petopia.com site,
and to expand the focus of our "In the Company" line to include other pet
categories.
Petopia.com TV. The Petopia.com weekly television program, scheduled to premier
in the second quarter of 2000, will feature topical discussions with
celebrities and experts, and will promote a selection of relevant products for
sale. The program will promote our logo and web address, and viewers will have
the choice of ordering by telephone, or through our web site. Our web site will
have an area listing products previously featured on our television program.
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PETCO Store Presence. We promote our web site in PETCO stores through in-store
advertising, promotions, and at in-store Petopia Internet stations that enable
PETCO customers to shop online for lifestyle and hobbyist items complementary
to PETCO's product offering. Currently, two PETCO stores have Petopia Internet
stations, and we have the right to install these in each of the approximately
500 PETCO locations.
Relationship with PETCO
PETCO is a leading specialty retailer of premium pet food and supplies,
operating approximately 500 retail stores. In July 1999, we entered into a
strategic alliance with PETCO as their exclusive online partner. Per our
agreement, PETCO cannot sell pet products online and we cannot partner with
another offline pet retailer. We believe that our unique relationship with
PETCO provides us with a number of key business advantages relating to
purchasing, operations and distribution, and marketing, while still preserving
our ability to operate as an independent company.
Purchasing Advantages. Our relationship with PETCO allows us to take advantage
of their volume discounts by purchasing inventory at a cost that we would not
be able to obtain independently. PETCO will also assist us in arranging for
other services requested by us such as media buys, consumer research, direct
mailing and creative advertising development on comparably favorable terms.
Operations and Distribution. We are building a market leading multi-location
distribution network. We have installed pick and pack fulfillment lines,
product storage and shipping capabilities in three PETCO distribution centers.
We have opened each of these distribution centers in under eight weeks and for
less than $200,000. We have the right to set up these facilities in five
additional PETCO distribution centers, subject to space considerations. The
rapid deployment of additional centers in desirable geographical locations
gives us significant advantages by reducing shipping costs and increasing the
speed of delivery to customers. By operating out of PETCO warehouses, and
leveraging their stock of product SKUs, we can also significantly reduce our
inventory carrying costs while increasing product availability.
Marketing. We are engaged in various co-marketing activities with PETCO that
are intended to drive consumer traffic to our web site and to increase catalog
sales, including:
. In-store Branding and Promotions. We currently have Petopia.com signage
and catalogs in PETCO stores. We also regularly distribute promotional
items and catalogs in PETCO stores and bag stuffers at check out
counters. We also have the right to install Petopia Internet stations
within all of PETCO's retail stores for the purpose of selling our
lifestyle and specialty products to PETCO shoppers.
. Database Marketing. PETCO has established the largest and most
comprehensive customer database in the pet retail industry through their
PALS program, a loyalty program offering benefits and discounts to
preferred shoppers. The proprietary PALS database contains detailed
customer data, including pet types and shopping history, for several
million frequent PETCO shoppers. We can subdivide this database and send
targeted promotions to all PALS members. To date, this database has been
an effective, low-cost tool for acquiring customers with above average
order sizes and repeat order rates.
. Advertising. Our web site is promoted in all PETCO print media,
including newspaper inserts, magazine advertisements, and direct mail
pieces. There is also a prominent link and button on the PETCO.com home
page that directs shoppers to Petopia.com.
Autonomy. Our relationship with PETCO provides us with several competitive
advantages, while allowing us to retain complete autonomy with respect to all
pricing, merchandising, branding and marketing decisions.
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Other Strategic Relationships
We are aggressively pursuing a variety of partnerships and other strategic
relationships aimed at enhancing our brand awareness, increasing our access to
customers, improving our credibility with customers and maximizing the
efficiency of our distribution network. To date, we have established the
following primary strategic relationships:
ValueVision. In January 2000, we entered into an agreement to co-produce
programming for a one-hour weekly show on ValueVision's home shopping
television network and to host a pet product store on their companion web site.
The first show, scheduled to air in the second quarter of 2000, will be
accessible in approximately 30 million cable television homes. This weekly show
gives us an opportunity to sell our high margin lifestyle products contextually
and build our brand identity.
By featuring pet-oriented themes with live expert interviews, our show will
teach viewers about pet care and help them to create an improved environment
for their pets. In addition, we believe that the show will drive significant
traffic and sales on our web site.
NBC. In January 2000, we announced a strategic relationship with NBC. In
exchange for shares of our stock and warrants to purchase additional shares, we
will receive on-air promotion on NBC's network at favorable prices. This
advertising is scheduled to begin in the second quarter of 2000. We also plan
to make our pet industry experts and content available to NBC and its
affiliates.
Loveland. In March 1999, we entered into a fulfillment agreement with Loveland,
as amended in May 1999. Pursuant to the agreement, Loveland is required to
fulfill our orders for pet food and related products. We transmit orders to
Loveland, who attempts to pack and ship such orders within 24 hours of receipt.
In addition, Loveland recommends items that, based upon its experience, will
lend themselves to successful sales on our web site. Pursuant to our agreement
with Loveland, if our purchases exceed 40% of Loveland's total revenue, we have
an obligation to purchase them for a mutually agreeable price.
ASPCA. In January 2000, we signed an exclusive multi-year partnership with the
ASPCA, one of the best recognized names in the animal welfare industry. We are
the ASPCA's exclusive pet retail partner, with a link on the ASPCA.org home
page during the term of our partnership. We have the right to be the premier
sponsor of all ASPCA dog walks as well as other ASPCA charitable events. We
also have access to all ASPCA content, experts, and adoption data. We are
committed to raising $300,000 for the ASPCA throughout the term of the
agreement.
Petfinder.org. In October 1999, we signed an exclusive multi-year agreement
with the largest online shelter network, Petfinder.org, whose searchable
database of available pets includes postings from more than 800 animal shelters
across the United States. We encourage visitors to our web site to adopt pets
listed at Petfinder.org. In addition to our premier sponsorship presence on the
Petfinder.org web site, we have the exclusive right to market to their highly
targeted audience through e-mails and newsletters. We also run various programs
to benefit the shelters who work with them, including providing Petopia coupons
to people who adopt, donate or volunteer at their related pet shelters.
Petfinder.org is also the exclusive online pet search partner of the ASPCA.
Veterinary Medicine Publishing Group. In March 2000, we entered into an
agreement with Veterinary Medicine Publishing Group, a leader in veterinary
communications, to produce consumer-friendly pet healthcare content exclusively
for us. This multi-year agreement provides us access to experts who work with
Veterinary Medicine Publishing Group's journal, Veterinary Medicine, a well-
respected clinical publication for veterinarians.
Key Online Partnerships. Our relationship with America Online gives us key
placement in their pet shopping areas and access to their family oriented
subscriber base. We also have an exclusive arrangement with iVillage.com, a web
site focused on women. Additionally, we are one of two pet premier merchants
featured on Yahoo.com. By focusing on these partnerships, we believe that we
can more effectively communicate our brand to our principal target demographic,
which is women, families and pet owners.
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Pet Industry Experts and Advisory Board. We have exclusive relationships with
several of the leading experts in the pet industry, including Dr. Marty Becker,
Dr. Rolan Tripp and Dr. Ian Dunbar. Dr. Becker is a well-known TV personality
featured on Good Morning America and other television programs, and co-author
of the best-selling book Chicken Soup for the Cat and Dog Lover's Soul. Dr.
Tripp is a leading veterinarian and behavioralist, noted for his work on the
human-animal bond. Dr. Dunbar is a well-known veterinarian and behavioralist,
and is Director of the Center for Applied Animal Behavior, founder of the
Association of Pet Dog Trainers, and host of a popular British TV series, Dogs
With Dunbar. These well known veterinarians write content for our web site and
participate in chat rooms and other online events. We intend to leverage their
skills to provide advice and content for our own television program, and for
our strategic partners such as NBC. We have also formed an expert advisory
board of leading pet industry professionals, including veterinarians, shelter
and rescue professionals, and trainers. Our advisory board members will provide
advice and guidance to aid in developing trust among industry channels, and
will assist us in leveraging these channels to drive customer acquisition.
Other Pet Industry Partners. We have exclusive multi-year agreements with the
National Dog Groomers Association of America, Jack Onofrio Dog Shows, L.L.C.
and the National Association of Professional Pet Sitters, the premier
organizations in the United States for groomers, dog shows, and pet sitters,
respectively. In addition to marketing opportunities, these arrangements give
us access to industry experts and content for use on our web site and
television program.
Merchandising
We have established four core strategies in our merchandising efforts:
Expand Specialty and Lifestyle Product Offerings to Differentiate Selection and
Improve Margins. We intend to continue to offer our customers the largest
selection of pet lifestyle and gift products as well as to develop other pet
categories of lifestyle oriented specialty stores with a product mix similar to
our In the Company of Dogs catalog and web site offerings. We also intend to
increase our selection of items for the hobbyist market, including fish, bird
and reptile products. These products typically sell at significantly higher
gross margins than commodity pet products.
Offer Proprietary Products. As part of our merchandising strategy of increasing
our margins, a significant portion of our product offerings are proprietary
including a large portion of our lifestyle products. Through our relationship
with PETCO, we can offer PETCO's proprietary private label products and
participate in their international sourcing program.
Increase Order Size Through Solution-Based Selling. Across our multiple sales
channels, we plan to leverage our proprietary content to inform and educate
visitors about pet needs, and combine this content with relevant, useful
product recommendations to address those needs. We believe that our solution-
based selling strategy will encourage multiple-item purchases.
Leverage Strategic Partnerships to Broaden Core Product Offering. Through our
relationship with PETCO, we are able to benefit from their purchase volume
discounts and build relationships with established pet suppliers to improve and
optimize our product selection, terms and cost.
Distribution and Fulfillment
Our multi-point distribution infrastructure is designed to provide fast and
accurate fulfillment of customer orders, increase product availability, and
lower shipping, packing and service costs. We currently ship our products via
United Parcel Service and the United States Postal Service to destinations
throughout the continental United States from our five distribution centers
located in California, Illinois, New Jersey, Ohio, and Tennessee. We believe
that our geographically dispersed network of distribution centers allows us to
ship products throughout the country more profitably, accurately and rapidly
than from a single location.
We have developed a software system that improves the efficiency of our
distribution network. This system automatically assesses shipping costs and
product stock levels to determine the most economical shipping
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option and is capable of arranging single or split shipment orders. Our
warehouse management system includes real-time data on inventory receiving,
shipping, inventory quantities and inventory location allowing us to notify
customers in real-time if their requested product is in stock. We will continue
to enhance these systems over time.
Marketing and Promotion
Our key marketing objectives include promoting our brand across our multiple
sales channels to efficiently acquire new customers, build customer loyalty,
maximize repeat purchases, and leverage strategic partnerships and channel
opportunities to attempt to lower customer acquisition costs and increase
customer retention rates.
Branding. Our brand platform is a key point of differentiation from our
competitors. Our fanciful name gives us the opportunity to attempt to create an
emotional bond with our target customers. We are not a discount pet-product
company, but rather a credible, friendly resource for caring and concerned pet
owners. Our advertising campaigns feature whimsical pet-friendly themes that
attempt to establish Petopia as "The Internet Pet Paradise." These images will
be repeated and reinforced across our multiple sales channels.
Customer Acquisition. In order to drive traffic and purchases at our web site,
we have implemented both an online and offline advertising strategy that
focuses on selected key demographics and partnerships. Our online advertising
focuses on optimizing our partnerships with web site destinations whose
demographics closely track our target audience and extensively uses e-mail-
based direct marketing to target customers based on gender, income level and
pet type. Our recently launched affiliate program rewards other web sites for
driving customers to us by paying them a commission on purchases they
originate. As of March 10, 2000, we have signed up more than 4,000 web sites,
and expect this number to increase. Our offline advertising strategy is focused
on promoting our web site across a range of highly targeted offline channels,
including our weekly television program, our catalog, in PETCO's retail stores,
and through our strategic relationships, such as the ASPCA and NBC.
Customer Retention. Our strategies for customer retention include expanding our
product replenishment subscription service, creating a loyalty program for our
members, and providing personalized services and benefits to our customers.
Customer Service
Our customer service team provides consumer support for our online store, our
web community, and our proprietary content. As of March 10, 2000, we had 62
customer service representatives on staff to serve our web site. Our staff is
hired based on three criteria: interpersonal skills, communication skills and
pet experience. All representatives go through an intensive training course
focusing on brand and culture, order management, web site navigation, pet care
and conflict resolution. We encourage our product vendors to conduct weekly
product training seminars with our customer service staff to keep them well-
informed and up to date. Approximately 92% of our customer service
representatives are pet owners, and many have professional pet experience. We
also have a consulting veterinarian on staff to answer e-mails regarding pet-
related inquiries.
Our customer service department answers telephone inquiries 24 hours a day on
weekdays and from 10 am until 9 pm Eastern Time on weekends. Our staff answers
e-mails relating to orders and other questions 24 hours a day, 7 days a week.
We also provide web-based support through the My Petopia section of our web
site, our help section and our list of frequently asked questions. We have
partnered with TRUSTe, an independent watchdog organization, to reinforce our
commitment to the protection of privacy on the Internet.
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Technology
We have implemented a system for site management, searching, customer
interaction, transaction processing and fulfillment. We are making significant
investments in our technology infrastructure by developing our next generation
site and backend systems which are designed to provide a robust and highly
scalable platform to support the expansion of our business.
Some of the key features of our current software applications are:
. enabling cross selling and up selling of products as well as allowing
customers to control order modifications through our sophisticated
Bottomless Bowl subscription service technology;
. searching techniques to make it easy to find our products and
information;
. accepting, validating and billing against customer orders;
. organizing, placing and managing orders with vendors and fulfillment
partners to optimize shipping time and minimizing shipping costs;
. receiving and allocating products to customer orders; and
. managing shipments of products based on various ordering criteria.
Our next generation platform, currently under development, is expected to
include a highly scalable backend to support our anticipated growth over the
next several years and is anticipated to include:
. increased order management functionality to reduce shipping costs and
customer delivery times;
. tools to better manage and control promotional offerings;
. enhanced search tools;
. integrated PeopleSoft ERP system for financials and order management;
. extensive security features; and
. a three tier modular design including middleware to provide greater
performance and design flexibility.
We have our own engineering staff comprised of database administrators and
systems administrators who monitor the status of our systems round-the-clock,
utilizing automated monitoring tools. Our systems have built-in redundancy that
can survive most common system failure scenarios. Our Internet servers use
Verisign Inc. digital certificates to help conduct secure communications and
transactions.
Our systems infrastructure is hosted at Exodus Communications, Inc. in Santa
Clara, California which provides 24 hour monitoring and engineering support.
Competition
The pet food, pet supplies and pet services marketplace is highly competitive
and fragmented. Currently, we face competition from a number of online pet
retailers as well as from a diverse group of organizations serving this
marketplace, including the following:
. store based product retailers such as PETsMART and PETCO;
. mass market retailers such as Wal-Mart;
. supermarkets and warehouse clubs;
. mail order catalog retailers, such as Doctors Foster & Smith; and
. local pet stores, veterinarians' offices, and agricultural feed stores.
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We believe that the following are principal competitive factors in our market:
. brand recognition;
. reliability and speed of order shipment;
. web site performance and accessibility;
. selection;
. convenience;
. price;
. customer service;
. personalized service; and
. quality of information services.
Many of our current and potential traditional store-based, mail order catalog
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. Many of these current and potential competitors
can devote substantially more resources to their web site and systems
development than we can. In addition, larger, well-established and well-
financed entities may acquire, invest in or form joint ventures with online
competitors or pet supplies retailers as the use of the Internet and other
online services increases.
Some of 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. Traditional
store-based retailers also enable customers to see and feel products in a
manner that is not possible over the Internet. Traditional store-based
retailers can also sell products to address immediate, acute care needs, which
we and other online sites cannot do. Some of our competitors also have
significantly greater experience in selling pet food, pet supplies and pet-
related products.
Government Regulation
As the Internet becomes increasingly popular, it is possible that a number of
laws and regulations may be adopted with respect to the Internet. These laws
may cover 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 calls 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 has also initiated action against at least one
online service regarding the manner in which personal information is collected
from users and provided to third parties and has proposed regulations
restricting the collection and use of information from minors online. We do not
currently provide individual personal information regarding our users to third
parties and we currently do not identify registered users by age. However, the
adoption of additional privacy or consumer protection laws could create
uncertainty in Web usage and reduce the demand for our products and services or
require us to redesign our web site.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity,
qualification to do business and export or import matters. The vast majority of
these 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 these issues could create
uncertainty in the Internet marketplace. This 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 to regulations applicable to businesses generally, we are regulated
by federal, state or local governmental agencies with respect to the shipment
of pet food, live animals and pet products, advice relating
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to animal care, and other matters. We currently seek to rely upon our suppliers
to meet the various regulatory and other legal requirements applicable to
products and services supplied by them to us. However, we are unable to verify
that they have in the past, or will in the future, always do so, or that their
actions are adequate or sufficient to satisfy all governmental requirements
that may be applicable to these sales. We would be fined or exposed to civil or
criminal liability, and we could receive potential negative publicity, if these
requirements have not been fully met by our suppliers or by us directly.
Intellectual Property
We regard the protection of our copyrights, service marks, trademarks, trade
dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have entered into proprietary information and
invention assignment agreements with our employees and contractors, and
nondisclosure agreements with our vendors, fulfillment partners and strategic
partners to limit access to and disclosure of our proprietary information. We
cannot be certain that these contractual arrangements or the other steps taken
by us to protect our intellectual property will prevent misappropriation of our
technology.
We have filed applications for the registration of some of our trademarks and
service marks in the United States and in some other countries, including for
Petopia.com, although we have not secured registration of any of our marks to
date. We may be unable to secure such registered marks. It is also possible
that our competitors or others will use marks similar to ours, which could
impede our ability to build brand identity and lead to customer confusion. In
addition, there could be potential trade name or trademark infringement claims
brought by owners of other registered trademarks or trademarks that incorporate
variations of the term Petopia.com. Any claims or customer confusion related to
our trademark, or our failure to obtain trademark registration, would
negatively affect our business. In addition, the laws of some foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States, and effective copyright, trademark and trade secret protection
may not be available in such jurisdictions. Our efforts to protect our
intellectual property rights may not prevent misappropriation of our content.
Our failure or inability to protect our proprietary rights could substantially
harm our business.
Employees
As of March 10, 2000, we had 205 full-time employees. None of our employees is
represented by a labor union. We have not experienced any work stoppages and
consider our employee relations to be good.
Facilities
Our principal executive offices are located in San Francisco, California, where
we lease approximately 21,500 square feet under a lease that expires on July
31, 2004. We also lease a facility of approximately 2,200 square feet facility
in a second San Francisco, California location under a lease that expires on
June 30, 2000.
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 be materially harmful to us.
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Management
Executive Officers and Directors
The following table sets forth information with respect to our executive
officers and directors as of March 10, 2000:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Andrea C. Reisman.................... 30 Chief Executive Officer and a Director
Scott Vertrees....................... 37 President and a Director
David A. Fraze....................... 34 Chief Financial Officer
Mark S. Cohon........................ 33 Chief Development Officer
Prem S. Urali........................ 30 Chief Technology Officer
Brian K. Devine(1)................... 58 Director
Michael J. Dodd, Jr.(2).............. 29 Director
Stuart Goldfarb(1)................... 45 Director
Jay C. Hoag.......................... 41 Director
Michael G. Linnert(1)................ 29 Director
A. Brooke Seawell(2)................. 52 Director
William M. Woodard(2)................ 51 Director
</TABLE>
- --------
(1) Member of compensation committee
(2) Member of audit committee
Andrea C. Reisman is one of our co-founders and has served as our Chief
Executive Officer and as one of our directors since March 1999. Prior to
founding Petopia.com, from April 1998 to December 1998, Ms. Reisman was Vice
President, Business Development of Indigo Books & Music, Inc., a retailer of
books and music. From September 1997 to February 1998, Ms. Reisman was Director
of Business Development of MovieFone, Inc. From June 1996 to September 1996,
Ms. Reisman was a Summer Associate for Goldman Sachs & Co., in the investment
banking department. From September 1991 to May 1995, Ms. Reisman served in
various capacities at Cott Corporation, a supplier of retail brand beverages,
most recently as Director of Alternative Beverages. Ms. Reisman holds an M.B.A.
from Harvard University Graduate School of Business and a B.A. from Dartmouth
College.
Scott Vertrees has served as our President and one of our directors since
February 2000 and as President of our In The Company Of Dogs, Inc. subsidiary
since January 2000. Since 1988, Mr. Vertrees has been a principal of Clifcor
Capital, LLC, a company primarily engaged in purchasing, reorganizing and
operating startup and troubled companies. In connection with his affiliation
with Clifcor Capital, LLC, Mr. Vertrees has also served as a director and/or
officer of a number of private and public companies, including from July 1999
through January 2000 as President of C/R Catalog Corp. (d/b/a In The Company of
Dogs), as President of U.S. Netting, Inc., as President of Clarus Pool Services
L.P., holding various executive officer positions with American White Cross,
Inc. (which filed for reorganization under Chapter 11 in July 1996 and
consummated its plan of reorganization in September 1997) and Chief Financial
Officer of Bradford Realty Ltd. Prior to 1988, Mr. Vertrees was employed by
Arthur Andersen LLP. Since 1996, Mr. Vertrees has been a member of the San
Diego Chapter of the Young President's Organization and currently serves on its
Board of Officers.
David A. Fraze is one of our co-founders and has served as our Chief Financial
Officer since March 1999. Prior to founding Petopia.com, from September 1993 to
December 1998, Mr. Fraze was a Manager with The Boston Consulting Group, a
management consulting firm. From June 1990 to July 1991, Mr. Fraze served as
Special Projects Analyst for the Chairman of the Superconducting Super
Collider. From September 1988 to June 1990, Mr. Fraze was a Business Analyst at
McKinsey & Company, a management consulting firm. Mr. Fraze holds an M.B.A.
from Harvard University Graduate School of Business and a B.A. from Harvard
College.
Mark S. Cohon has served as our Chief Development Officer since October 1999.
From November 1998 to September 1999, Mr. Cohon served in several senior
management capacities at the National Basketball
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Association, most recently as Vice President, Business Development. From May
1994 to November 1998, Mr. Cohon was Managing Director of NBA Europe. From
January 1991 to May 1994, Mr. Cohon worked for Major League Baseball
International Partners as Director of Corporate and Game Development. From June
1989 to December 1990, Mr. Cohon served as Project Leader at Arctic Quest, the
first joint Soviet/Canadian arctic youth expedition. Mr. Cohon served on the
Board of Trustees of Northwestern University from 1992 to 1995. Mr. Cohon holds
a B.A. from Northwestern University.
Prem S. Urali has served as our Chief Technology Officer since August 1999. Mr.
Urali also serves as President of Commercia.com, Inc. and Jara Software, Inc.
From June 1995 to August 1999, Mr. Urali was employed at Microsoft Corporation,
as Principal Consultant for the Microsoft Consulting Services Division. From
June 1993 to June 1995, Mr. Urali worked as Data Communications Engineer at
Gateway 2000, Inc. Mr. Urali holds an M.S. in Computer Engineering from Iowa
State University and a B.E. in Electronics and Communication Engineering from
Government College of Engineering, Bharathiyar University, India.
Brian K. Devine has been one of our directors since July 1999. Mr. Devine is
currently Chairman, President and Chief Executive Officer of PETCO, and has
been with PETCO since August 1990. Mr. Devine is currently a director of PETCO
and of Wild Oats Markets, Inc, the second largest natural foods supermarket
chain in North America, and the National Retail Federation. Mr. Devine holds a
B.A. from Georgetown University.
Michael J. Dodd, Jr. has been one of our directors since February 2000. Since
March 1999, Mr. Dodd has been a Senior Partner of the parent entity of Arkaro
Holding, B.V., europ@web, a European and U.S. focused Internet investment
company established by Group Arnault, the private holding company of French
businessman Bernard Arnault that controls the luxury group LVMH Moet Hennessy
Louis Vuitton or LVMH. From August 1997 to March 1999, Mr. Dodd was a Senior
Associate at Robertson Stephens & Co. LLC. From May 1996 to September 1996, Mr.
Dodd was Vice President, Business Development at idealab!/Peoplelink. Mr. Dodd
holds an M.B.A. from Harvard University Graduate School of Business and a B.S.
from Syracuse University.
Stuart Goldfarb has been one of our directors since February 2000. Mr. Goldfarb
has been Vice Chairman of ValueVision since August 1999. From 1995 to August
1999, Mr. Goldfarb was Executive Vice President and Managing Director,
Worldwide Business Development, of NBC. From 1992 to 1995, Mr. Goldfarb was
Managing Director, Asia Pacific Region of Communications Equity Associates.
From 1988 to 1992, Mr. Goldfarb was President of Heartland Ventures Inc., a
media consulting and investment firm. From 1986 to 1987, Mr. Goldfarb was Vice
President, co-founder and Principal of James Communications Inc., a cable
television operator. Mr. Goldfarb is currently a director of Big Star
Entertainment, Inc. and several privately held companies.
Jay C. Hoag has been one of our directors since May 1999. Since June 1995, Mr.
Hoag has been a General Partner of Technology Crossover Ventures, a venture
capital firm. From 1982 to 1994, Mr. Hoag served in a variety of capacities at
Chancellor Capital Management, Inc., most recently as Managing Director. Mr.
Hoag is currently a director of ONYX Software Corporation, a provider of
customer management software; eLoyalty, a customer loyalty solutions company;
Autoweb.com, a consumer automotive Internet service; iVillage.com, a leading
online women's network; and several privately held companies. Mr. Hoag holds an
M.B.A. from the University of Michigan and a B.A. from Northwestern University.
Michael G. Linnert has been one of our directors since May 1999. Mr. Linnert
joined Technology Crossover Ventures, a venture capital firm, in September 1997
and is currently a General Partner of the firm. From August 1992 to August
1995, Mr. Linnert was a Financial Analyst in the investment banking division of
Goldman Sachs & Co., Inc. Mr. Linnert is currently a director of Digital
Generation Systems, Inc., a provider of electronic and physical distribution
and ancillary post-production services for audio and video content and several
privately held companies. Mr. Linnert holds an M.B.A. from Stanford Graduate
School of Business and a B.S. from the University of Notre Dame.
A. Brooke Seawell has been one of our directors since May 1999. Since February
2000, Mr. Seawell has been a General Partner of Technology Crossover Ventures,
a venture capital firm. From 1997 to 1998, Mr. Seawell was
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Executive Vice President of NetDynamics, Inc., an Internet application server
software company. From 1991 to 1997, Mr. Seawell was Senior Vice President and
Chief Financial Officer of Synopsys, Inc., an electronic design automation
software company. Mr. Seawell is currently a director of Accrue Software, Inc.,
an Internet data collection and analysis software company; Informatica
Corporation, a data integration software company; Mediaplex, Inc., a provider
of eBusiness advertising technology and services; NVIDIA Corporation, a three-
dimensional graphics processor company; and several privately held companies.
Mr. Seawell holds an M.B.A. from Stanford Graduate School of Business and a
B.A. degree from Stanford University.
William M. Woodard has been one of our directors since July 1999. Mr. Woodard
is currently Senior Vice President, Business Development of PETCO, and has been
with PETCO since January 1991. From 1987 to 1990, Mr. Woodard was Vice
President, Director of Marketing at J.M. Jones, Inc., a wholesale division of
SuperValue Stores, Inc. Mr. Woodard holds an M.B.A. from the University of
Southern California and a B.S. from North Texas State University.
Board Composition
In accordance with the terms of our amended and restated bylaws, effective upon
the closing of this offering, the terms of office of the members of the board
of directors will be divided into three classes, which will be determined prior
to completion of this offering. At each annual meeting of stockholders after
the initial classification, the successors to directors whose term will then
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. In addition, our bylaws
provide that the authorized number of directors may be changed only by
resolution of the board of directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors. This classification of the board of directors
may have the effect of delaying or preventing changes in control or management
of Petopia.com.
Pursuant to an amended and restated voting agreement between certain holders of
shares of common stock and preferred stock, dated as of March 10, 2000, such
holders agreed to vote or act with respect to their shares so as to elect
certain persons to our board of directors. Pursuant to this agreement, the
board consisted of: (i) two members designated by the holders of a majority of
the then outstanding shares of Series A preferred stock (then Jay C. Hoag and
Michael G. Linnert); (ii) one member designated by the holders of a majority of
the then outstanding shares of Series B preferred stock (then Michael J. Dodd,
Jr.); (iii) two members designated by the holders of a majority of the then
outstanding shares of Series C preferred stock (then Brian K. Devine and
William M. Woodard); (iv) two members designated by our management (then Andrea
C. Reisman and Scott Vertrees); (v) one member designated by ValueVision (then
Stuart Goldfarb); and (vi) one independent member mutually acceptable to the
holders of a majority of the outstanding shares of common stock and Series A
preferred stock (then A. Brooke Seawell). The voting agreement will terminate
upon consummation of this offering.
Each officer is elected by, and serves at the discretion of, the board of
directors. Each of our officers and directors, other than nonemployee
directors, devotes full time to the affairs of Petopia.com. Our nonemployee
directors devote such time to the affairs of Petopia.com as is necessary to
discharge their duties. There are no family relationships among any of our
directors, officers or key employees.
Board Committees
The board of directors has an audit committee and a compensation committee.
Audit Committee. The board of directors established the audit committee in
October 1999. The audit committee has the powers and responsibilities to, among
other things, review the adequacy of our internal control systems and financial
reporting procedures, to review the general scope of our annual audit and the
fees charged by our independent accountants, review and monitor the performance
of non-audit service by our auditors, and review the fairness of any proposed
transaction between us and any officer, director or other affiliate. The audit
committee currently consists of A. Brooke Seawell, William M. Woodard and
Michael J. Dodd, Jr.
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Compensation Committee. The board of directors established the compensation
committee in October 1999. The compensation committee has authority to, among
other things, review and recommend to the board of directors the compensation
and benefits of all of our executive officers and establish and review general
policies relating to compensation and benefits of our employees. The
compensation committee currently consists of Brian K. Devine, Stuart Goldfarb
and Michael G. Linnert.
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of our board of directors are
currently Brian K. Devine, Stuart Goldfarb and Michael G. Linnert. During the
last fiscal year, the compensation committee consisted of Mr. Devine, Jay C.
Hoag and William M. Woodard. None of these individuals has at any time been an
officer or employee of Petopia.com or any subsidiary of Petopia.com. However,
we have issued and sold shares and warrants to purchase shares of our preferred
stock to PETCO, Technology Crossover Ventures and ValueVision. Mr. Devine is
the chairman, president and chief executive officer of PETCO and Mr. Woodard is
the senior vice president, business development of PETCO. We have also issued
and sold shares of our common stock to Mr. Devine and Mr. Woodard and to
members of their respective families. Mr. Hoag and Mr. Linnert are general
partners of Technology Crossover Ventures. Mr. Goldfarb is the vice-chairman
and a director of ValueVision. For additional information, see "Certain
Transactions."
Messrs. Devine and Woodard currently serve on the compensation committee and
board of directors of both us and PETCO. Mr. Devine also currently serves on
the compensation committee and board of directors of Wild Oats Markets, Inc. No
other interlocking relationships exist between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any such other interlocking relationship existed in
the past.
Director Compensation
Our directors do not currently receive cash compensation from us for their
service as members of the board of directors, although nonemployee directors
are reimbursed for certain expenses in connection with attendance at board and
committee meetings. We do not provide additional compensation for committee
participation or special assignments of the board of directors. From time to
time, certain of our nonemployee directors have received grants of options to
purchase shares of our common stock pursuant to the 1999 Stock Plan.
In March 2000, our board of directors adopted our stock option grant program
for nonemployee directors. The program will be administered under our 2000
Stock Incentive Plan. Under this program, each nonemployee director will
receive a nonqualified stock option to purchase 50,000 shares of common stock
upon initial election or appointment to the board following this offering,
which will vest and become exercisable in 48 equal monthly installments
beginning one month after the grant date. Thereafter, beginning with the next
annual meeting of our stockholders, each nonemployee director will
automatically receive an additional option to purchase 10,000 shares of common
stock immediately following each year's annual meeting of stockholders. These
options will vest and become exercisable in twelve equal monthly installments
beginning one month after the grant date. The exercise price for all options
granted under the program will be the fair market value of the common stock on
the date of grant. In the event of the sale of all or substantially all of our
assets, or a merger or consolidation of us with or into another corporation,
all options granted under this program will automatically accelerate and become
100% vested and exercisable. Options will have a ten-year term, except that
options will expire one year after a nonemployee director ceases services as a
director, or in the case of death, one year after the date of death. See
"Certain Transactions" and "--Stock Plans."
Executive Compensation
The following table sets forth the total compensation received for services
rendered to us during the fiscal year ended January 1, 2000 by our Chief
Executive Officer, certain other executive officers who received salary and
bonus for such period in excess of $100,000 on an annualized basis, and certain
other executive officers. The executive officers listed in the table below are
referred to hereinafter as the "Named Executive Officers."
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------------------- ---------------------
Salary Other Annual Securities Underlying All Other
Name and Principal Position ($) Bonus ($) Compensation ($) Options (#) Compensation
--------------------------- ------- --------- ---------------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Andrea C. Reisman.............. $27,000(1) $30,250 $ -- -- $ --
Chief Executive Officer
Scott Vertrees................. --(2) -- -- -- --
President
David A. Fraze................. 56,471(3) -- -- -- --
Chief Financial Officer
Mark S. Cohon.................. 32,735(4) 20,000 -- 215,000 --
Chief Development Officer
Prem S. Urali.................. 57,692(5) -- -- 474,894 --
Chief Technology Officer
Lorne K. Abony................. -- -- -- -- 777,570(6)
former President
Scott A. Maltz................. 96,992(7) -- -- 1,125,000 --
former Chief Operating Officer
</TABLE>
- --------
(1) Ms. Reisman was hired as our Chief Executive Officer in March 1999. On an
annualized basis, Ms. Reisman's salary would have been $90,000. Ms.
Reisman's annual salary increased to $140,000 on March 10, 2000. Ms.
Reisman is also entitled to receive an annual bonus of up to $60,000 upon
the achievement of certain financial objectives.
(2) Mr. Vertrees was employed by us in January 2000 and became our President in
February 2000. Mr. Vertrees' annual salary is $175,000.
(3) Mr. Fraze was hired as our Chief Financial Officer in March 1999. On an
annualized basis, Mr. Fraze's salary would have been $90,000. Mr. Fraze's
annual salary increased to $175,000 on March 10, 2000.
(4) Mr. Cohon was hired as our Chief Development Officer in October 1999. On an
annualized basis, Mr. Cohon's salary would have been $170,000. This amount
does not include $6,300 which was paid to Mr. Cohon as reimbursement for
certain relocation expenses.
(5) Mr. Urali was hired as our Chief Technology Officer in August 1999. On an
annualized basis, Mr. Urali's salary would have been $150,000. This amount
does not include $33,000 in consulting fees paid by us to Commercia.com,
Inc., of which Mr. Urali is President and an equity holder.
(6) Represents (i) a repurchase by us of 1,496,941 shares of our common stock
at a price of $0.25 per share, (ii) an aggregate severance payment of
$335,065 pursuant to a separation agreement with Mr. Abony; and (iii)
$68,269 in consulting fees.
(7) Mr. Maltz was hired as our Chief Operating Officer in June 1999. On an
annualized basis, Mr. Maltz's salary would have been $175,000. Mr. Maltz's
employment relationship with us terminated effective as of March 1, 2000.
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<PAGE>
Option Grants in Fiscal Year Ended January 1, 2000
The following table sets forth certain summary information concerning grants of
stock options to each of the Named Executive Officers for the period from March
9, 1999 (inception) to January 1, 2000. We have never granted any stock
appreciation rights.
<TABLE>
<CAPTION>
Individual Grant
------------------------------
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of % of Total Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term(2)
Options Employees Price Expiration -----------------
Name Granted (#) in 1999(1) ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Andrea C. Reisman(3).... -- --% $ -- -- $ -- $ --
Scott Vertrees(4)....... -- -- -- -- -- --
David A. Fraze(5)....... -- -- -- -- -- --
Mark S. Cohon........... 215,000(6) 3.0 1.00 10/10/2009 135,211 342,654
Prem S. Urali........... 474,894(7) 6.6 0.75 08/31/2009 223,992 567,643
Lorne K. Abony.......... -- -- -- -- -- --
Scott A. Maltz.......... 1,125,000(8) 15.7 0.10 05/31/2009 70,750 179,295
</TABLE>
- --------
(1) Based on an aggregate of 7,149,629 shares underlying options granted by us
during the fiscal year ended January 1, 2000.
(2) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of the future
common stock price. Actual gains, if any, on stock option exercises are
dependent on our future performance, overall market conditions and the
option holder's continued employment through the vesting period.
(3) On March 10, 2000, Ms. Reisman received an option to purchase 720,187
shares at an exercise price of $1.50 per share. This option vests and
becomes exercisable with respect to 1/4th of the shares on the one year
anniversary of the date of grant and 1/48th of the shares monthly
thereafter.
(4) In February 2000, Mr. Vertrees received an option to purchase 105,000
shares at an exercise price of $1.25 per share. 1/3rd of this option vests
on the first, second and third year anniversaries of the date of grant.
1/3rd of this option shall vest if Mr. Vertrees is terminated without cause
during the first year of his employment. On March 10, 2000, Mr. Vertrees
received an additional option to purchase 1,375,000 shares at an exercise
price of $1.50 per share. This option was vested and exercisable with
respect to 15% of the shares on the date of grant. This option will vest
and become exercisable with respect to an additional 1/4th of the unvested
shares on the one year anniversary of the date of grant and 1/36th of the
remaining unvested shares monthly thereafter; provided that 35% of the
unvested shares shall immediately vest and become exercisable upon a change
of control.
(5) On March 10, 2000, Mr. Fraze received an option to purchase 256,250 shares
at an exercise price of $1.50 per share. This option vests and becomes
exercisable with respect to 1/4th of the shares on the one year anniversary
of the date of grant and 1/48th of the shares monthly thereafter.
(6) Exercisable for the number of shares that have vested after the vesting
commencement date. Mr. Cohon's options vest and become exercisable with
respect to 1/4th of the options on October 11, 2000, and 1/36th of the
shares each month thereafter. On March 10, 2000, Mr. Cohon also received an
option to purchase 235,000 shares at an exercise price of $1.50 per share.
This option vests and becomes exercisable with respect to 1/4th of the
shares on the one year anniversary of the date of grant and 1/48th of the
shares monthly thereafter.
(7) Exercisable immediately after the date of grant. Shares issued upon
exercise of Mr. Urali's option will initially be subject to a lapsing right
of repurchase by us at the original exercise price. Our right to repurchase
expires as to (a) 31,945 shares on August 10, 1999, (b) 12,348 shares on
the tenth day of each month commencing on September 10, 1999 and continuing
through March 10, 2000, (c) 9,133 shares on the tenth day of each month
commencing on April 10, 2000 through May 10, 2003, and (d) 9,459 shares on
June 10, 2003; provided that Mr. Urali continues to provide service to us
or any of our subsidiaries. On March 10, 2000, Mr. Urali received an option
to purchase 25,106 shares at an exercise price of $1.50 per share. This
option vests and becomes exercisable with respect to 1/4th of the shares on
the one year anniversary of the date of grant and 1/48th of the shares
monthly thereafter.
(8) Representing two options, each of which was exercised immediately after the
date of grant. Pursuant to a separation agreement with Mr. Maltz, we
repurchased 685,937 of our shares at a purchase price of $0.10 per share.
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<PAGE>
Fiscal Year-End Option Values
The following table provides certain summary information concerning stock
options held as of January 1, 2000 by each of the Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options at in-the-Money Options at
Acquired on Value Fiscal Year-End (#) Fiscal Year-End ($)(1)
Exercise Realized -------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrea C. Reisman(2).... -- $ -- -- -- $ -- $ --
Scott Vertrees(3)....... -- -- -- -- -- --
David A. Fraze(4)....... -- -- -- -- -- --
Mark S. Cohon........... -- -- -- 215,000(5) -- 53,750
Prem S. Urali........... -- -- 474,894(6) -- 237,487 --
Lorne K. Abony.......... -- -- -- -- -- --
Scott A. Maltz.......... 1,125,000(8) -- -- -- -- --
</TABLE>
- --------
(1) Based on the fair market value of our common stock as of the fiscal year
ended January 1, 2000 ($1.25) minus the per share exercise price of the
options, multiplied by the number of shares issued upon exercise of the
option.
(2) On March 10, 2000, Ms. Reisman received an option to purchase 720,187
shares at an exercise price of $1.50 per share. This option became vested
and exercisable with respect to 1/4th of the shares on the one year
anniversary of the date of grant and 1/48th of the shares monthly
thereafter.
(3) In February 2000, Mr. Vertrees received an option to purchase 105,000
shares at an exercise price of $1.25 per share. This option will vest and
become exercisable with respect to 1/3rd of the shares if Mr. Vertrees is
terminated without cause during the first year of his employment. This
option became vested and exercisable with respect to 1/3rd of the shares on
the first, second and third year anniversaries from the date of grant. On
March 10, 2000, Mr. Vertrees also received an option to purchase 1,375,000
shares at an exercise price of $1.50 per share. This option was vested and
exercisable with respect to 15% of the shares on the date of grant. This
option became vested and exercisable with respect to 1/4th of the unvested
shares on the one year anniversary of the date of grant and 1/36th of the
remaining unvested portion of this option vests monthly thereafter;
provided that 35% of the unvested portion of the option shall vest upon a
change of control.
(4) On March 10, 2000, Mr. Fraze received an option to purchase 256,250 shares
at an exercise price of $1.50 per share. This option became vested and
exercisable with respect to 1/4th of the shares on the one year anniversary
of the date of grant and 1/48th of the shares monthly thereafter.
(5) Exercisable for the number of options that have vested after the vesting
commencement date. Mr. Cohon's options vest and become exercisable with
respect to 1/4th of the shares on October 11, 2000, and 1/36th of the
remaining shares each month thereafter. On March 10, 2000, Mr. Cohon also
received an option to purchase 235,000 shares at an exercise price of $1.50
per share. This option became vested and exercisable with respect to 1/4th
of the shares on the one year anniversary of the date of grant and 1/48th
of the shares monthly thereafter.
(6) Immediately exercisable. Shares issued upon exercise of Mr. Urali's option
are subject to a lapsing right of repurchase by us at the original exercise
price. Our right to repurchase expires as to (a) 31,945 shares on August
10, 1999, (b) 12,348 shares on the tenth day of each month commencing on
September 10, 1999 and continuing through March 10, 2000, (c) 9,133 shares
on the tenth day of each month commencing on April 10, 2000 through May 10,
2003, and (d) 9,459 shares on June 10, 2003; provided that Mr. Urali
continues to provide service to us or any of our subsidiaries. On March 10,
2000, Mr. Urali received an option to purchase 25,106 shares at an exercise
price of $1.50 per share. This option became vested and exercisable with
respect to 1/4th of the shares on the one year anniversary of the date of
grant and 1/48th of the shares monthly thereafter.
(7) Represents two option grants, each of which was exercised immediately after
the date of grant. Pursuant to a separation agreement with Mr. Maltz, we
repurchased 685,937 of his shares at a purchase price of $0.10 per share.
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<PAGE>
Stock Plans
2000 Stock Incentive Plan. Our 2000 stock incentive plan was adopted by our
board of directors in March 2000 and approved by our stockholders in March
2000. The purpose of our 2000 stock incentive plan is to enhance long-term
stockholder value by offering opportunities to officers, directors, employees,
consultants, agents and independent contractors of us and our subsidiaries to
participate in our growth and success, and to encourage them to remain in the
service of us and our subsidiaries and to own our stock. Our 2000 stock plan
provides for awards of stock options and stock. Our board of directors has
reserved a total of 5,250,000 shares of common stock, plus
. any shares reserved but not granted under our 1999 stock plan or
returned to the 1999 stock plan upon termination of options, up to a
total of 5,000,000 shares; and
. An automatic annual increase, to be added on the first day of each
fiscal year, commencing with 2001, equal to the lesser of (1) 3,250,000
shares and (2) 4% of the outstanding common shares as of the end of the
immediately preceding fiscal year on a fully diluted basis (assuming
exercise of all outstanding options and warrants and conversion of all
outstanding convertible preferred stock).
As of March 10, 2000, no options or restricted stock were outstanding under our
2000 stock plan.
Stock Options. Our 2000 stock incentive plan provides for the granting to
employees, including officers and directors, of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code and for the granting to
employees and consultants, agents and independent contractors, including
nonemployee directors, of nonqualified stock options. To the extent an optionee
would have the right in any calendar year to exercise for the first time one or
more incentive stock options for shares having an aggregate fair market value
(determined for each share as of the date the option to purchase the shares was
granted) in excess of $100,000, any such excess options will be treated as
nonqualified stock options. Unless terminated earlier, our 2000 stock incentive
plan will terminate on March 8, 2010.
Our 2000 stock incentive plan may be administered by the board of directors or
a committee or committees of the board of directors. Our 2000 stock incentive
plan will be administered by the compensation committee of our board of
directors. The plan administrator determines the terms of options granted under
the 2000 stock incentive plan, including the number of shares subject to an
option and its exercise price (which, for incentive stock options, must be at
least equal to the fair market value of the common stock on the date of grant),
term and exercisability.
The plan administrator determines the term of options, which may not exceed ten
years (five years in the case of an incentive stock option granted to a 10%
shareholder). Optionees may not transfer options other than by will or the laws
of descent or distribution, with the provision that the plan administrator may
grant nonqualified stock options with limited transferability rights in certain
circumstances. The plan administrator determines when options vest and become
exercisable. We expect that options granted under the 2000 stock incentive plan
generally will vest and become exercisable with respect to 1/4th of the total
number of shares subject to the options twelve months after the date of grant,
and 1/48th of the total number of shares subject to the options each month
thereafter.
Stock Awards. The plan administrator is authorized under our 2000 stock
incentive plan to issue shares of common stock to eligible participants with
terms, conditions and restrictions established by the plan administrator in its
sole discretion. Restrictions may be based on continuous service with us or our
subsidiaries or the achievement of performance goals. Holders of restricted
stock are stockholders of Petopia.com and have, subject to certain
restrictions, all the rights of stockholders with respect to such shares.
Adjustments. The plan administrator will make proportional adjustments to the
aggregate number of shares issuable under our 2000 stock incentive plan and to
outstanding awards in the event of stock splits or other capital adjustments.
Corporate Transactions. In the event of the sale of all or substantially all of
our assets, or a merger or consolidation of us with or into another
corporation, all options outstanding under the 2000 stock incentive plan
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<PAGE>
will be assumed or equivalent options substituted by the successor corporation,
unless such successor corporation does not agree to such assumption or
substitution, in which case each outstanding option and restricted stock award
will automatically accelerate and become 100% vested and exercisable
immediately prior to the corporate transaction, and any unexercised options
will terminate upon consummation of the transaction.
Additionally, if any holder of an option that has been assumed in connection
with such a transaction is terminated without cause during the first twelve
months following the closing of such transaction, such holder's will be
immediately accelerated by an additional twelve months of vesting.
1999 Stock Plan. Our 1999 stock plan was adopted by our board of directors in
April 1999 and subsequently approved by our stockholders. As amended, our 1999
stock plan authorizes the issuance of up to a total of 11,500,000 shares. As of
March 10, 2000, options to purchase 9,946,038 shares of common stock at a
weighted average exercise price of $1.11 per share were outstanding and 221,957
shares remained available for future option grants. Our 1999 stock plan will be
suspended upon effectiveness of this offering, and no further grants will be
made thereunder. Any shares remaining for future option grants and up to
5,000,000 shares returned to the plan as a result of future cancellations will
become available for future grant under our 2000 stock incentive plan.
The purpose of the 1999 stock plan is to offer selected individuals, including
our officers, employees, directors and persons rendering consulting or advisory
services, an opportunity to acquire a proprietary interest in our success and
to promote the success of our business. The 1999 stock plan provides for the
granting of incentive and nonqualified options and stock purchase rights. Our
1999 stock plan may be administered by our board of directors or a committee of
the board of directors. Currently, the 1999 stock plan is administered by the
board of directors. The plan administrator determines the terms of options
granted under the 1999 stock plan, including the number of shares subject to an
option and its exercise price, term and exercisability.
The terms and conditions for options granted under the 1999 stock plan are
substantially similar to those for options granted under the 2000 stock
incentive plan. Generally, options may not be exercised until the options are
vested. In certain instances, the plan administrator may grant options that may
be exercised immediately after the grant date, but to the extent the shares
subject to the options are not vested as of the date of such exercise, we
retain a right to repurchase any shares that remain unvested at the time of the
optionee's termination of employment by paying an amount equal to the exercise
price times the number of unvested shares. Nonqualified stock options granted
under the 1999 stock plan must be granted with an exercise price equal to at
least 85% of the fair market value of our common stock on the date of grant,
unless granted to a 10% shareholder, in which case the exercise price must be
at least 110% of the fair market value on the date of grant.
2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan was
adopted by our board of directors in March 2000 and approved by our
stockholders in March 2000. We will implement the purchase plan upon the
consummation of this offering. A total of 1,250,000 shares of common stock have
been reserved for issuance under the purchase plan. The number of shares
reserved will be increased automatically each year on the first day of our
fiscal year commencing with 2001 by an amount equal to the lesser of (1)
2,000,000 shares and (2) 2% of the outstanding common shares as of the end of
the immediately preceding fiscal year on a fully diluted basis (assuming
exercise of all outstanding options and warrants and conversion of all
outstanding convertible preferred stock). Any shares from increases in previous
years that are not actually issued shall be added to the aggregate number of
shares available for issuance under the purchase plan.
We intend the purchase plan to qualify under Section 423 of the Internal
Revenue Code. We will implement the purchase plan by an offering period
commencing upon the effectiveness of this offering and ending on July 31, 2001.
Each subsequent offering period will have a duration of twenty-four months.
Offerings after the first offering period will commence on February 1 and
August 1 of each year. Each offering period will consist of four consecutive
purchase periods of six months duration, with the last day of each period being
designated a purchase date. The first purchase date will occur on July 31,
2000, with subsequent purchase dates to occur every six months thereafter. The
purchase plan will be administered by the compensation committee of our board
of directors. Our employees (including officers and employee directors) or
employees of any of our
55
<PAGE>
majority-owned subsidiaries designated by our board, are eligible to
participate in the purchase plan if they are employed by us or any such
subsidiary for at least 20 hours per week and more than five months per year.
The purchase plan permits eligible employees to purchase common stock through
payroll deductions, which may not exceed 15% of an employee's compensation.
Under the purchase plan, no employee may purchase common stock worth more than
$25,000 in any calendar year or in any single purchase period ($21,250 to the
extent the purchase price may be 85% of the fair market value of the common
stock determined as of the first day of an offering), valued as of the first
day of each offering period. In addition, owners of 5% or more of our or one of
our subsidiaries's common stock may not participate in the purchase plan. The
price of the common stock purchased under the purchase plan will be the lesser
of 85% of the fair market value of our common stock at the beginning of the
offering period or the purchase date, except that the purchase price for the
first offering period will be equal to the lesser of 100% of the initial public
offering price of the common stock and 85% of the fair market value on July 31,
2000. If the fair market value of the common stock on a purchase date is less
than the fair market value at the beginning of the offering period, a new
twenty-four month offering period will automatically begin on the first
business day following the purchase date with a new fair market value.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with us or a participating subsidiary. If not terminated earlier,
the purchase plan will have a term of ten years.
The purchase plan provides that in the event of a merger of us with or into
another corporation or a sale of all or substantially all of our assets, each
right to purchase stock under the purchase plan will be assumed or an
equivalent right substituted by the successor corporation. If the successor
corporation refuses to assume or substitute for the purchase right, the
offering period during which a participant may purchase stock will be shortened
to a specified date before the proposed merger or sale. Our board of directors
has the power to amend or terminate the purchase plan as long as such action
does not diminish any outstanding rights to purchase stock under the plan.
Employee Benefit Plans
401(k) Plan. We participate in a multiple employer 401(k) tax-qualified
employee savings and retirement plan covering all of our employees who are at
least 21 years old. Eligible employees may elect to contribute up to 15% of
their cash compensation to the 401(k) plan. The 401(k) plan is intended to
qualify under applicable law, so that contributions to the 401(k) plan and
income earned on those contributions are not taxable until withdrawn from the
401(k) plan. The 401(k) plan is available to our executive officers on terms
not more favorable than those offered to other employees. We may make matching
and other contributions to the 401(k) plan at the discretion of our board of
directors. We have not made any such contributions as of January 1, 2000.
Employee contributions are 100% vested at all times.
Employment Contracts and Change of Control Arrangements
Except as set forth below, all of our Named Executive Officers' employment is
"at-will" and may be terminated at any time.
On April 15, 1999, we entered into restricted stock purchase agreements with
each of Ms. Reisman and Mr. Fraze, pursuant to which they purchased 2,288,813
and 956,250 shares of common stock, respectively. The purchased stock is
subject to a right of repurchase by us at the original purchase price. Our
right of repurchase expired as to 40% of the shares purchased on the date of
the agreement, and expires as to 1/36th of the remaining shares monthly
thereafter, so that our right of repurchase completely expires three years from
the date of the agreement, provided each of them continues to be employed by
us.
Our right of repurchase with respect to Ms. Reisman shall completely expire if
at any time after a merger or consolidation in which we are not the surviving
entity or a sale of all or substantially all of our assets or capital stock she
(a) is terminated without cause, (b) experiences an adverse change in her
position which causes her position to be of materially reduced stature or
responsibility, (c) suffers a reduction of more than 25% of her salary, or (d)
is relocated more than 50 miles from our principal place of business (unless
within 50 miles of her residence).
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Our right of repurchase with respect to Mr. Fraze shall completely expire if at
any time after a merger or consolidation in which we are not the surviving
entity or a sale of all or substantially all of our assets or capital stock he
(a) is terminated without cause, (b) experiences an adverse change in his
position which causes his position to be of materially reduced stature or
responsibility, (c) suffers a reduction of more than 25% of his salary, or (d)
is relocated more than 50 miles from our principal place of business (unless
within 50 miles of his residence).
On March 10, 2000, Ms. Reisman received an option to purchase 720,187 shares at
an exercise price of $1.50 per share. This option vests and becomes exercisable
with respect to 1/4th of the shares on the one year anniversary of the date of
grant and 1/48th of the shares monthly thereafter. On March 10, 2000, Mr. Fraze
received an option to purchase 256,250 shares at an exercise price of $1.50 per
share. This option vests and becomes exercisable with respect to 1/4th of the
shares on the one year anniversary from the date of grant and 1/48th of this
option vests monthly thereafter.
On January 18, 2000, Mr. Vertrees was granted an option to purchase 105,000
shares of our common stock at an exercise price of $1.25 per share, which vests
and becomes exercisable with respect to 1/3rd of the shares subject to the
option on the first, second, and third-year anniversaries of the employment
agreement. If Mr. Vertrees is terminated during the first year of his
employment, this option will vest and become exercisable with respect to an
additional 1/3rd of the shares subject to the option. On March 10, 2000, Mr.
Vertrees' also received an option to purchase 1,375,000 shares at an exercise
price of $1.50 per share. This option vests and becomes exercisable with
respect to 15% of the shares on the date of grant. This option vests and
becomes exercisable with respect to 1/4th of the unvested portion of the shares
on the one year anniversary of the date of grant and 1/36th of the remaining
unvested shares monthly thereafter; provided that 35% of the unvested shares
shall vest and become exercisable vest upon a change of control. Pursuant to
his agreement, Mr. Vertrees will receive an annual salary of $175,000.
On September 1, 1999, we granted Mr. Urali an option to purchase 474,894 shares
of common stock at an exercise price of $0.75 per share, which was immediately
exercisable. The shares issued upon exercise of Mr. Urali's option are subject
to a right of repurchase by us at the original exercise price. Our right to
repurchase expires as to (a) 31,945 shares on August 10, 1999, (b) 12,348
shares on the tenth day of each month commencing on September 10, 1999 and
continuing through March 10, 2000, (c) 9,133 shares on the tenth day of each
month commencing on April 10, 2000 through May 10, 2003, and (d) 9,459 shares
on June 10, 2003; provided that Mr. Urali continues to provide service to us or
any subsidiary. If Mr. Urali is terminated by us, the vesting schedule
described above will accelerate by one month. On March 10, 2000, Mr. Urali
received an option to purchase 25,106 shares at an exercise price of $1.50 per
share. This option vests and becomes exercisable with respect to 1/4th of the
shares on the one year anniversary of the date of grant and 1/48th of the
shares monthly thereafter.
On September 22, 1999 we entered into an employment offer letter with Mr. Cohon
whereby Mr. Cohon will serve as our Chief Development Officer. Mr. Cohon's
employment is "at-will" and may be terminated at any time with or without
cause. Pursuant to the agreement, Mr. Cohon is paid an annual base salary of
$170,000, a signing bonus of $20,000, and relocation expenses.
Pursuant to his agreement, Mr. Cohon was also permitted to purchase 44,594
shares of our Series D preferred stock on November 29, 1999. See "Certain
Transactions--Series D Preferred Stock."
Pursuant to his agreement, Mr. Cohon was also granted a stock option to
purchase 215,000 shares of common stock at an exercise price of $1.00 per
share, which vests and becomes exercisable with respect to 1/4th of the shares
subject to the option on October 11, 2001, and as to 1/36th of the remaining
shares monthly thereafter, so that the shares subject to the option will
completely vest in four years. If Mr. Cohon is terminated without cause within
12 months after a change of control, (a) we will pay him 2 months severance and
(b) an additional 12 months of his options will be deemed vested. On March 10,
2000, Mr. Cohon also received an option to purchase 235,000 shares at an
exercise price of $1.50 per share. This option vests and becomes exercisable
with respect to 1/4th of the shares on the one year anniversary of the date of
grant and 1/48th of the shares monthly thereafter.
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On June 1, 1999, we entered into an employment agreement with Mr. Maltz whereby
Mr. Maltz served as our Chief Operating Officer. Pursuant to his agreement, Mr.
Maltz was granted a stock option to purchase 1,125,000 shares of common stock
at an exercise price of $0.10 per share, which was immediately exercised and
paid for with a secured promissory note. The shares issued upon exercise of Mr.
Maltz's option were subject to a right of repurchase by us at the original
exercise price. Mr. Maltz's employment relationship with us terminated
effective as of March 1, 2000. Pursuant to a separation agreement, we will
continue to pay Mr. Maltz his salary through August 31, 2000. In addition, we
will repurchase 685,937 shares from Mr. Maltz, (b) Mr. Maltz will retain the
remaining 439,063 shares, and (c) we will set off the first $42,968.80 of
severance payments to Mr. Maltz against his debt, which will then be deemed
fully paid.
Limitation of Liability and Indemnification Matters
Our amended and restated certificate of incorporation, which will be effective
upon the closing of this offering, 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 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 or state securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Our amended and restated bylaws provide that we shall indemnify our directors,
officers, employees and other agents to the fullest extent permitted by law. We
believe that indemnification under our amended and restated bylaws covers at
least negligence and gross negligence on the part of indemnified parties. Our
amended and restated bylaws 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 amended and restated
bylaws permit such indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our amended and
restated bylaws. These agreements, among other things, indemnify our directors
and executive officers for certain expenses including attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, services as our director, officer, employee, agent or
fiduciary, any of our subsidiaries or any other company or enterprise 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, as amended, may be permitted to our
directors, officers or controlling persons pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
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Certain Transactions
Since our inception, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or are to be a
party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of any class of our voting
securities or members of such person's immediate family had or will have a
direct or indirect material interest other than (i) compensation agreements and
other arrangements, which are described in "Management," and (ii) the
transactions described below.
Common Stock
On April 15, 1999, we issued 8,203,502 shares of our common stock to the
founders of Petopia.com, including Andrea C. Reisman, David A. Fraze, and
certain other investors, at a purchase price of $0.078 per share. On July 12,
1999, we issued 600,000 shares of our common stock to Brian K. Devine, William
M. Woodard, and certain members of their family, at a purchase price of $0.6375
per share. Mr. Devine and Mr. Woodard are directors of Petopia.com. The holders
of such common stock are entitled to registration rights regarding the shares
of common stock issued or issuable upon conversion. See "Description of Capital
Stock."
Series A Preferred Stock
On May 4, 1999, in a private placement transaction, we issued 9,000,000 shares
of our Series A preferred stock to certain investors, including certain
affiliates of Technology Crossover Ventures, at a purchase price of $1.00 per
share, which shares will automatically convert into 9,000,000 shares of our
common stock upon the completion of this offering. On May 28, 1999, in a
private placement transaction, we issued an additional 755,000 shares of our
Series A preferred stock to certain investors, including A. Brooke Seawell, at
a purchase price of $1.00 per share, which shares will automatically convert
into 755,000 shares of our common stock upon the completion of this offering.
The holders of such Series A preferred stock are entitled to registration
rights regarding the shares of common stock issued or issuable upon conversion.
Mr. Seawell is a director of Petopia.com. See "Description of Capital Stock."
On May 4, 1999 and May 10, 1999, we also issued warrants to Technology
Crossover Ventures to purchase an aggregate of 1,800,000 shares of our Series A
preferred stock (or the equivalent number of shares of our common stock if all
the Series A preferred stock have been converted to common stock) at an
exercise price of $1.75 per share. See "Description of Capital Stock--
Warrants." Jay C. Hoag, Michael G. Linnert and A. Brooke Seawell, each a
general partner of Technology Crossover Ventures, are directors of Petopia.com.
Series B Preferred Stock
On July 1, 1999, in a private placement transaction, we issued 7,736,345 shares
of our Series B preferred stock to Arkaro Holdings, B.V., an entity affiliated
with europ@web, an European and U.S. focused Internet investment company
established by Group Arnault, the private holding company of French businessman
Bernard Arnault that controls the luxury group LVMH Moet Hennessy Louis
Vuitton, at a purchase price of $2.5852 per share, which shares will
automatically convert into 7,736,345 shares of our common stock upon the
completion of this offering. The holders of such Series B preferred stock are
entitled to registration rights regarding the shares of common stock issued or
issuable upon conversion. See "Description of Capital Stock." Michael J. Dodd,
Jr., a senior partner of europ@web, an entity affiliated with LVMH Moet
Hennessy Louis Vuitton, is a director of Petopia.com.
Series C Preferred Stock
On July 12, 1999, in a private placement transaction and in connection with the
execution of an alliance agreement with PETCO, we issued 3,017,175 shares of
our Series C preferred stock to PETCO at a purchase price of $2.5852 per share,
which shares will automatically convert into 3,017,175 shares of our common
stock upon the completion of this offering. In addition, we agreed to issue up
to an additional 4,803,458 shares of our Series C preferred stock (or the
equivalent number of shares of common stock if all of the Series C preferred
stock has been converted to common stock) to PETCO upon the achievement of
certain milestones under the
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alliance agreement, 960,692 of which were issued to PETCO on December 1, 1999,
960,692 of which were issuable in February 2000, and the remainder of which
were issued to PETCO on March 6, 2000 upon the waiver of the milestone targets.
The holders of such Series C preferred stock are entitled to registration
rights regarding the shares of common stock issued or issuable upon conversion.
See "Description of Capital Stock."
On July 12, 1999, we also issued warrants to PETCO to purchase an aggregate of
5,119,987 shares of our Series C preferred stock (or the equivalent number of
shares of common stock if all the Series C preferred stock have been converted
to common stock). The exercise price of the warrants is (a) 1,637,486 shares at
$5.00 per share, (b) 1,705,715 shares at $7.50 per share, and (c) 1,776,786
shares at $10.00 per share. See "Description of Capital Stock--Warrants." Brian
K. Devine, chairman, president and chief executive officer of PETCO, and
William M. Woodard, senior vice president, business development, of PETCO, are
directors of Petopia.com.
Series D Preferred Stock
On November 29, 1999, in a private placement transaction, we issued 6,270,262
shares of our Series D preferred stock to certain investors, including
Technology Crossover Ventures, LVMH Moet Hennessy Louis Vuitton, PETCO, Mark S.
Cohon, our Chief Development Officer, and Pet Moonshot LLC, the members of
which include certain members of Mr. Fraze's family, at a purchase price of
$5.6061 per share, which will automatically convert into 6,270,262 shares of
our common stock upon the completion of this offering.
On January 21, 2000, in a private placement transaction, we issued an
additional 3,567,542 shares of our Series D preferred stock to NBC-PETO
Holding, Inc., a wholly owned subsidiary of NBC, and ValueVision at a purchase
price of $5.6061 per share, which will automatically convert into 3,567,542
shares of our common stock upon the completion of this offering and warrants to
purchase 917,749 shares of common stock at an exercise price of $7.50 per share
to a subsidiary of NBC. The holders of such Series D preferred stock are
entitled to registration rights regarding the shares of common stock issued or
issuable upon conversion. See "Description of Capital Stock."
On January 21, 2000, we also issued warrants to the holders of Series D
preferred stock, including Technology Crossover Ventures, LVMH Moet Hennessy
Louis Vuitton, PETCO, Mark S. Cohon, NBC-PETO Holding, Inc. and ValueVision, to
purchase an aggregate of 918,939 shares of our Series D preferred stock (or the
equivalent number of shares of common stock if all the Series D preferred stock
have been converted to common stock) at an exercise price of $5.6061 per share.
See "Description of Capital Stock--Warrants." Stuart Goldfarb, vice chairman of
ValueVision, is a director of Petopia.com.
Other Transactions
On June 1, 1999, we granted Mr. Maltz, our former Chief Operating Officer, two
options to purchase an aggregate of 1,125,000 shares of our common stock, at a
purchase price of $0.10 per share, each of which was exercised immediately
after the date of grant. Mr. Maltz was allowed to pay for the exercise price of
his stock options by delivering a promissory note in the principal amount of
$112,500 payable to the order of Petopia.com. The loan bears interest at 6% per
annum and is secured by the shares issuable upon exercise of Mr. Maltz's stock
options. Mr. Maltz's employment relationship with us terminated effective as of
March 1, 2000. Pursuant to a separation agreement and general release dated
March 1, 2000, we applied a portion of severance payments to be paid to Mr.
Maltz to repay the promissory note in full. See "Management--Employment
Contracts and Change of Control Arrangements" for a description of Mr. Maltz's
employment agreement and separation agreement and general release.
In June 1999, we entered into a separation agreement and two related joint
escrow agreements with Lorne K. Abony, a founder and prior director of
Petopia.com and 1316703 Ontario Limited, whose sole stockholder is Mr. Abony.
Pursuant to these agreements, we paid Mr. Abony an aggregate of $500,000 in
cash and repurchased 1,496,941 shares of our common stock at a price of $0.25
per share. We are also obligated to pay Mr. Abony up to $706,889 over a period
of one year if Mr. Abony does not engage in any competing business or violate
certain other conditions during such period, which amount we have placed in
escrow. As of March 1,
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2000, $488,231 has been released from escrow to Mr. Abony. We have also paid
Mr. Abony an additional $68,269 in consideration for certain consulting
services that he provided during the four-month period following his departure
from Petopia.com.
In July 1999, we entered into an strategic alliance agreement with PETCO
whereby we will be PETCO's exclusive online partner, and PETCO will be our
exclusive offline retail pet store partner. PETCO and Petopia.com also both
agreed not to make an equity investment or enter into a contractual
relationship actively promoting the business of any of their respective
competitors. On July 12, 1999, we also entered into various equity transactions
with PETCO, including the sale of common stock to Brian K. Devine and William
M. Woodard. Pursuant to the agreement, PETCO agreed to provide us with certain
customer information, help us obtain better pricing for products and services,
make introductions to participants in the pet industry, sublease to us space
within their distribution centers for our use, and allow us to install Petopia
Internet stations in PETCO stores. Pursuant to the agreement, we agreed to help
redesign their web site to include a link to our web site, pay them certain
fees for referral customers, and issue them shares of our Series C preferred
stock. See "Business--Relationship with PETCO."
In September 1999, we entered into a strategic online merchant agreement with
iVillage Inc. whereby, subject to iVillage.Inc.'s existing agreement with
Ralston Purina, we are the only online pet retailer that may purchase
commercial advertising or sponsorships on the iVillage.com web sites.
iVillage.com agreed to place advertisements for and links to our web site, and
to further promote our web site through sweepstakes and their "Pet Gazette"
newsletter. We agreed to offer special deals to iVillage.com customers and to
pay iVillage.com a quarterly fee for the clickthroughs that resulted from their
advertisements and links. Technology Crossover Ventures is also a stockholder
of iVillage.com, and Jay C. Hoag, one of our directors, is also a director of
iVillage.com. See "Principal Stockholders."
In January 2000, we acquired by merger C/R Catalog Corp. (d/b/a In the Company
of Dogs), a catalog and online retailer of specialty pet products, pursuant to
an agreement and plan of merger. As a result of the merger, C/R Catalog Corp.
was renamed In the Company of Dogs, Inc. and is now our wholly owned
subsidiary. In exchange for all of the shares and outstanding warrants to
purchase shares of C/R Catalog Corp., we (a) issued an aggregate of 2,014,607
shares of our Series E preferred stock, 201,457 shares of which have been
placed in escrow until July 18, 2000 to satisfy our claims for indemnification,
if any, under the merger agreement, (b) assumed outstanding warrants to
purchase an aggregate of 69,647 shares of our Series E preferred stock, of
which warrants to purchase 6,970 shares have been place in escrow until July
18, 2000 to satisfy our claims for indemnification, if any, under the merger
agreement, (c) paid $600,067 in cash at closing, and (d) executed a promissory
note in the amount of $2,000,000, payable on the earlier of the closing of this
offering or June 15, 2000, minus certain expenses. See "Description of Capital
Stock." Scott Vertrees was the president of C/R Catalog Corp. and is currently
our President and a director.
In January 2000, we entered into an advertising agreement with NBC whereby NBC
agreed to telecast a specified amount of our advertising spots on the NBC
network at an agreed upon discount to the spot value of such advertising and to
make reasonable efforts to introduce, organize and attend meetings between us
and executives of NBC's news and entertainment divisions to discuss content and
promotional opportunities and other strategic relationships between us and such
divisions of NBC. We agreed to issue NBC-PETO Holding, Inc., a wholly owned
subsidiary of NBC, 1,783,771 shares of our Series D preferred stock, a warrant
to purchase 136,448 shares of our Series D preferred stock at an exercise price
of $5.6061 per share, and a warrant to purchase 917,749 shares of our common
stock at an exercise price of $7.50 per share. NBC agreed that, until December
31, 2000, it will not purchase capital stock in any of our specifically named
online competitors. See "Description of Capital Stock."
In January 2000, we entered into a strategic production and marketing agreement
with ValueVision whereby ValueVision agreed to produce at least 45 one-hour
television programs per year for us featuring Petopia.com and devoted to the
sale of products and services for the care of pets and pet-related merchandise
for their owners. We will be their exclusive partner with regard to such pet
care products. We and ValueVision will work together to develop each television
program but we have the final approval over the "look and feel" of each
program. We will also build and host a web site for the sale of pet care
products on ValueVision's online network.
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ValueVision will retain a percentage of the net cash receipts received from
orders during each program and from click-throughs originating from
ValueVision's store front. Stuart Goldfarb, vice-chairman of ValueVision, is a
director of Petopia.com.
We have entered into indemnification agreements with our officers and directors
containing provisions that require us, among other things, to indemnify our
officers and directors against certain liabilities that may arise by reason of
their status or service as officers or directors, other than liabilities
arising from willful misconduct of a culpable nature, and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
We believe that the terms of the transactions described above were no less
favorable to us than would have been obtained from an unaffiliated third party.
Any future transactions between us and any of our officers, directors or
principal stockholders will be on terms no less favorable to us than could be
obtained from unaffiliated third parties and will be approved by a majority of
the independent and disinterested members of the board of directors.
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Principal Stockholders
The following table sets forth certain information regarding beneficial
ownership of our common stock (following automatic conversion of all preferred
stock upon the effectiveness of this offering) as of March 10, 2000, and as
adjusted to reflect the sale of common stock offered hereby under this
prospectus, (i) by each person or entity known by us to own beneficially more
than 5% of our common stock; (ii) by each of our directors; (iii) by each of
our Named Executive Officers; and (iv) by 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 March 10, 2000 as described in the
footnotes below. The following calculations of the percentages of outstanding
shares are based on 46,340,955 shares of our common stock outstanding as of
March 10, 2000 on an as-converted basis, and shares of our common
stock outstanding after this offering.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding
Shares Beneficially --------------------
Owned Prior to the Before After
Name of Beneficial Owners(1) Offering Offering Offering(2)
- ---------------------------- ------------------- -------- -----------
<S> <C> <C> <C>
Entities associated with Technology
Crossover Ventures(3)............... 12,086,880 25.04% %
Arkaro Holding, B.V.(4).............. 8,838,178 19.03
PETCO Animal Supplies, Inc.(5)....... 13,334,131 25.89
National Broadcasting Company,
Inc.(6)............................. 2,837,968 6.11
Lorne Abony.......................... 720,749 1.56
Mark Cohon(7)........................ 49,188 *
Brian K. Devine(5)(8)................ 13,634,131 26.48
Michael J. Dodd, Jr.(4)(9)........... 8,838,178 19.03
David Fraze(10)...................... 943,750 2.04
Stuart Goldfarb(11).................. 1,920,159 4.13
Jay C. Hoag(3)....................... 12,086,880 25.04
Michael G. Linnert(3)................ 12,086,880 25.04
Scott A. Maltz(12)................... 439,063 *
Andrea C. Reisman(13)................ 2,278,813 4.92
A. Brooke Seawell(3)(14)............. 12,376,880 26.71
Prem Urali(15)....................... 474,894 1.02
Scott Vertrees(16)................... 560,310 1.20
William M. Woodard(5)(17)............ 13,624,131
All directors and executive officers
as a group (13 persons)............. 43,217,674 92.14
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Unless otherwise indicated, the principal business address of each of the
individuals listed in the table is c/o Petopia.com, Inc., 1200 Folsom
Street, San Francisco, California 94103.
(2) Assumes the underwriters' over-allotment option is not exercised.
(3) Consists of 73,823 shares, and warrants to purchase 13,942 shares, held by
TCV III (GP), 350,659 shares, and warrants to purchase 66,230 shares, held
by TCV III, L.P., 9,320,129 shares, and warrants to purchase 1,760,318
shares, held by TCV III (Q), L.P., and 422,063 shares, and warrants to
purchase 79,716 shares, held by TCV III Strategic Partners, L.P. Messrs.
Hoag, Linnert and Seawell, each one of our directors, are members of
Technology Crossover Management III, L.L.C., which is the General Partner
of each of TCV III (GP), TCV III, L.P., TCV III (Q), L.P. and TCV III
Strategic Partners, L.P. Messrs. Hoag and Linnert disclaim beneficial
ownership of the shares held by each of TCV III (GP), TCV III, L.P., TCV
III (Q), L.P. and TCV III Strategic Partners, L.P. except to the extent of
their respective pecuniary interests therein. The address for each of
these persons and entities is c/o Technology Crossover Ventures, 575 High
Street, Suite 400, Palo Alto, California 94301.
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(4) Consists of 8,735,256 shares, and warrants to purchase 102,922 shares. Its
principal business address is Locatellikade 1, Parnassustorn, 1076 AZ
Amsterdam, P.O. Box 75215, 1070 AE Amsterdam, The Netherlands.
(5) Consists of 8,177,387 shares, and warrants to purchase 5,156,744 shares.
PETCO's, Mr. Devine's and Mr. Woodward's principal business address is
9125 Rehco Road, San Diego, California 92121.
(6) Consists of 1,783,771 shares, and warrants to purchase 1,054,197 shares,
held by NBC-PETO Holding, Inc., a wholly owned subsidiary of NBC. The
table does not include 1,783,711 shares, and warrants to purchase 136,448
shares, held by ValueVision, in which NBC owns a 40% interest. NBC's
principal business address is 30 Rockefeller Plaza, Room 1076, New York,
New York 10112.
(7) Consists of 44,594 shares, and warrants to purchase 4,594 shares.
(8) Includes shares and warrants to purchase shares held by PETCO, 280,000
shares held by Mr. Devine and 20,000 shares held by members of Mr.
Devine's family. Mr. Devine is the Chairman, President and Chief Executive
Officer and a stockholder of PETCO. Mr. Devine disclaims beneficial
ownership of the shares and warrants held by PETCO, except to the extent
of his pecuniary interest therein, and of the shares held by members of
his family.
(9) Includes shares and warrants to purchase shares held by Arkaro Holding,
B.V. Mr. Dodd is a Senior Partner of the parent entity of Arkaro Holding,
B.V., europ@web, an European and U.S. Internet investment company
established by Group Arnault, the private holding company of French
businessman Bernard Arnault that controls the luxury group LVMH Moet
Hennessy Louis Vuitton. Mr. Dodd disclaims beneficial ownership of such
shares and warrants except to the extent of his pecuniary interest
therein. Mr. Dodd's principal place of business is 525 Market Street,
Suite 2500, San Francisco, CA 94105.
(10) Includes 398,438 shares subject to a right of repurchase. See
"Management--Employment Contracts and Change of Control Arrangements."
(11) Includes 1,783,711 shares, and warrants to purchase 136,448 shares, held
by ValueVision. Stuart Goldfarb is the Vice-Chairman of ValueVision. Mr.
Goldfarb disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest therein. Mr. Goldfarb's principal
business address is 6470 Shady Oak Road, Eden Prairie, MN 55344.
(12) Includes 439,063 shares held by a trust established for the benefit of Mr.
Maltz's family. See "Management--Employment Contracts and Change of
Control Arrangements."
(13) Includes 915,536 shares subject to a right of repurchase. See
"Management--Employment Contracts and Change of Control Arrangements."
(14) Consists of shares and warrants to purchase shares held by TCV III (GP),
TCV (III), L.P., TCV III (Q), L.P. and TCV III Strategic Partners, L.P.
and 290,000 shares held by Mr. Seawell. Mr. Seawell, one of our directors,
is a Member of Technology Crossover Management III, L.L.C. which is the
General Partner of each of TCV III (GP), TCV III, L.P., TCV III (Q), L.P.
and TCV III Strategic Partners, L.P. Mr. Seawell disclaims beneficial
ownership of the shares held by each of TCV III (GP), TCV III, L.P., TCV
III (Q), L.P. and TCV III Strategic Partners, L.P. except to the extent of
his pecuniary interest therein.
(15) Includes 474,894 shares subject to an early exercise stock option
agreement and to a right of repurchase. See "Management--Employment
Contracts and Change of Control Arrangements."
(16) Includes 206,250 shares exercisable within 60 days of March 10, 2000
pursuant to a stock option granted to Mr. Vertrees.
(17) Includes shares and warrants to purchase shares held by PETCO, 20,000
shares held by members of Mr. Woodard's family and 280,000 shares held by
trusts established for the benefit of members of Mr. Woodard's family. Mr.
Woodard is the Senior Vice President, Business Development and a
stockholder of PETCO. Mr. Woodard disclaims beneficial ownership of the
shares and warrants held by PETCO, except to the extent of his pecuniary
interest therein, and of the shares held in trust for members of his
family.
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Description of Capital Stock
Upon completion of this offering, we will be authorized to issue 150,000,000
shares of common stock, $0.0001 par value, and 10,000,000 shares of
undesignated preferred stock, $0.0001 par value.
The following description of our capital stock is not complete and is qualified
in its entirety by reference to our amended and restated certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provisions of
applicable Delaware law.
Common Stock
As of March 10, 2000, there were 45,538,013 shares of common stock outstanding
held of record by Rule 144 stockholders and 802,942 shares of common stock
outstanding held of record by Rule 701 stockholders. In addition, as of March
10, 2000, there were 9,946,038 shares of common stock subject to outstanding
options and 9,006,322 shares of common stock subject to outstanding warrants.
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders and there are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock offered hereby may be entitled, holders of common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by our board of directors out of funds legally
available therefor. See "Dividend Policy." In the event of our liquidation,
dissolution or winding up, holders of our common stock would be entitled to
share in our assets remaining after the payment of liabilities and the
satisfaction of any liquidation preference granted the holders of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of our common stock are, and the shares of common stock
offered by us in this offering, when issued and paid for, will be fully paid
and nonassessable. The rights, preferences and privileges of the holders of
common stock are subject to, and may be harmed by, the rights of the holders of
shares of any series of preferred stock which we may designate in the future.
Preferred Stock
Upon completion of this offering, our board of directors will be authorized,
subject to any limitations prescribed by law, without stockholder approval,
from time to time to issue up to an aggregate of 10,000,000 shares of preferred
stock, in one or more series, each of such series to have such rights and
preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences as shall be determined by our
board of directors. The rights of the holders of our common stock will be
subject to, and may be harmed by, the rights of holders of any preferred stock
that may be issued in the future. Issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of our outstanding voting stock of us. We have no present
plans to issue any shares of preferred stock.
Warrants
Upon completion of this offering, we will have outstanding warrants to purchase
9,006,322 shares of our common stock. These warrants have net exercise
provisions under which the holder may, in lieu of payment of the exercise price
in cash, surrender the warrant and receive a net amount of shares, based on the
fair market value of our common stock at the time of the exercise of the
warrant, after deducting the aggregate exercise price. These warrants expire on
dates ranging from May 2004 to January 2005 and have a weighted average
exercise price of $6.14.
Registration Rights
Pursuant to the terms of an investor rights agreement among us and certain
holders of our securities, after the closing of this offering, the holders of
52,854,732 shares of our outstanding common stock or their permitted
transferees, including shares issuable upon the exercise of certain warrants,
are entitled to certain rights with
65
<PAGE>
respect to the registration of such shares under the Securities Act of 1933, as
amended. These registration rights include the following:
. The holders of at least 50% of the registrable securities may require
us, subject to certain limitations, to file up to 2 registration
statements covering at least 30% of the outstanding registrable
securities where the anticipated aggregate offering price would be at
least $5,000,000.
. The holders of registrable securities are entitled to certain piggyback
registration rights in connection with any registration by us of our
securities for our own account or the account of other security holders.
In the event that we propose to register any shares of common stock
under the Securities Act, the holders of such piggyback registration
rights are entitled to receive notice of such registration and are
entitled to include their shares therein, subject to certain
limitations.
. At any time after we become eligible to file a registration statement on
Form S-3, any holder of our registrable securities may require us to
file up to two registration statements on Form S-3 under the Securities
Act in any 12 month period for a public offering of shares of the
Registrable Securities the reasonably anticipated aggregate offering
price would exceed $500,000, with respect to their shares of common
stock.
Each of the foregoing registration rights is subject to certain conditions and
limitations, including the right of the underwriters in any underwritten
offering to limit the number of shares to be included in such registration. All
registration rights terminate five years from the effective date of this
offering or when the shares held by such holder may be sold under Rule 144
during any three-month period. We are generally required to bear all of the
expenses of all such registrations, except underwriting discounts and
commissions. Registration of any of the shares entitled to registration rights
would result in such shares becoming freely tradable without restriction under
the Securities Act immediately upon effectiveness of such registration. The
investors' rights agreement also contains a commitment of us to indemnify the
holders of registration rights, subject to certain limitations.
Effect of Certain Provisions of Our Certificate of Incorporation and Bylaws,
and the Delaware Anti-Takeover Law
Certain provisions of our amended and restated certificate of incorporation and
amended and restated bylaws, which will become effective upon the closing of
this offering, may have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from attempting to acquire,
control of us. In addition, we are subject to Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years after the date that person
became an interested stockholder, unless:
. prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers; and (b) pursuant to employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or
. at or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66-2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Our amended and restated bylaws provides that, upon the closing of this
offering, the board of directors will be divided into three classes of
directors with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
us and may maintain the incumbency of the board of directors, as the
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classification of the board of directors generally increases the difficulty of
replacing a majority of directors. Our amended and restated bylaws eliminate
the right of stockholders to call special meetings of stockholders. The
authorization of undesignated preferred stock makes it possible for our 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
Petopia.com. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in our control or management. The
amendment of any of these provisions would require approval by holders of at
least 66-2/3% of the outstanding common stock.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Chase Mellon
Shareholder Services.
Listing
Application has been made to have our common stock approved for quotation on
the Nasdaq National Market under the trading symbol "PTOP."
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<PAGE>
Shares Eligible for Future Sale
Prior to this offering, there has been no market for our common stock. Future
sales of substantial amounts of our common stock in the public market could
reduce prevailing market prices. Furthermore, since only a limited number of
shares will be available for sale shortly after this offering because of
certain contractual and legal restrictions on resale, as described below, sales
of substantial amounts of our common stock in the public market after the
restrictions lapse could reduce 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 this 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 (generally, officers, directors or 10% stockholders).
The remaining 46,340,955 shares outstanding are "restricted securities" within
the meaning of Rule 144 under the Securities Act. Restricted shares 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 shares in
the public market, or the availability of such shares for sale, could lower the
market price of the common stock.
Lock-Up Agreement
Our directors, officers and 84.4% of our security holders have entered into
lock-up agreements in connection with this offering generally providing that
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 CIBC World
Markets Corp. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, shares subject to lock-up agreements will not be salable until such
agreements expire or are waived by CIBC World Markets Corp. CIBC World Markets
Corp. has notified us that it currently has no plans to release any portion of
the securities subject to lock-up agreements. Taking into account the lock-up
agreements, and assuming CIBC World Markets Corp. does not release stockholders
from these agreements, the following shares will be eligible for sale in the
public market at the following times:
. Beginning on the effective date of this offering, only the shares sold
in this offering will be immediately available for sale in the public
market except for that portion of the shares sold in the offering
reserved for sale to directors, officers, employees, business associates
and related persons of Petopia.com that will be subject to lock-up
agreements.
. Beginning 180 days after the effective date of this offering,
approximately shares will be eligible for sale pursuant to Rule
701 and Rule 144, assuming no exercise of options, of which all but
shares are held by affiliates.
. An additional shares will be eligible for sale pursuant to Rule
144 after March 10, 2001. Shares eligible to be sold by affiliates
pursuant to Rule 144 are subject to volume restrictions as described
below.
Rules 144, 144(k) and 701
In general, under Rule 144, and beginning after the expiration of the lock-up
agreements 180 days after the effective date of the offerings, a person, or
persons whose shares are combined, 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 the
following:
. one percent of the number of shares of common stock then outstanding
(which will equal approximately shares immediately after
this offering); or
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. 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 certain manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have 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 resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 144. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirement of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply 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 exercised under the
1999 stock plan or any other benefit plan after the effectiveness of such
registration statement will also be freely tradable in the public market,
except that 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 March 10, 2000, there were
outstanding options for the purchase of 9,946,038 shares of our common stock
under the 1999 stock plan and 221,957 shares were available for future grant.
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Underwriting
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., SG Cowen Securities Corporation and SoundView
Technology Group, Inc. are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the
commitment of any other underwriter to purchase shares. Subject to the terms
and conditions of the underwriting agreement, each underwriter has severally
agreed to purchase the number of shares of common stock set forth opposite its
name below:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- ------
<S> <C>
CIBC World Markets Corp. .............................................
SG Cowen Securities Corporation.......................................
SoundView Technology Group, Inc.......................................
----
Total...............................................................
====
</TABLE>
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The shares should be ready for delivery on or about , 2000,
against payment in immediately available funds. The representatives have
advised us that the underwriters propose to offer the shares directly to the
public at the public offering price that appears on the cover page of this
prospectus. In addition, the representatives may offer some of the shares to
other securities dealers at such price less a concession of $ per share. The
underwriters may also allow, and such dealers may re-allow, a concession not in
excess of $ per share to other dealers. After the shares are released for
sale to the public, the representatives may change the offering price and other
selling terms at various times.
We have granted the underwriters an over-allotment option. This option, which
is exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of additional shares from us to
cover over-allotments. If the underwriters exercise all or part of this option,
they will purchase shares covered by the option at the initial public offering
price that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will
be $ and the total proceeds to us will be $ . The
underwriters have severally agreed that, to the extent the over-allotment
option is exercised, they will each purchase a number of additional shares
proportionate to the underwriter's initial amount reflected in the foregoing
table.
The following table provides information regarding the amount of the discount
to be paid to the underwriters by us.
<TABLE>
<CAPTION>
Total without Total with Full
Exercise of Exercise of
Per Over-Allotment Over-Allotment
Share Option Option
----- -------------- ---------------
<S> <C> <C> <C>
Petopia.com............................. $ $ $
==== ==== ====
</TABLE>
We estimate that its total expenses of the offering, excluding the underwriting
discount, will be approximately $ .
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
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<PAGE>
We, our officers and directors, and substantially all securityholders have
agreed to a 180-day "lock up" with respect to shares of common stock and
certain other of our securities that they beneficially own, including
securities that are convertible into shares of common stock and securities that
are exchangeable or exercisable for shares of common stock. This "lock up"
means that, subject to certain exceptions, for a period of 180 days following
the date of this prospectus, we and such persons may not offer, sell, pledge or
otherwise dispose of these securities without the prior written consent of CIBC
World Markets Corp.
The representatives have informed us that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
In connection with our Series A and Series D convertible preferred stock
financings, we agreed to use our best efforts to cause the managing underwriter
of our initial public offering to establish a program whereby the managing
underwriters would offer each of the Series A and Series D convertible
preferred stock investors the opportunity to purchase shares of our common
stock in our initial public offering. The number of shares of the common stock
to be offered to the Series A convertible preferred stock investors pursuant to
this program will be equal to the number of shares equal to the quotient
obtained by dividing $3,000,000 by the gross price per share negotiated by us
and the managing underwriter as reflected in the final prospectus. The number
of shares of the common stock to be offered to the Series D convertible
preferred stock investors pursuant to this program will be equal to 5% of the
primary shares sold by us in the initial public offering, and is subject to
reduction under some circumstances. The Series A and Series D convertible
preferred stock investors have no obligation to purchase any of the shares
offered to them. We intend that all offers to purchase shares pursuant to this
program will be made in compliance with all federal and state securities laws
and all applicable rules and regulations promulgated by the National
Association of Securities Dealers, Inc.
In addition, at our request, the underwriters have reserved for sale up to
shares of common stock for sale to our employees, directors and other
persons associated with us. These reserved shares will be sold at the initial
public offering price that appears on the cover page of the prospectus. The
number of shares available for sale to the general public in this offering will
be reduced to the extent reserved shares are purchased by such persons. The
underwriters will offer to the general public, on the same terms as other
shares offered by this prospectus, any reserved shares that are not purchased
by such persons. We have agreed to indemnify the underwriters against certain
liabilities and expenses, including liabilities under the Securities Act, in
connection with sales of the directed shares.
There is no established trading market for the shares. The offering price for
the shares has been determined by us and the representatives, based on the
following factors:
. our record of operations;
. our current financial position and future prospects;
. the experience of our management;
. the economics of our industry in general; and
. prevailing market and economic conditions.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
. Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the
shares, so long as stabilizing bids do not exceed a specified maximum.
. Over-allotments and syndicate covering transactions--The underwriters
may create a short position in the shares by selling more shares than
are set forth on the cover page of this prospectus. If a short position
is created in connection with the offering, the representatives may
engage in syndicate covering transactions by purchasing shares in the
open market. The representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option.
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. Penalty bids--If the representatives purchase shares in the open market
in a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
A prospectus in electronic format is being made available on an Internet web
site maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on web sites
maintained by each of these dealers. Other than the prospectus in electronic
form, the information on any web site maintained by Wit SoundView or any of its
affiliates is not part of this prospectus or the registration statement of
which this prospectus forms a part, has not been approved and/or endorsed by
Petopia.com or any underwriter in its capacity as underwriter and should not be
relied upon by investors.
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transaction may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
Legal Matters
The validity of the common stock offered hereby will be passed upon for us by
Perkins Coie LLP, Menlo Park, California. As of the consummation of this
offering, an investment partnership associated with, and certain partners of,
Perkins Coie LLP will own an aggregate of 67,837 shares and a warrant to
purchase 1,837 shares of our common stock. In addition, Mark S. Albert, our
Secretary, is a partner of Perkins Coie LLP and that firm's investment
partnership. Certain legal matters will be passed upon for the underwriters by
Cahill Gordon & Reindel, New York, New York.
Experts
Ernst & Young LLP, independent auditors, have audited our financial statements
and the financial statements of 1316703 Ontario Limited, to the extent
indicated and as set forth in their reports. We have included our financial
statements and the financial statements of 1316703 Ontario Limited in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's reports, given on their authority as experts in accounting and
auditing.
Goldstein Golub Kessler LLP, independent auditors for C/R Catalog Corp., Inc.,
have audited C/R Catalog Corp.'s financial statements for the fiscal years
ended June 27, 1998 and June 26, 1999 as set forth in their report. We have
included the financial statements in the prospectus and elsewhere in the
registration statement in reliance on Goldstein Golub Kessler LLP's report,
given on their authority as experts in accounting and auditing.
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<PAGE>
Additional Information
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered hereby. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits thereto. For further information with respect to
Petopia.com and such common stock, we refer you to the registration statement
and to the exhibits filed therewith. Statements contained in this prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement may be inspected by anyone
without charge at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all
or any portion of the registration statement may be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed fees. Please call the SEC at 1-800-SEC-0330 for
further information on the Public Reference Room. The SEC maintains a web site
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC. After the offering, we expect to provide annual reports to our
stockholders that include financial information examined and reported on by our
independent public accountant.
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PETOPIA.COM, Inc.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Petopia.com, Inc. Financial Statements
Report of Ernst & Young LLP, Independent Auditors......................... 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 Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Balance Sheet...................... F-21
Unaudited Pro Forma Condensed Combined Statement of Operations............ F-22
Notes to Unaudited Pro Forma Condensed Combined Financial Information..... F-23
1316703 Ontario Limited (Operating as Paw.net) Financial Statements
Report of Ernst & Young LLP, Independent Auditors......................... F-25
Balance Sheet............................................................. F-26
Statement of Operations................................................... F-27
Statement of Shareholders' Equity......................................... F-28
Statement of Cash Flows................................................... F-29
Notes to Financial Statements............................................. F-30
C/R Catalog Corp. Financial Statements
Independent Auditor's Report.............................................. F-33
Balance Sheets............................................................ F-34
Statements of Operations.................................................. F-35
Statement of Stockholders' Deficiency..................................... F-36
Statements of Cash Flows.................................................. F-37
Notes to Financial Statements............................................. F-38
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Petopia.com, Inc.
We have audited the accompanying balance sheet of Petopia.com, Inc. as of
January 1, 2000 and the related statements of operations, stockholders' equity,
and cash flows for the period from March 9, 1999 (inception) to January 1,
2000. 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 in accordance with auditing standards generally accepted
in the United States. Those standards 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. 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 audit provides 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 Petopia.com, Inc. at January
1, 2000 and the results of its operations and its cash flows for the period
from March 9, 1999 (inception) to January 1, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
San Jose, California
February 18, 2000
F-2
<PAGE>
PETOPIA.COM, INC.
BALANCE SHEET
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity at
January 1, January 1,
2000 2000
---------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................. $ 22,982
Short-term investments................................ 13,546
Accounts receivable................................... 297
Inventory............................................. 227
Prepaid advertising................................... 5,387
Other current assets.................................. 94
--------
Total current assets.............................. 42,533
Property and equipment, net........................... 3,146
Restricted cash....................................... 1,249
Deferred charges...................................... 5,258
Other assets.......................................... 654
--------
Total assets...................................... $ 52,840
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................... $ 7,146
Accrued payroll and related benefits.................. 308
Accrued marketing expenses............................ 777
Payables to related parties........................... 1,038
Other accrued liabilities............................. 1,934
Deferred revenue...................................... 333
--------
Total current liabilities......................... 11,536
Commitments and contingencies (Note 10)
Stockholders' equity
Convertible preferred stock, $0.0001 par value:
Authorized shares--42,500,000; 10,000,000 pro forma
Issued and outstanding shares--27,739,474; none pro
forma
(aggregate liquidation preference of $92,766)....... 3 $ --
Common stock, $0.0001 par value:
Authorized shares--65,000,000; 150,000,000 pro forma
Issued and outstanding shares--9,793,796; 37,533,270
pro forma........................................... 1 4
Additional paid-in capital............................ 84,762 84,762
Notes receivable from stockholders.................... (293) (293)
Deferred stock compensation........................... (2,304) (2,304)
Accumulated deficit................................... (40,865) (40,865)
-------- --------
Total stockholders' equity........................ 41,304 $ 41,304
-------- ========
Total liabilities and stockholders' equity........ $ 52,840
========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PETOPIA.COM, INC.
STATEMENT OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Period from
March 9, 1999
(Inception)
to
January 1,
2000
-------------
<S> <C>
Net sales....................................................... $ 3,452
Cost of sales:
Product and shipping costs..................................... 5,616
Equity-based charges........................................... 23
----------
Total cost of sales......................................... 5,639
----------
Gross margin.................................................... (2,187)
----------
Operating expenses:
Marketing and sales (1)........................................ 24,215
Content and product development (2)............................ 7,666
General and administrative (3)................................. 4,016
Equity-based charges........................................... 3,517
----------
Total operating expenses.................................... 39,414
----------
Loss from operations............................................ (41,601)
Interest income................................................. 737
Interest expense................................................ (1)
----------
Net loss........................................................ $ (40,865)
==========
Basic and diluted net loss per equivalent share................. $ (10.84)
==========
Pro forma basic and diluted net loss per equivalent share
(unaudited).................................................... $ (2.50)
==========
Shares used to compute basic and diluted net loss per equivalent
share.......................................................... 3,770,437
==========
Shares used to compute pro forma basic and diluted net loss per
equivalent share (unaudited)................................... 16,339,184
==========
</TABLE>
- --------
(1) Excludes $2,845 related to equity-based charges
(2) Excludes $70 related to equity-based charges
(3) Excludes $602 related to equity-based charges
See accompanying notes.
F-4
<PAGE>
PETOPIA.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Additional Receivable Deferred Total
------------------ ------------------- Paid-In From Stock Accumulated Stockholders'
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Equity
---------- ------- ---------- ------- ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock and
restricted
common stock to
founders for
certain assets
and cash, net of
issuance costs.. -- $ -- 8,203,502 $ 1 $ 639 $ -- $ (211) $ -- $ 429
Net cash proceeds
from issuance of
Series A
preferred stock
and warrants.... 9,397,000 1 -- -- 9,377 -- -- -- 9,378
Issuance of
Series A
preferred stock
and warrants on
conversion of
promissory
notes........... 358,000 -- -- -- 358 -- -- -- 358
Exercise of
options to
purchase common
stock for cash
and notes
receivable from
stockholders.... -- -- 1,373,125 -- 344 (293) -- -- 51
Issuance of
common stock for
cash and
services........ -- -- 1,714,110 -- 928 -- -- -- 928
Compensation
related to
acceleration and
repurchase of
unvested shares
of common
stock........... -- -- -- -- 370 -- 104 -- 474
Amortization of
unearned
compensation.... -- -- -- -- -- -- 27 -- 27
Repurchase of
common stock for
cash............ -- -- (1,496,941) -- (374) -- -- -- (374)
Net cash proceeds
from issuance of
Series B
preferred
stock........... 7,736,345 1 -- -- 19,901 -- -- -- 19,902
Net cash proceeds
from issuance of
Series C
preferred
stock........... 3,017,175 -- -- -- 7,700 -- -- -- 7,700
Issuance of
Series C stock
warrants in
connection with
alliance
agreement....... -- -- -- -- 5,843 -- -- -- 5,843
Net cash proceeds
from issuance of
Series D
preferred
stock........... 6,270,262 1 -- -- 35,027 -- -- -- 35,028
Issuance of
Series C
preferred stock
in connection
with alliance
agreement....... 960,692 -- -- -- 2,181 -- -- -- 2,181
Deferred stock
compensation
related to stock
options......... -- -- -- -- 2,468 -- (2,468) -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 244 -- 244
Net loss and
comprehensive
net loss........ -- -- -- -- -- -- -- (40,865) (40,865)
---------- ------- ---------- ------- ------- -------- ---------- --------- ---------
Balance at
January
1, 2000......... 27,739,474 $ 3 9,793,796 $ 1 $84,762 $ (293) $ (2,304) $ (40,865) $ 41,304
========== ======= ========== ======= ======= ======== ========== ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PETOPIA.COM, INC.
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period from
March 9, 1999
(Inception) to
January 1,
2000
--------------
<S> <C>
Operating activities
Net loss....................................................... $(40,865)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization of property and equipment....... 356
Amortization of intangibles................................... 378
Equity-based charges.......................................... 3,540
Loss on disposal of fixed assets.............................. 12
Changes in operating assets and liabilities:
Accounts receivable.......................................... (297)
Inventory.................................................... (227)
Prepaid advertising.......................................... (5,387)
Other current assets......................................... (94)
Accounts payable............................................. 7,146
Accrued payroll and related benefits......................... 308
Accrued marketing expenses................................... 777
Payables to related parties.................................. 666
Other accrued liabilities.................................... 1,934
Deferred revenue............................................. 333
--------
Net cash used in operating activities.......................... (31,420)
--------
Investing activities
Increase in restricted cash.................................... (1,249)
Increase in other assets....................................... (95)
Purchases of property and equipment, net....................... (3,502)
Payments for covenant not to compete........................... (335)
Purchases of short-term investments............................ (13,546)
--------
Net cash used in investing activities.......................... (18,727)
--------
Financing activities
Proceeds from issuance of promissory notes..................... 408
Repayment of promissory note................................... (50)
Proceeds from issuance of common stock......................... 1,137
Repurchase of common stock..................................... (374)
Proceeds from issuance of preferred stock...................... 72,008
--------
Net cash provided by financing activities...................... 73,129
--------
Net increase in cash and cash equivalents...................... 22,982
Cash and cash equivalents at beginning of period............... --
--------
Cash and cash equivalents at end of period..................... $ 22,982
========
Supplemental disclosures of non-cash financing activities
Common stock issued in exchange for notes receivable from
stockholders.................................................. $ 293
Common stock issued for assets of 1316703 Ontario Limited...... $ 453
Common stock issued to a vendor for services................... $ 23
Series C preferred stock issued in connection with alliance
agreement..................................................... $ 2,181
Common stock issued to consultants for services................ $ 6
Compensation related to acceleration of vesting of common
stock......................................................... $ 370
Series C preferred stock warrants issued in connection with
alliance agreement............................................ $ 5,843
Series A preferred stock issued on conversion of promissory
notes......................................................... $ (358)
</TABLE>
See accompanying notes.
F-6
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS
January 1, 2000
1. Organization
Petopia.com, Inc. (the Company) was incorporated in Delaware on March 9, 1999
under the name Spot & Jack, Inc. and changed its name to Petopia.com, Inc. on
May 3, 1999. The Company's predecessor, 1316703 Ontario Limited, a Canadian
development stage company, operating as Paw.net was incorporated on September
28, 1998. On April 15, 1999, the assets of 1316703 Ontario Limited were
distributed to its shareholders, who then transferred the assets to the Company
in exchange for shares of the Company's common stock. The Company publicly
launched its online retail store in August 1999, which sells pet food and
supplies, and other pet-related products.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents, Short-Term Investments, and Restricted Cash
The Company invests its excess cash in money market accounts and debt
instruments. The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents. Investments
with an original maturity at the time of purchase of over three months are
classified as short-term investments because management intends to use the
proceeds from the sale of the short-term investments held as of January 1, 2000
for current operations.
The Company classifies its investments as available-for-sale. The investments
are recorded at fair value based on quoted market prices with unrealized gains
and losses, which are considered to be temporary, recorded as a component of
stockholders' equity and comprehensive income (loss).
Restricted cash represents amounts held in escrow to be paid to a founder (see
Note 4) and certificates of deposit with financial institutions that secure
standby letters of credit related to the Company's lease agreement, fulfillment
agreement, and credit card accounts.
Segment and Geographic Information
The Company operates in one business segment across domestic markets and
currently does not operate internationally.
Concentrations of Supplier, Product, and Credit Risk
Currently, the Company relies on two suppliers, one of which is also a related
party (see Notes 4 and 12), for the majority of its product fulfillment. As a
result, should the Company's current suppliers be unable to fulfill product
orders for the Company on a timely basis, operating results may be adversely
impacted.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents, short-
term investments, and accounts receivable.
The Company places its cash equivalents and short-term investments with
financial institutions that management believes are creditworthy. The Company
invests its excess cash in money market funds and debt instruments of
governmental agencies and corporations with strong credit ratings. The Company
has established guidelines relative to creditworthiness, diversification and
maturities that attempt to maintain safety and liquidity. To date, the Company
has not experienced any significant losses on its cash equivalents or short-
term investments.
Accounts receivable consists of amounts due from credit card companies. The
Company obtains credit card information and authorization from the credit card
companies prior to shipment. The Company does not require collateral from its
customers. To date, the Company has not experienced any significant losses with
respect to its accounts receivable.
F-7
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Inventory
Inventory consists exclusively of finished goods and is stated at the lower of
cost or market. Cost is determined on the first in, first out method.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation and
amortization. Property and equipment, excluding leasehold improvements, are
depreciated for financial reporting purposes using the straight-line method
over their estimated useful life of three years. Leasehold improvements are
amortized using the straight-line method over the shorter of the useful lives
of the assets or the terms of the leases.
Long-Lived Assets
In accordance with Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," the carrying value
of intangible assets and other long-lived assets is reviewed on a regular basis
for the existence of facts or circumstances, both internally and externally,
that may suggest impairment. To date, no such impairment has been indicated.
Whenever events or changes in circumstances indicate that assets may be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets, the assets will be
written down to their fair value based on discounted cash flows or appraised
values as appropriate. The cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary assumptions and
projections at the time.
Revenue Recognition
Revenues on product sales, net of discounts, coupons, and allowances, are
recognized upon shipment of the related goods. Outbound shipping revenue is
included in net sales when the product is shipped. For the period from March 9,
1999 (inception) to January 1, 2000, outbound shipping revenues included in net
sales amounted to $667,000. The Company records an allowance for estimated
sales returns in the period of sale.
Cost of Sales
Cost of sales consists primarily of the cost of products sold to customers and
costs of outbound and inbound shipping. For the period from March 9, 1999
(inception) to January 1, 2000, costs of outbound and inbound shipping included
in cost of sales amounted to $1,806,000. Additionally, cost of sales includes
equity-based charges, as described below, to the extent stock issuances or
amortization of deferred costs resulting from stock issuances are considered to
be related to product purchases.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense was $14,860,000
for the period from March 9, 1999 (inception) to January 1, 2000.
Fulfillment Expense
The Company includes fulfillment expense in marketing and sales expense in the
accompanying statement of operations.
Content and Product Development
Content and product development expenses consist primarily of payroll and
related expenses for website development, systems personnel, consultants, and
other website costs. As the Company believes its website is subject to
continual and substantial change, expenditures relating to content and product
development are expensed as incurred.
F-8
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Equity-Based Charges
The Company has elected to account for its employee stock plans in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25), and to adopt the disclosure-only provisions as required
under Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123). Under APB 25, compensation expense is
based on the difference between the fair value of the Company's stock on the
date of grant and the exercise price.
The Company accounts for stock awards to nonemployees in accordance with the
provisions of FAS 123 and Emerging Issues Task Force Consensus No. 96-18
"Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services" (EITF 96-18).
Under FAS 123 and EITF 96-18, stock awards issued to nonemployees are accounted
for at their deemed fair value based on independent valuations or by using the
Black-Scholes method, as appropriate.
Start-up Activities
The Company has adopted Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" (SOP 98-5). 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 on the Company's financial position,
results of operations, or cash flows.
Income Taxes
The Company accounts for income taxes under the liability method whereby
deferred tax asset or liability account balances are calculated at the balance
sheet date using current tax laws and rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Comprehensive Net Loss
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS 130). FAS 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income (loss) be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company's
comprehensive net loss was the same as its net loss for the period from March
9, 1999 (inception) to January 1, 2000.
Net Loss Per Equivalent Share
Basic and diluted net loss per equivalent share is computed using the weighted
average number of shares of common stock outstanding. Potential common shares
from conversion of convertible preferred stock and exercise of stock options
and warrants are excluded from diluted net loss per equivalent share because
they would be antidilutive.
The total number of shares excluded from the calculation of diluted net loss
per equivalent share was as follows (on an as-converted-to-common basis as of
January 1, 2000):
<TABLE>
<CAPTION>
Total
Shares
----------
<S> <C>
Common stock, subject to repurchase............................ 4,255,263
Preferred stock................................................ 27,739,474
Common stock options outstanding............................... 4,691,191
Warrants to purchase preferred stock........................... 6,919,987
----------
43,605,915
==========
</TABLE>
F-9
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Pursuant to the Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 98, common stock and convertible preferred stock issued for
nominal consideration, prior to the anticipated effective date of the Company's
proposed initial public offering (IPO), are included in the calculation of
basic and diluted net loss per equivalent share as if they were outstanding for
all periods presented. To date, the Company has not had any issuances or grants
for nominal consideration.
Pro forma basic and diluted net loss per equivalent share is calculated
assuming the conversion of convertible preferred stock into an equivalent
number of shares of common stock as if the shares had converted on the dates of
their issuances.
A reconciliation of shares used in the calculation of basic and diluted and pro
forma basic and diluted net loss per equivalent share follows:
<TABLE>
<CAPTION>
Period from
March 9, 1999
(Inception)
to
January 1,
2000
-------------
<S> <C>
Basic and diluted:
Weighted average shares of common stock outstanding......... 6,708,144
Less: weighted average shares subject to repurchase........ (2,937,707)
----------
Shares used to compute basic and diluted net loss per
equivalent share........................................... 3,770,437
Pro forma:
Pro forma adjustments to reflect weighted effect of assumed
conversion of convertible preferred stock: (unaudited)
Series A preferred stock................................... 6,507,195
Series B preferred stock................................... 3,954,132
Series C preferred stock................................... 1,532,646
Series D preferred stock................................... 574,774
----------
Shares used to compute pro forma basic and diluted net loss
per equivalent share (unaudited)........................... 16,339,184
==========
</TABLE>
Fiscal Year
The Company operates on a 52/53 week fiscal year. The fiscal period from March
9, 1999 (inception) to January 1, 2000 represents 43 weeks of operations.
Fair Value of Financial Instruments
The carrying values of the Company's cash and cash equivalents, accounts
receivable, accounts payable, and accrued liabilities approximate their fair
values due to their short maturities. Short-term investments are recorded at
fair value. The carrying values of notes receivable from stockholders
approximate their fair values. The estimated fair values may not be
representative of actual values of the financial instruments that could have
been realized as of the period end or that will be realized in the future.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging
F-10
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
activities. The Company is required to adopt FAS 133 as amended by Statement of
Financial Accounting Standards No. 137 "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133" (FAS 137) for the year ending December 29, 2001. The Company believes that
the adoption of FAS 137 will not have a significant impact on the Company's
operating results or cash flows, as the Company has not yet entered into any
derivative instrument agreements.
3. Business Combinations
On April 15, 1999, the Company acquired certain assets and intellectual
properties from the shareholders of 1316703 Ontario Limited, a Canadian
development stage company, operating as Paw.net. The acquisition was accounted
for under the purchase method of accounting and included the issuance of
6,459,752 shares of common stock with an estimated fair value of approximately
$504,000. Of the shares issued, 2,703,902 shares with an estimated fair value
of $211,000 are subject to repurchase and the continued employment of the
stockholder with the Company for a period of 36 months. Accordingly, $211,000
has been recorded as deferred compensation and is being amortized over 36
months. The remaining fair value of the purchase consideration was allocated to
tangible assets of $63,000 and intangible assets of $230,000 based on their
relative fair market values. Identifiable intangible assets are being amortized
over one year.
In December 1999, the Company entered into an agreement and plan of merger with
C/R Catalog Corp. (d/b/a In the Company of Dogs or ICOD), a Delaware
corporation, for $600,000 in cash; a $2,000,000 promissory note, secured by
assets of the Company, bearing an interest rate of 7%, due at the earlier of a)
two days following the close of an underwritten initial public offering of the
Company's common stock or b) June 15, 2000; 2,014,607 shares of Series E
convertible preferred stock; and warrants to purchase 69,647 shares of Series E
convertible preferred stock. The transaction closed in January 2000 and will be
accounted for as a purchase transaction.
4. Significant Agreements
Fulfillment Agreement With Loveland Pet Products, Inc.
In May 1999, the Company entered into an exclusive Fulfillment Agreement (the
Fulfillment Agreement) with Loveland Pet Products, Inc. (Loveland). The two-
year agreement provides that Loveland will fulfill exclusively (relative to the
Company's online competitors) for the Company, the Company can sublease space
in Loveland's distribution centers located in Ohio, Loveland will provide
inventory and distribution support to the Company, and Loveland will provide
the Company with discounted pricing.
In consideration of the services provided by Loveland, the Company is to pay
certain fulfillment costs as defined under the Fulfillment Agreement. In
addition, the Company issued 234,000 shares of its common stock to Loveland
upon the signing of the agreement. The fair value of the common stock was
estimated at $23,000 and was recorded as cost of sales. Finally, the Company is
required to issue warrants to purchase up to 585,000 shares of common stock
over the two-year agreement at six-month intervals contingent upon Loveland's
fulfillment performance over each six-month period. In accordance with EITF 96-
18, the Company will allocate the fair value of the common stock warrant
determined at the time each specific warrant is issued to cost of sales,
fulfillment expense, and marketing and sales expense based on an independent
valuation of the Fulfillment Agreement.
Alliance Agreement With PETCO Animal Supplies, Inc.
In July 1999, the Company entered into an Alliance Agreement (the Agreement)
with PETCO Animal Supplies, Inc. (PETCO), a related party (see Note 12), that
states that the Company is PETCO's exclusive online partner for retail sales of
pet food and supplies. The Agreement provides that PETCO, among other
F-11
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
things, is to provide the Company with certain mailing, online, offline, and
in-store marketing programs to allow the Company to sublease space in a number
of its distribution centers located throughout the U.S., to provide inventory
and distribution support to the Company, and to provide the Company with
pricing and terms in purchasing inventory that are substantially equivalent to
terms and pricing received by PETCO.
In consideration of the Agreement with PETCO, the Company agreed to pay,
subject to Company approval, up to $250,000 annually in cash to reward PETCO
employees that support certain marketing efforts on the Company's behalf. In
addition, the Company is obligated to pay PETCO a referral fee as defined under
the Agreement for certain customer referrals it makes to the Company. Finally,
the Company issued three warrants to purchase 5,119,987 shares of Series C
preferred stock at exercise prices ranging from $5.00 to $10.00 per share and
is also required to issue up to 4,803,458 shares of Series C preferred stock as
the Company achieves certain revenue thresholds as defined under the Agreement.
In accordance with EITF 96-18, the Company estimated the fair value of the
warrants to purchase Series C preferred stock at $5,843,000, based upon an
independent valuation, and recorded the amount as a deferred charge. The
Company is amortizing the fair value of the warrants over the five-year term of
the Agreement and recording the amortization to cost of sales, fulfillment
expense and marketing and sales expense based upon an independent valuation of
the Agreement. For the period from March 9, 1999 (inception) to January 1,
2000, $585,000 related to the warrants was amortized to marketing and sales.
The preferred stock will be issued and recorded at its estimated fair value
based upon independent valuations upon achievement of each of the revenue
thresholds. The amount will be charged to cost of sales, fulfillment expense
and marketing and sales expense based upon an independent valuation of the
Agreement. In December 1999, the Company issued 960,692 shares of Series C
preferred stock with an estimated fair value of $2,181,000 on the date the
first revenue threshold was met, and recorded this amount to marketing and
sales expense.
Covenant Not to Compete
In June 1999, the Company entered into a noncompete agreement upon the
termination of a founder's employment with the Company that prohibits the
founder from competing in a business similar to that of the Company's for a
period of two years. In consideration for the noncompete agreement, the Company
is to pay the founder a total of $707,000 over the two-year term of the
noncompete agreement of which $335,000 was paid in the period from March 9,
1999 (inception) to January 1, 2000. The Company is amortizing the $707,000
over the two-year life of the noncompete agreement and recorded $206,000 as
expense for the period from March 9, 1999 (inception) to January 1, 2000.
Online Sales and Marketing Agreements
The Company has significant sales and marketing agreements with some of the
larger, more recognized Internet portals. As of January 1, 2000 the agreements
have remaining lives ranging from six to twelve months, and the Company has a
cash commitment of at least $1,782,000. The costs associated with these
agreements are recognized on a straight-line basis over the term of the related
agreements as services are received. For the period from March 9, 1999
(inception) to January 1, 2000, the Company recognized $2,276,000 of marketing
and sales expense under these agreements.
F-12
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Investments
Investments as of January 1, 2000 consist of the following (in thousands):
<TABLE>
<CAPTION>
Amortized
Cost
---------
<S> <C>
Commercial paper................................................... $18,955
Municipal bonds.................................................... 13,546
-------
32,501
Less amounts classified as:
Cash and cash equivalents......................................... 18,955
-------
Short-term investments........................................... $13,546
=======
</TABLE>
As of January 1, 2000, the contractual maturity of the Company's short-term
investments ranged from July 2020 to September 2047. According to the terms of
the underlying securities, the interest rate is adjusted monthly. Realized and
unrealized gains and losses for the period from March 9, 1999 (inception) to
January 1, 2000 were insignificant.
6. Property and Equipment, Net
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
January 1,
2000
----------
<S> <C>
Software and computers............................................ $2,754
Furniture and equipment........................................... 394
Leasehold improvements............................................ 354
------
3,502
Accumulated depreciation and amortization......................... (356)
------
$3,146
======
</TABLE>
7. Stockholders' Equity
Convertible Preferred Stock
A summary of convertible preferred stock is as follows:
<TABLE>
<CAPTION>
Authorized and Issued and Liquidation
Designated Outstanding Preference
-------------- ----------- -----------
<S> <C> <C> <C>
Series A.............................. 11,555,000 9,755,000 $ 9,755,000
Series B.............................. 8,000,000 7,736,345 19,999,999
Series C.............................. 12,940,620 3,977,867 10,283,582
Series D.............................. 10,000,000 6,270,262 52,727,573
---------- ---------- -----------
Total............................... 42,495,620 27,739,474 $92,766,154
========== ========== ===========
</TABLE>
The holders of Series A, B, C, and D stock are entitled to noncumulative
dividends of $0.08, $0.206816, $0.206816, and $0.448488 per share,
respectively, when and if declared by the Board of Directors.
Each share of preferred stock shall be convertible at the option of the holder
into one share of common stock, subject to adjustments for future dilution.
Each share of preferred stock automatically converts into common stock at the
then applicable conversion rate upon the earlier of (a) the public offering of
the Company's
F-13
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
common stock with aggregate proceeds in excess of $20,000,000 and a public
offering price which is not less than $8.40915 per share; (b) the date on which
the Company obtains the consent of a majority of the then outstanding shares of
preferred stock, voting together as a class and a majority of the then
outstanding shares of Series D preferred stock, voting as a separate class; or
(c) the date upon which a majority of the outstanding shares of preferred stock
convert into common stock. The Company has fully reserved shares of common
stock for issuance upon the conversion of the convertible preferred stock.
In the event of liquidation, in addition to the amounts set forth in the table
above, the holders of preferred stock are entitled to all declared but unpaid
dividends for each outstanding share of Series A, B, C, and D preferred stock.
Any remaining assets will be distributed among the common stockholders on a pro
rata basis.
Prior to initiating the sale or disposition of all, or substantially all, of
the Company's business or a reorganization, merger, or consolidation with any
other corporation in which, in each case, more than 50% of the voting power of
the corporation is disposed of, the Company must provide notice to each of the
convertible preferred stockholders. The notice must be provided prior to the
stockholders' meeting called to approve such transaction.
Warrants to purchase the following classes of stock are outstanding as of
January 1, 2000:
<TABLE>
<CAPTION>
Number of
shares Contractual
Date of underlying Exercise Life
Grant warrants Price (In Years)
------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Series A preferred stock............. 05/99 1,800,000 $ 1.75 5
Series C preferred stock............. 07/99 1,637,486 $ 5.00 5
Series C preferred stock............. 07/99 1,705,715 $ 7.50 5
Series C preferred stock............. 07/99 1,776,786 $10.00 5
</TABLE>
Common Stock
During 1999, 8,203,502 shares of common stock were issued to the Company's
founders and certain other investors at $0.078 per share in exchange for cash,
assets, and services rendered. The outstanding shares are subject to certain
transfer restrictions. In addition, 3,412,652 of these shares are subject to
repurchase at the issuance price upon the occurrence of certain events,
including termination of employment. The Company's right of repurchase expires
ratably over three years. In connection with the termination of a founder (see
Note 4), the Company repurchased 1,496,941 shares of common stock at $0.25 per
share. The Company fully amortized deferred compensation of $104,000 related to
the shares issued to the founder and recorded $258,000 in additional stock
compensation related to the accelerated vesting of the shares and for holding
the shares for less than six months.
At January 1, 2000, 4,255,263 shares were subject to repurchase and an
aggregate of 48,631,385 shares of common stock were reserved for issuance upon
the exercise of the warrants, conversion of preferred stock, exercise of
outstanding stock options, and future issuance of stock options.
8. Employee Stock Plans
In April 1999, the Board of Directors approved the 1999 stock option plan (the
1999 Plan) that authorized the grant of options to purchase shares of the
Company's common stock. At January 1, 2000, the total authorized number of
shares under the 1999 Plan was 7,500,000. The plan is administered by the Board
of Directors and provides for incentive stock options or nonqualified stock
options to be issued to employees, directors, and consultants of the Company.
Prices for incentive stock options may not be less than the fair value of the
common stock at the date of grant. Prices for nonqualified stock options may
not be less than 85% of the fair value of the common stock at the date of
grant.
F-14
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
The options must vest at a rate of at least 20% per year over five years from
the date the option was granted. Generally, the Board of Directors has granted
stock options with a vesting schedule of 25% after one year and 1/48th each
month thereafter. All options under the 1999 Plan expire ten years after their
grant. The 1999 Plan also provides for restricted stock awards. The purchase
price of restricted stock under these awards can not be less than 85% of the
fair market value of the stock on the date the award is made or at the time the
purchase is consummated.
During the period from March 9, 1999 (inception) to January 1, 2000, the
Company recorded aggregate deferred stock compensation of approximately
$2,468,000, representing the difference between the grant price and the deemed
fair value of the Company's common stock options granted during these periods.
The amortization of deferred stock compensation is being charged to operations
and is being amortized over the vesting period of the options, which is
typically four years. For the period from March 9, 1999 (inception) to January
1, 2000, the amortized expense was approximately $244,000.
The following is a summary of activity with respect to the 1999 Plan.
<TABLE>
<CAPTION>
Options Outstanding
and Exercisable
--------------------
Weighted
Options Number Average
Available of Exercise
for Grant Shares Price
---------- ---------- --------
<S> <C> <C> <C>
Balance at March 9, 1999 (inception)........ -- -- $ --
Options authorized......................... 7,500,000 -- --
Restricted stock granted................... (540,610) -- --
Options granted............................ (6,609,019) 6,609,019 0.54
Options exercised.......................... -- (1,408,625) 0.21
Options canceled........................... 509,203 (509,203) 0.22
---------- ---------- -----
Balance at January 1, 2000.................. 859,574 4,691,191 $0.68
========== ========== =====
</TABLE>
The following table summarizes information about stock options that were
outstanding and exercisable at January 1, 2000:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
--------------------------------------------
Weighted
Number Average Remaining
of Weighted Average Contractual Life
Range of Exercise Prices Shares Exercise Price (In Years)
------------------------ --------- ---------------- -----------------
<S> <C> <C> <C>
$0.10-$0.50..................... 1,565,797 $0.12 9.40
$0.75-$1.25..................... 3,125,394 0.96 9.77
--------- ----- ----
Total......................... 4,691,191 $0.68 9.65
========= ===== ====
</TABLE>
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net loss is required under FAS 123 and is
calculated as if the Company had accounted for its employee stock options
granted during the period from March 9, 1999 (inception) to January 1, 2000
under the fair value method of FAS 123. The fair value for these options was
estimated at the date of grant
F-15
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
using the Black Scholes model with the following weighted average assumptions:
volatility of 75%, an interest rate of 6%, a dividend yield of 0% and an
expected life of 3.5 years.
As discussed above, the option valuation models used under FAS 123 were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected life of the option. Because the Company's employee stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had compensation cost
for the Company's stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method of FAS 123, the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated below (in thousands, except per
share data):
<TABLE>
<S> <C>
Net loss:
As reported...................................................... $(40,865)
Pro forma........................................................ $(41,399)
Basic and diluted net loss per share:
As reported...................................................... $ (10.84)
Pro forma........................................................ $ (10.98)
</TABLE>
The pro forma impact of options on the net loss for the period from March 9,
1999 (inception) to January 1, 2000 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
options vesting as well as the impact of multiple years of stock option
grants.
The options' weighted average grant date fair value, which is the value
assigned to the options under FAS 123, was $0.65 for options granted during
1999.
Notes Receivable From Stockholders
In June 1999, the Company issued common stock to an officer of the Company in
return for a full recourse note receivable for $113,000. The note bears an
interest rate of 6% per annum and is due in June 2004.
In October 1999, the Company issued common stock to certain employees in return
for full recourse notes receivable for $180,000. The notes bear interest at the
rate of 6% per annum and are due in October 2004.
F-16
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Income Taxes
There has been no provision for U.S. federal or state income taxes for the
period from March 9, 1999 (inception) to January 1, 2000 as the Company has
incurred operating losses for which it is currently unable to recognize a
benefit.
A reconciliation of income taxes at the statutory federal income tax rate to
net income taxes included in the accompanying statement of operations is as
follows:
<TABLE>
<CAPTION>
Period from
March 9, 1999
(Inception)
to January 1,
2000
-------------
<S> <C>
U.S. federal tax benefit at statutory rate.................... (34.0)%
State taxes................................................... (5.3)
Valuation allowance........................................... 36.4
Nondeductible equity-based charges............................ 2.9
----------
-- %
==========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
January 1,
2000
----------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards................................. $ 13,408
Accrued expenses and reserves.................................... 1,452
--------
Total deferred tax assets....................................... 14,860
Valuation allowance............................................... (14,860)
--------
Net deferred tax assets......................................... $ --
========
</TABLE>
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and the amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance. The valuation allowance
increased by $14,860,000 during the period from March 9, 1999 (inception) to
January 1, 2000.
As of January 1, 2000, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $33,663,000, which
expire in 2019 and 2007, respectively.
Utilization of the Company's net operating loss carryforwards may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of net operating loss carryforwards
before utilization.
10. Commitments and Contingencies
The Company leases its primary facility under an operating lease that expires
in 2004. Rental expense was approximately $275,000 for the period from March 9,
1999 (inception) to January 1, 2000. The Company signed a standby letter of
credit totaling approximately $452,000 in connection with the initial security
deposit for the facility.
F-17
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
The Company has also issued standby letters of credit as collateral for a
credit card account and amounts owed to a supplier under a fulfillment
agreement. The standby letters of credit are backed by certificates of deposit
(the carrying amounts approximate fair values) which are included in restricted
cash as of January 1, 2000.
Future minimum lease payments under noncancelable operating leases are as
follows as of January 1, 2000 for each of the following fiscal years (in
thousands):
<TABLE>
<S> <C>
2000................................................................. $ 664
2001................................................................. 648
2002................................................................. 665
2003................................................................. 681
2004................................................................. 409
------
Total minimum payments............................................... $3,067
======
</TABLE>
Legal Matters
In the normal course of business, the Company from time to time receives
inquiries with regard to various legal proceedings. In the opinion of
management, any liability resulting from these inquiries has been accrued and
will not have a material adverse effect on the Company's financial position or
results of operations.
11. 401(k) Plan
During 1999, the Company adopted a 401(k) Plan that allows eligible employees
to make contributions subject to certain limitations. The Company may make
discretionary contributions based on profitability as determined by the Board
of Directors. No amount was contributed to the plan by the Company during the
period from March 9, 1999 (inception) to January 1, 2000.
12. Related Party Transactions
Cost of sales and marketing and sales expense for the period from March 9, 1999
(inception) to January 1, 2000 includes $729,000 related to product purchases
and marketing and sales expenses under the Agreement with PETCO. Payables to
related parties represent $666,000 due to PETCO and $372,000 due to a founder
under a covenant not to compete agreement.
13. Subsequent Events (Unaudited)
In January 2000, the merger of the Company with ICOD, described in Note 3,
closed. The transaction will be accounted for as a purchase. The estimated
purchase price is $14,250,000. The fair value of purchase consideration will be
allocated to tangible and identifiable intangible assets acquired and
liabilities assumed based on their relative fair market values. The excess of
fair value of purchase consideration over tangible and identifiable intangible
assets acquired and liabilities assumed will be allocated to goodwill, which is
expected to be amortized on a straight-line basis over five years. Subsequent
to the acquisition, the Company repaid certain of ICOD's notes and loans
payable of $1,209,000, including interest.
In January 2000, the Company issued 3,567,542 shares of Series D convertible
preferred stock in exchange for cash proceeds of $10,000,000 and advertising
inventory with an estimated fair value of $10,000,000. In conjunction with the
Series D convertible preferred stock sale, the Company issued a warrant to
purchase 917,749 shares of the Company's common stock at an exercise price of
$7.50 per share. The warrant is exercisable at any time for a period of five
years. As part of the agreement, the Company will co-produce programming for 45
one-hour weekly shows per year on a home shopping television network for a
period of three years. The Company's minimum annual commitment to co-produce
the program is $2,475,000.
F-18
<PAGE>
PETOPIA.COM, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
Upon the issuance of Series D preferred stock in January 2000, the Company
issued warrants to purchase 918,939 shares of Series D preferred stock at
$5.6061 per share to all Series D preferred stockholders. These warrants expire
in January 2005.
In February 2000, the Company met an additional revenue threshold related to
the agreement with PETCO, which required that it issue 960,692 shares of Series
C preferred stock to PETCO as discussed in Note 4. Additionally, in March 2000,
the Company accelerated vesting of the remaining 2,882,074 shares of Series C
preferred stock to be earned under the agreement. The Company estimates the
fair value of the shares of the Series C preferred stock issuable to be
approximately $13,400,000 and will record the equity-based charge during the
quarter ended April 1, 2000.
In February 2000, the Company obtained a term loan of $10,000,000 from a
financial institution. The loan bears interest at the higher of 8% or the
financial institution's prime rate plus 2% (10.75% at February 2, 2000). The
Company is obligated to make interest only payments until January 2001 and 12
payments of principal plus interest from February 2001 until the loan matures
in January 2002. The term loan agreement contains restrictive covenants,
including a restriction on payment of dividends and a limitation on providing
any assets as collateral for additional loans. The Company has pledged all of
its tangible and intangible assets as collateral for this loan. In connection
with the term loan agreement, the Company issued a fully vested and
nonforfeitable warrant to purchase 180,000 shares of Series E preferred stock
at $5.6061 per share. The warrant expires on January 31, 2005. The estimated
fair value of the warrant of $661,000 was determined using the Black-Scholes
model and the following assumptions: volatility of 75%, an interest rate of 6%,
a dividend yield of 0%, and a life of five years, and will be amortized to
interest expense over the 24-month term of the loan.
Subsequent to January 1, 2000, the Company approved an increase in the total
authorized number of shares under the 1999 Plan to 11,500,000 and approved
grants to employees for options to purchase 5,463,269 shares of common stock at
prices between $1.25 to $1.50 per share. The Company estimates that it will
record additional deferred stock compensation of approximately $5,560,000 with
regard to these grants which will be amortized over the life of the vesting
period.
In March 2000, the Board of Directors approved the 2000 Stock Incentive Plan
(the 2000 Plan). A total of 5,250,000 shares of common stock have been reserved
for issuance under the 2000 Plan. Included as part of the 2000 Plan is the
stock option grant program for nonemployee directors (Director Plan). Under the
Director Plan each individual who becomes a non-employee member of our board of
directors receives an option to purchase 50,000 shares of common stock on the
date such individual joins the board of directors and will automatically be
granted an option to purchase 10,000 additional shares of common stock on each
one year anniversary date thereafter.
In March 2000, the Board of Directors approved the 2000 Employee Stock Purchase
Plan (the Purchase Plan). A total of 1,250,000 shares of common stock has been
reserved for issuance under the Purchase Plan.
In March 2000, the Company's Board of Directors authorized the filing of a
Registration Statement with the SEC to register shares of its common stock in
connection with a proposed IPO. If the IPO is consummated under the terms
presently anticipated, all of the currently outstanding shares of convertible
preferred stock will be converted into shares of common stock upon the closing
of the IPO. The effect of this conversion has been reflected in unaudited pro
forma stockholders' equity in the accompanying balance sheet at January 1,
2000.
F-19
<PAGE>
PETOPIA.COM, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
On January 18, 2000, the Company acquired C/R Catalog Corp. (d/b/a In the
Company of Dogs or ICOD) in a transaction accounted for as a purchase. The
Unaudited Pro Forma Condensed Combined Financial Information gives effect to
the acquisition of ICOD.
The Unaudited Pro Forma Condensed Combined Statement of Operations for the year
ended January 1, 2000 gives effect to the ICOD acquisition as if it had taken
place on January 3, 1999 and combines the historical results of the Company for
the period from March 9, 1999 (inception) to January 1, 2000, the historical
results of 1316703 Ontario Limited, the Company's predecessor, for the period
from January 3, 1999 to April 15, 1999 and the historical results of ICOD for
the period from December 27, 1998 to December 25, 1999. The Unaudited Pro Forma
Condensed Combined Balance Sheet as of January 1, 2000 gives effect to the
transaction as if it had taken place on January 1, 2000 and combines the
balance sheet of the Company as of January 1, 2000 and the balance sheet of
ICOD as of December 25, 1999.
The pro forma financial information has been prepared on the basis of the
assumptions described in the notes. The pro forma financial information is not
necessarily indicative of the results of operations or financial position of
the combined company had the acquisition occurred on January 3, 1999 or January
1, 2000, respectively, nor is it necessarily indicative of future results.
The historical financial statements of the Company, ICOD, and 1316703 Ontario
Limited are included elsewhere in this prospectus, and the Unaudited Pro Forma
Condensed Combined Financial Information presented herein should be read in
conjunction with those financial statements and related notes.
F-20
<PAGE>
PETOPIA.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
BALANCE SHEET
AS OF JANUARY 1, 2000
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Petopia ICOD Adjustments Combined
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............... $22,982 $ 418 $ (600)(1) $22,800
Short-term investments.................. 13,546 -- -- 13,546
Accounts receivable, net................ 297 -- -- 297
Inventory............................... 227 748 -- 975
Prepaid advertising..................... 5,387 329 -- 5,716
Other current assets.................... 94 68 -- 162
------- ------ ------- -------
Total current assets................ 42,533 1,563 (600) 43,496
Property and equipment, net............. 3,146 253 -- 3,399
Restricted cash......................... 1,249 -- -- 1,249
Deferred charges........................ 5,258 -- -- 5,258
Other assets............................ 654 2,931 13,397 (2) 16,982
------- ------ ------- -------
Total assets........................ $52,840 $4,747 $12,797 $70,384
======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt......................... $ -- $ 610 $ 2,000 (1) $ 2,610
Accounts payable........................ 7,146 1,890 -- 9,036
Accrued payroll and related expenses.... 308 54 -- 362
Accrued marketing expenses.............. 777 -- -- 777
Payables to related parties............. 1,038 1,010 -- 2,048
Other current liabilities............... 1,934 330 100 (1) 2,364
Deferred revenue........................ 333 -- -- 333
------- ------ ------- -------
Total current liabilities........... 11,536 3,894 2,100 17,530
Total stockholders' equity.............. 41,304 853 10,697 (4) 52,854
------- ------ ------- -------
Total liabilities and stockholders'
equity............................. $52,840 $4,747 $12,797 $70,384
======= ====== ======= =======
</TABLE>
See accompanying notes
F-21
<PAGE>
PETOPIA.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 1, 2000
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1316703
Ontario Pro Forma Pro Forma
Petopia ICOD Limited Adjustments Combined
---------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 3,452 $ 4,652 $ -- $ 697 (6) $ 8,801
Cost of sales:
Product and shipping
costs................. 5,616 2,277 -- 550 (6) 8,443
Equity-based charges... 23 -- -- -- 23
---------- ------- ------ --------- ----------
Total cost of
sales.............. 5,639 2,277 -- 550 8,466
---------- ------- ------ --------- ----------
Gross margin............ (2,187) 2,375 -- 147 335
---------- ------- ------ --------- ----------
Operating expenses:
Marketing and sales.... 24,215 3,259 43 27,517
Content and product
development........... 7,494 355 196 147 (6) 8,192
General and
administrative........ 4,016 1,768 252 -- 6,036
Amortization of
purchased
intangibles........... 172 49 -- 3,379 (3) 3,600
Equity-based charges... 3,517 -- -- -- 3,517
---------- ------- ------ --------- ----------
Total operating
expenses........... 39,414 5,431 491 3,526 48,862
---------- ------- ------ --------- ----------
Loss from operations.... (41,601) (3,056) (491) (3,379) (48,527)
Interest income
(expense), net........ 736 (198) 2 -- 540
---------- ------- ------ --------- ----------
Net loss................ $ (40,865) $(3,254) $ (489) $ (3,379) $ (47,987)
========== ======= ====== ========= ==========
Basic and diluted net
loss per equivalent
share.................. $ (10.84) $(5.41) $ (8.74)
========== ====== ==========
Pro forma basic and
diluted net loss per
equivalent share....... $ (2.50) $ (2.39)
========== ==========
Shares used to compute
basic and diluted net
loss per equivalent
share.................. 3,770,437 90,400 1,628,844 (5) 5,489,681
========== ====== ========= ==========
Shares used to compute
pro forma basic and
diluted net loss per
equivalent share....... 16,339,184 3,733,851 (5) 20,073,035
========== ========= ==========
</TABLE>
See accompanying notes
F-22
<PAGE>
PETOPIA.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The ICOD acquisition will be accounted for using the purchase method of
accounting. The pro forma financial information has been prepared on the basis
of assumptions described in the following notes and includes assumptions
relating to the allocation of the consideration paid for the assets and
liabilities of ICOD based upon estimates of their fair value. In the opinion of
the Company's management, all adjustments necessary to present fairly such pro
forma financial information have been based on the terms and structure of the
acquisition.
The pro forma financial information gives effect to the following pro forma
adjustments:
1. On January 18, 2000, the Company acquired C/R Catalog Corp. (d/b/a In the
Company of Dogs or "ICOD"), a Delaware corporation, for $600,000 in cash, a
$2,000,000 promissory note, 2,014,607 shares of Series E convertible
preferred stock and warrants to purchase 69,647 shares of Series E
convertible preferred stock.
The estimated fair value of the warrants was based upon the fair value of
the preferred stock using the Black-Scholes model with the following
assumptions: volatility of 75%, interest rate of 6%, dividend yield of 0%,
and a five year contractual life.
The Unaudited Pro Forma Condensed Combined Balance Sheet as of January 1,
2000 is based upon an estimated a purchase price of $14,250,000 which has
been allocated to tangible and intangible assets acquired and liabilities
assumed based on their relative fair values. The excess of the purchase
price over tangible and intangible assets acquired and liabilities assumed
has been allocated to goodwill. The tables below reflect the purchase
price, purchase price allocation, and amortization of intangible assets
acquired had the acquisition of ICOD been completed on January 1, 2000 (in
thousands):
<TABLE>
<CAPTION>
Amount
-------
<S> <C> <C> <C>
Estimated purchase price:
Cash paid at closing.................. $ 600
Promissory note payable............... 2,000
Preferred stock issued................ 11,294
Estimated fair value of the preferred
stock warrants issued................ 256
Estimated direct acquisition costs.... 100
-------
Total purchase price.................. $14,250
=======
<CAPTION>
Amortization Yearly
Amount Life Amortization
------- ------------ ------------
(In Years)
<S> <C> <C> <C>
Purchase price allocation:
Tangible assets....................... $ 1,842
Liabilities assumed................... (3,894)
Intangible assets:
Customer base........................ 1,900 4 $ 475
Trademarks........................... 400 4 100
Workforce............................ 400 3 133
Goodwill............................. 13,602 5 2,720
------- ------
$14,250 $3,428
======= ======
</TABLE>
Tangible assets of ICOD acquired in the merger principally include cash,
inventory, prepaids, and property and equipment. Liabilities of ICOD
assumed in the merger principally include accounts payable, accrued
payroll, other accrued liabilities, and debt.
F-23
<PAGE>
PETOPIA.COM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION (Continued)
The value assigned to the customer base, trademark and workforce is based
upon an independent valuation. The purchase price allocation is preliminary
and therefore subject to the Company's final analysis.
2. The pro forma adjustment is for goodwill and other intangibles allocation of
$16,302,000 related to the acquisition of ICOD. This adjustment also
reflects the write-off of intangibles and goodwill of $2,905,000 on ICOD's
balance sheet.
3. The pro forma adjustment is for goodwill and other intangibles amortization
of $3,428,000 for the year ended January 1, 2000, net of the amortization of
$49,000 recorded by ICOD during the year.
4. The pro forma adjustment to stockholders' equity reflects the elimination of
ICOD's stockholders' equity of $853,000 and the impact of the issuance of
preferred stock and warrants for $11,550,000 in connection with the ICOD
merger.
5. The pro forma adjustment is to adjust weighted average shares outstanding
for the year ended January 1, 2000. Accordingly, the weighted average shares
for basic and diluted net loss per equivalent share and pro forma net loss
per equivalent share have been adjusted to give effect to the shares being
issued and outstanding for the year ended January 1, 2000.
6. The pro forma adjustment is to reclassify shipping revenue and costs as net
sales and cost of sales to conform with the Company's classification.
F-24
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Petopia.com, Inc.
We have audited the accompanying balance sheet of 1316703 Ontario Limited (a
development stage company) as of April 15, 1999 and the related statements of
operations, shareholders' equity, and cash flows for the period from September
28, 1998 (inception) to April 15, 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards 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. 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 audit provides 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 1316703 Ontario Limited at
April 15, 1999 and the results of its operations and its cash flows for the
period from September 28, 1998 (inception) to April 15, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
San Jose, California
February 18, 2000
F-25
<PAGE>
1316703 ONTARIO LIMITED
(a development stage company)
BALANCE SHEET
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 15,
1999
---------
<S> <C>
ASSETS
Current assets:
Cash.................................................................. $ 117
-----
Total current assets.............................................. 117
Property and equipment, net........................................... 12
-----
Total assets...................................................... $ 129
=====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $ 40
Accrued payroll and related benefits.................................. 10
-----
Total current liabilities......................................... 50
-----
Contingencies (Note 5)
Shareholders' equity:
Preferred shares, no par value:
Authorized shares--unlimited
Issued and outstanding shares--none.................................. --
Common shares, no par value:
Authorized shares--unlimited
Issued and outstanding shares--100,000............................... 691
Deficit accumulated during the development stage...................... (612)
-----
Total shareholders' equity........................................ 79
-----
Total liabilities and shareholders' equity........................ $ 129
=====
</TABLE>
See accompanying notes.
F-26
<PAGE>
1316703 ONTARIO LIMITED
(a development stage company)
STATEMENT OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Period from
September 28,
1998
(Inception)
to
April 15,
1999
-------------
<S> <C>
Net sales....................................................... $ --
Cost of sales................................................... --
------
Gross margin.................................................... --
------
Operating expenses:
Marketing and sales............................................ 51
Content and product development................................ 226
General and administrative..................................... 338
------
Total operating expenses........................................ 615
------
Loss from operations............................................ (615)
Interest income................................................. 3
------
Net loss........................................................ $ (612)
======
Basic and dilutive net loss per equivalent share................ $(7.20)
======
Shares used to compute basic and diluted net loss per equivalent
share.......................................................... 85,000
======
</TABLE>
See accompanying notes.
F-27
<PAGE>
1316703 ONTARIO LIMITED
(a development stage company)
STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Deficit
Note Accumulated
Common Shares Receivable During the
-------------- from Development
Shares Amount Shareholder Stage Total
------- ------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Issuance of common shares....... 100,000 $691 $ (40) $ -- $ 651
Forgiveness of note receivable
from shareholder............... -- -- 40 -- 40
Net loss and comprehensive net
loss........................... -- -- -- (612) (612)
------- ---- ----- ----- -----
Balance at April 15, 1999....... 100,000 $691 $ -- $(612) $ 79
======= ==== ===== ===== =====
</TABLE>
See accompanying notes.
F-28
<PAGE>
1316703 ONTARIO LIMITED
(a development stage company)
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period from
September 28,
1998
(Inception)
to April 15,
1999
-------------
<S> <C>
Operating activities
Net loss........................................................ $(612)
Adjustments to reconcile net loss to net cash used in operating
activities:
Equity-based charges........................................... 161
Forgiveness of note receivable from shareholder................ 40
Write-off of fixed assets...................................... 29
Changes in operating assets and liabilities:
Accounts payable............................................... 40
Accrued payroll and related benefits........................... 10
-----
Net cash used in operating activities........................... (332)
-----
Investing activities
Purchases of property and equipment............................. (41)
-----
Net cash used in investing activities........................... (41)
-----
Financing activities
Proceeds from issuance of common shares......................... 490
-----
Net cash provided by financing activities....................... 490
-----
Net increase in cash............................................ 117
Cash at beginning of period..................................... --
-----
Cash at end of period........................................... $ 117
=====
Supplemental disclosure of cash flow information
Common shares issued in exchange for note receivable from
shareholder.................................................... $ 40
</TABLE>
See accompanying notes.
F-29
<PAGE>
1316703 ONTARIO LIMITED
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
1316703 Ontario Limited (a development stage company), operating as Paw.net,
(the Company) was incorporated in Ontario, Canada on September 28, 1998. The
Company was founded to establish an online retail store which sells pet food,
pet supplies, and other pet-related products.
The accompanying financial statements have been prepared on the basis that the
Company was a development stage company. The Company's activities consisted of
development of the Company's website, recruiting personnel, and building
necessary strategic relationships to carry out its business plan. On April 15,
certain assets were distributed to the shareholders, who then transferred the
assets to Petopia.com, Inc. in exchange for shares of common stock of
Petopia.com, Inc. The accompanying financial statements have been prepared as
of but prior to the acquisition.
The Canadian dollar is considered to be the functional currency of the Company.
Accounts denominated in other currencies are translated into Canadian dollars
at the rate of exchange in effect on the dates of the underlying transactions.
Exchange differences are considered to be immaterial and are charged to
operations. For convenience, the accompanying financial statements have been
translated into U.S. dollars at the rate in effect at January 1, 2000.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation.
Property and equipment is depreciated for financial reporting purposes using
the straight-line method over the estimated useful lives of three years.
Property and equipment at April 15, 1999 consists of $12,000 in furniture and
fixtures with no associated accumulated depreciation.
Content and Product Development
Content and product development expenses consist primarily of payroll and
related expenses for website development, systems personnel, consultants, and
other website costs. As the Company believes its website is subject to
continual and substantial change, expenditures relating to content and product
development are expensed as incurred.
Comprehensive Net Loss
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS 130). FAS 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income (loss) be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company's
comprehensive net loss was the same as its net loss for the period from
September 28, 1998 (inception) to April 15, 1999.
F-30
<PAGE>
1316703 ONTARIO LIMITED
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
Financial Instruments
The Company's financial instruments, including cash, accounts payable, and
accrued liabilities, are carried at historical cost. At April 15, 1999, the
fair values of these instruments approximated their financial statement
carrying amounts.
Segment and Geographic Information
The Company operates in one business segment across domestic markets and
currently does not operate internationally.
Impact of Recently Issued Accounting Standards
The Company has adopted the provisions of SOP 98-5, "Reporting On The 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 on the Company's financial position, results of
operations, or cash flows.
3. Shareholders' Equity
Common Shares
The authorized capital of the Company consisted of an unlimited number of
common shares and an unlimited number of Class A preferred shares, of which
100,000 common shares were issued and outstanding at April 15, 1999.
The Company issued 29,000 shares valued at $201,000 to a shareholder in
exchange for a note receivable of $40,000 and consideration for employment of
$161,000. The shareholder note was subsequently forgiven.
4. Income Taxes
There has been no provision for income taxes for the period from September 28,
1998 (inception) to April 15, 1999, as the Company has incurred operating
losses for which it is unable to recognize a benefit.
A reconciliation of income taxes at the Canadian statutory rate to net income
taxes included in the accompanying statement of operations is as follows:
<TABLE>
<CAPTION>
Period from
September 28,
1998
(Inception) to
April 15, 1999
--------------
<S> <C>
Canadian statutory income tax rate............................ (45)%
Valuation allowance........................................... 45 %
---
-- %
===
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
April 15, 1999
--------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 282
-----
Total deferred tax assets................................... 282
Valuation allowance........................................... (282)
-----
Net deferred tax assets..................................... $ --
=====
</TABLE>
F-31
<PAGE>
1316703 ONTARIO LIMITED
(a development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and the amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance. The valuation allowance
increased by $282,000 during the period from September 28, 1998 (inception) to
April 15, 1999.
As of April 15, 1999, the Company had net operating loss carryforwards of
approximately $612,000, which expire in 2006.
5. Contingencies
In the normal course of business, the Company may receive inquiries with regard
to various legal proceedings. In the opinion of management, any liability
resulting from these inquiries has been accrued and will not have a material
adverse effect on the Company's financial position or results of operations.
6. Subsequent Event
Immediately subsequent to the date of these financial statements, certain
assets were distributed to the shareholders of the Company and then acquired by
Petopia.com, Inc. The shareholders received shares of common stock of
Petopia.com, Inc. in consideration, valued at $504,000, and the Company
recorded a gain on the transaction.
F-32
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
C/R Catalog Corp.
We have audited the accompanying balance sheets of C/R Catalog Corp. as of June
27, 1998 and June 26, 1999, and the related statements of operations,
stockholders' deficiency, and cash flows for the years then ended. 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 audited
standards. Those standards 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. 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 C/R Catalog Corp. as of June
27, 1998 and June 26, 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
December 23, 1999
F-33
<PAGE>
C/R CATALOG CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 27, June 26, December 25,
1998 1999 1999
----------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash.................................... $ 9,117 $ 2,212 $ 417,664
Inventory............................... 636,070 590,496 747,886
Prepaid catalog expense................. 149,545 7,615 328,906
Other current assets.................... -- -- 68,011
----------- ----------- -----------
Total current assets................ 794,732 600,323 1,562,467
Deferred income tax asset, net of
valuation allowance of $777,000,
$1,435,000 and $2,143,000,
respectively........................... -- -- --
Property and equipment, net of
accumulated depreciation and
amortization of $60,285, $114,118 and
$140,642, respectively................. 267,796 265,260 252,970
Goodwill, net........................... -- -- 2,905,453
Deposits................................ 32,946 59,566 25,610
----------- ----------- -----------
Total assets........................ $ 1,095,474 $ 925,149 $ 4,746,500
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities
Accounts payable and accrued expenses... $ 1,012,096 $ 2,015,887 $ 2,273,312
Notes and loans payable--stockholders... -- 260,000 1,010,000
Line of credit with related party....... 2,000,000 2,500,000 --
Convertible subordinated debentures..... -- -- 610,000
----------- ----------- -----------
Total liabilities................... 3,012,096 4,775,887 3,893,312
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity (deficiency)
Preferred stock--$.01 par value;
authorized 8,000,000 shares, none
issued................................. -- -- --
Common stock--$.01 par value; authorized
10,000,000 shares, issued and
outstanding 1,470,600, 1,470,600 and
2,730,574 shares, respectively......... 14,706 14,706 27,306
Additional paid-in capital.............. 4,035,294 4,035,294 10,796,197
Accumulated deficit..................... (5,966,622) (7,900,738) (9,970,315)
----------- ----------- -----------
Stockholders' equity (deficiency)... (1,916,622) (3,850,738) 853,188
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficiency)................ $ 1,095,474 $ 925,149 $ 4,746,500
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-34
<PAGE>
C/R CATALOG CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six-month
period
Year ended Year ended ended
June 27, June 26, December
1998 1999 25, 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Net sales.............................. $ 5,547,841 $ 6,920,364 $ 2,982,491
Cost of goods sold..................... 3,030,904 3,556,999 1,425,278
----------- ----------- -----------
Gross profit........................... 2,516,937 3,363,365 1,557,213
Selling, general and administrative
expenses.............................. 4,598,970 5,248,951 3,559,467
----------- ----------- -----------
Loss from operations................... (2,082,033) (1,885,586) (2,002,254)
Interest expense....................... 47,409 48,530 67,323
----------- ----------- -----------
Net loss............................... $(2,129,442) $(1,934,116) $(2,069,577)
=========== =========== ===========
Net loss per common share.............. $ (1.45) $ (1.32) $ (0.88)
=========== =========== ===========
Weighted-average number of common
shares outstanding.................... 1,470,600 1,470,600 2,349,980
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-35
<PAGE>
C/R CATALOG CORP.
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years ended June 27, 1998 and June 26, 1999 and the six-month period ended
December 25, 1999
<TABLE>
<CAPTION>
Common Stock Additional Stockholders'
----------------- Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficiency)
--------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 28,
1997................... 1,470,600 $14,706 $ 4,035,294 $(3,837,180) $ 212,820
Net loss................ -- -- -- (2,129,442) (2,129,442)
--------- ------- ----------- ----------- -----------
Balance at June 27,
1998................... 1,470,600 14,706 4,035,294 (5,966,622) (1,916,622)
Net loss................ -- -- -- (1,934,116) (1,934,116)
--------- ------- ----------- ----------- -----------
Balance at June 26,
1999................... 1,470,600 14,706 4,035,294 (7,900,738) (3,850,738)
(Unaudited):
Conversion of line of
credit into additional
paid-in capital........ -- -- 2,500,000 -- 2,500,000
Conversion of
subordinated
convertible debentures
into common stock...... 318,805 3,188 315,617 -- 318,805
Issuance of common stock
for cash............... 501,857 5,019 994,981 -- 1,000,000
Issuance of common stock
and common stock
warrants in connection
with acquisition....... 439,312 4,393 2,950,305 -- 2,954,698
Net loss................ -- -- -- (2,069,577) (2,069,577)
--------- ------- ----------- ----------- -----------
Balance at December 25,
1999................... 2,730,574 $27,306 $10,796,197 $(9,970,315) $ 853,188
========= ======= =========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-36
<PAGE>
C/R CATALOG CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six-month
period
Year ended Year ended ended
June 27, June 26, December
1998 1999 25, 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(2,129,442) $(1,934,116) $(2,069,577)
----------- ----------- -----------
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization......... 42,627 53,834 75,769
Changes in operating assets and
liabilities:
(Increase) decrease in inventory..... (272,384) 45,574 (157,390)
(Increase) decrease in prepaid
catalog expense..................... (108,422) 141,930 (321,291)
Increase in other current assets..... -- -- (68,011)
Decrease (increase) in deposits...... 92,169 (26,620) 33,956
(Decrease) increase in accounts
payable and accrued expenses........ (246,711) 1,003,791 257,425
----------- ----------- -----------
Total adjustments.................. (492,721) 1,218,509 (179,542)
----------- ----------- -----------
Net cash used in operating activities.. (2,622,163) (715,607) (2,249,119)
----------- ----------- -----------
Cash flows used in investing activity:
Purchase of property and equipment..... (301,952) (51,298) (14,234)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds (payments) under note
agreements............................ (1,055,000) 260,000 750,000
Proceeds from subordinated convertible
debentures............................ -- -- 928,805
Proceeds from issuance of common
stock................................. -- -- 1,000,000
Proceeds from line of credit with
related party......................... 2,000,000 500,000 --
----------- ----------- -----------
Net cash provided by financing
activities............................ 945,000 760,000 2,678,805
----------- ----------- -----------
Net increase (decrease) in cash........ (1,979,115) (6,905) 415,452
Cash at beginning of period............ 1,988,232 9,117 2,212
----------- ----------- -----------
Cash at end of period.................. $ 9,117 $ 2,212 $ 417,664
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................... $ 25,638 $ 98,849 $ 41,393
=========== =========== ===========
Income taxes........................... $ 1,556 $ 4,707 $ 380
=========== =========== ===========
Supplemental schedule of noncash
investing and financing activities:
Issuance of common stock and common
stock warrants in connection with
acquisition........................... -- -- $ 2,954,698
=========== =========== ===========
Conversion of line of credit into
additional paid-in capital............ -- -- $ 2,500,000
=========== =========== ===========
Conversion of subordinated convertible
debentures into common stock.......... -- -- $ 318,805
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
F-37
<PAGE>
C/R CATALOG CORP.
NOTES TO FINANCIAL STATEMENTS
(information pertaining to the six-month period ending December 25, 1999 is
unaudited)
1. Principal Business Activity and Significant Accounting Policies:
C/R Catalog Corp. (the Company), a New York corporation, was incorporated on
January 6, 1994. The Company is in the business of selling upscale dog-related
products through a mail-order catalog and the internet. In October 1999, the
Company formed a Delaware corporation (Delaware) also called C/R Catalog Corp.,
and merged with Delaware, with Delaware being the surviving corporation
(hereinafter referred to as the Company).
Depreciation and amortization of property and equipment (excluding leasehold
improvements) is provided for by the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are being amortized
over the term of the related lease.
Inventory, which consists of finished goods, is stated at the lower of cost,
determined by the first-in, first out method, or market.
Revenue on product sales, net of discounts and allowances, are recognized upon
shipment of the related goods. The Company records an allowance for estimated
sales returns in the period of sale.
Direct costs incurred for the production and distribution of catalogs are
capitalized. Capitalized costs are amortized, once the catalog is mailed, over
the expected sales period which is generally three months.
Costs incurred for advertising and sales promotion are expensed when incurred
and included in selling, general and administrative expenses in the
accompanying statement of operations. Advertising and sales promotion expenses
for the years ended June 27, 1998 and June 26, 1999 and the six-month period
ended December 25, 1999 were approximately $11,100, $4,300, and $54,700,
respectively.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates by management affecting the
reported amounts of assets and liabilities and revenue and expenses and the
disclosure of contingent assets and liabilities. Actual results could differ
from these estimates.
Basic loss per common share is based on the weighted-average number of shares
of common stock outstanding during the periods. Diluted loss per common share
is computed using the weighted-average number of shares outstanding adjusted
for the incremental shares attributed to outstanding options to purchase common
stock. Diluted per share amounts are not presented because the effect would be
antidilutive.
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
The Company maintains cash in banks that, at times, may exceed federally
insured limits. The Company has not experienced any losses on these accounts.
For financial reporting purposes, the Company's year-end is the 52- or 53-week
period ending on the last Saturday in June. The Company's years ended June 27,
1998 and June 26, 1999 both contain 52 weeks. The six-month period ended
December 25, 1999 contains 26 weeks.
2. Acquisition:
On October 28, 1999, the Company merged with Aardvark Pet Supplies, Inc.
(Aardvark), a California corporation, with the Company becoming the surviving
corporation. All of the outstanding shares of Aardvark were exchanged for
439,312 shares of common stock of the Company, and shareholders of Aardvark
were issued warrants to purchase an additional 577,498 shares of common stock
in the Company at exercise prices ranging from $.01 to market value at the date
of exercise.
F-38
<PAGE>
C/R CATALOG CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
(information pertaining to the six-month period ending December 25, 1999 is
unaudited)
The purchase price amounted to approximately $2,955,000. The fair value per
share issued was determined based upon the fair value of the Company as of the
date the Company was acquired by Petopia.com, Inc. (Petopia) (see Note 14). The
acquisition has been treated as a purchase for accounting purposes with the
entire purchase price allocated to goodwill as there were no assets acquired
nor liabilities assumed as part of the transaction.
3. Property and Equipment:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
Recovery
June 27, June 26, December 25, Period/Estimated
1998 1999 1999 Useful Life
-------- -------- ------------ ----------------
<S> <C> <C> <C> <C>
Leasehold improvements..... $209,808 $256,931 $256,931 Term of lease
Furniture, fixtures and
equipment................. 50,502 51,793 53,792 5 to 7 years
Computer equipment......... 67,770 70,654 82,889 5 years
-------- -------- --------
328,080 379,378 393,612
Less accumulated
depreciation and
amortization.............. 60,284 114,118 140,642
-------- -------- --------
$267,796 $265,260 $252,970
======== ======== ========
</TABLE>
4. Goodwill:
Goodwill at December 25, 1999, net of accumulated amortization of $49,245, is
being amortized over 10 years.
At each balance sheet date, the Company evaluates the period of amortization of
intangible assets. The factors used in evaluating the period of amortization
include the current operating results, projected future operating results and
any other factors that affect the continuity of the business.
5. Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
June 27, June 26, December 25,
1998 1999 1999
---------- ---------- ------------
<S> <C> <C> <C>
Trade payables........................... $ 475,389 $ 694,533 $1,482,016
Due to fulfillment service provider...... 376,594 1,024,940 408,438
Other (less than 5% of total)............ 160,113 296,414 382,858
---------- ---------- ----------
$1,012,096 $2,015,887 $2,273,312
========== ========== ==========
</TABLE>
6. Notes and Loans Payable--Stockholders:
In September 1999, the Company entered into a revolving promissory note with
Clifcor Capital LLC (Clifcor) to borrow up to a maximum of $750,000. The note
bears interest at a rate of prime plus 4% per annum, with interest payable
monthly. The outstanding principal balance was originally payable on January
15, 2000, together with accrued interest, and was convertible, at the option of
Clifcor, into a secured convertible debenture. In November 1999, the Company
and Clifcor extended the agreement and entered into an additional agreement to
borrow up to a maximum of $500,000. The balance outstanding on these notes at
December 25, 1999 was $630,000. Interest expense on the notes for the six-month
period ended December 25, 1999 was approximately $28,200. Accrued interest on
the notes included in accounts payable and accrued expenses at December 25,
1999 was approximately $10,900.
F-39
<PAGE>
C/R CATALOG CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
(information pertaining to the six-month period ending December 25, 1999 is
unaudited)
The Company also entered into promissory note agreements at similar terms with
certain stockholders aggregating $145,000. Interest expense on these notes for
the six-month period ended December 25, 1999 was approximately $2,100.
In June 1999, the Company entered into promissory note agreements with certain
stockholders, aggregating $210,000. These notes are unsecured, noninterest
bearing and are subordinated to all other debt. In January 2000, the notes were
converted into shares of common stock of the Company at a conversion price of
$1.00 per share.
In January 2000, Clifcor advanced the Company an additional $425,000 under the
terms of the notes.
Loans payable to stockholders of $50,000 and $25,000 at June 26, 1999 and
December 25, 1999, respectively, are noninterest bearing.
The Company has pledged substantially all of its assets as collateral under the
agreements with Clifcor and these stockholders.
7. Line of Credit With Related Party:
In June 1997, the Company entered into a line of credit agreement with a former
stockholder, Jelmoli Holding, Inc. (Jelmoli). The agreement, as amended in May
1998, provided for borrowings not to exceed $2,500,000 and bore interest at a
rate of 5% per annum. The line of credit was collateralized by the Company's
inventory and property and equipment. In July 1999, Jelmoli sold its equity
interest in the Company to Clifcor, a Delaware limited liability company (see
Note 10). As part of the stock purchase agreement, the line of credit was
assigned to Clifcor. Also in July 1999, Clifcor converted the line of credit
into additional paid-in capital of the Company (see Note 10).
Interest expense related to the line of credit charged to operations for the
years ended June 27, 1998 and June 26, 1999 was $61,887 and $58,206,
respectively. Accrued interest on the line of credit included in accounts
payable and accrued expenses at June 27, 1998 and June 26, 1999 was
approximately $32,000 and $7,700, respectively.
8. Subordinated Convertible Debentures:
In July 1999, the Company entered into convertible subordinated debenture
agreements with Clifcor, which aggregated $820,000. Interest was charged at a
rate of 8% per annum, and was payable quarterly beginning October 1999.
Subsequent to July 2001, the debentures were payable in 24 consecutive equal
monthly installments of principal and interest until July 2003, at which time
any remaining outstanding principal and interest would be due. Interest expense
on the debentures charged to operations for the six-month period ended December
25, 1999 was approximately $25,600 of which approximately $12,900 was included
in accounts payable and accrued expenses at December 25, 1999.
At the option of the holder, at any time prior to maturity, the unpaid
principal and interest could be converted into shares of common stock of the
Company, at a conversion price of $1.00 per share. During October 1999,
$210,000 of convertible subordinated debentures were converted into shares of
common stock of the Company. In addition, during January 2000 the remaining
$610,000 of debentures were converted into shares of common stock of the
Company.
The carrying value of notes and loans payable to stockholders and subordinated
convertible debentures approximates their fair value due to the short period to
maturity of these instruments.
F-40
<PAGE>
C/R CATALOG CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
(information pertaining to the six-month period ending December 25, 1999 is
unaudited)
9. Commitments And Contingencies:
The Company leases office space under a noncancelable operating lease expiring
in January 2008. This lease is subject to escalation for an increase in real
estate taxes.
The future minimum lease payments under this lease are as follows:
<TABLE>
<S> <C>
Six-month period ending June 2000.................................. $ 47,000
Year ending in June
2001............................................................. 95,000
2002............................................................. 98,000
2003............................................................. 101,000
2004............................................................. 103,000
2005............................................................. 107,000
Thereafter....................................................... 291,000
--------
$842,000
========
</TABLE>
Rent expense charged to operations for the years ended June 27, 1998, June 26,
1999 and the six-month period ended December 25, 1999 were approximately
$69,500, $90,900, and $46,300, respectively.
The Company was a party to employment agreements with two executives, the terms
of which were to expire on December 31, 2000. An agreement with one of the
executives was terminated in December 1999. The total commitment for future
salary, excluding bonuses, under the remaining employment agreement is $225,000
and is payable through June 2001.
On August 9, 1999, the Company entered into a services agreement with a third
party whereby the third party is to take, process and fill orders from the
Company's catalog and web site. Fees for these services are based on rates as
disclosed in the agreement. Total fees charged to operations under this
agreement for the six-month period ended December 25, 1999 were approximately
$541,600. The amount payable to the third party under this agreement at
December 25, 1999 was approximately $408,400.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Management is of the opinion that the ultimate
outcome of these matters would not have a material adverse impact on the
financial position of the Company or results of its operations.
10. Stockholders' Equity:
In July 1999, as part of a stock purchase agreement, Clifcor purchased the
common stock of the Company owned by Jelmoli (see Note 7) and an additional
608,805 shares for $1,258,805 in cash. As part of the agreement, the amounts
due to Jelmoli under a line of credit agreement (see Note 7) and amendment were
assigned to Clifcor.
In July 1999, the Company's board of directors declared a stock split for which
stockholders received 75 shares of common stock for each share of common stock
previously owned. The stock split has been given retroactive effect in the
accompanying financial statements and related notes.
In July 1999, Clifcor converted the debt assigned to it under a stock purchase
agreement with Jelmoli, aggregating $2,500,000, into additional paid-in capital
of the Company.
In June 1999, the Company authorized the issuance of $8,000,000 of preferred
stock. No shares of preferred stock have been issued.
F-41
<PAGE>
C/R CATALOG CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
(information pertaining to the six-month period ending December 25, 1999 is
unaudited)
In June 1999, the Company increased the number of authorized shares of common
stock from 10,000 shares to 10,000,000 shares.
11. Stock Option Plan:
In December 1999, the Company began an incentive stock option plan under which
options to purchase up to 500,000 shares of common stock may be granted to
employees. No options have been granted under this plan as of December 25,
1999.
12. Income Taxes:
In June 1997, Jelmoli entered into a stock purchase agreement with the Company
whereby Jelmoli acquired 720,600 shares of the Company's common stock for
$2,000,000. After this issuance, the shares owned by Jelmoli represented 49% of
the issued and outstanding shares of common stock of the Company. Effective
with the stock purchase agreement, the Company's status as a small business
corporation (S Corporation) under the applicable sections of the Internal
Revenue Code and New York State corporate franchise tax law was terminated. The
Company is now subject to federal, state and local taxes at statutory rates.
There was no provision for income taxes for the years ended June 27, 1998 and
June 26, 1999, and the six-month period ended December 25, 1999 due to losses
incurred.
As of December 25, 1999, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $5,663,000 available to offset
future income through 2014. The utilization of this net operating loss may be
limited as a result of ownership changes. The net operating losses result in a
deferred income tax asset of approximately $777,000, $1,435,000 and $2,143,000
at June 27, 1998, June 26, 1999 and December 25, 1999, respectively, for which
the Company recorded a full valuation allowance due to the uncertainty of
future realization of such losses.
There were no other material temporary differences between the book and tax
basis of assets and liabilities.
The following is a reconciliation of the income tax benefit computed using the
statutory rate to the effective rate.
<TABLE>
<CAPTION>
Six-month
Year ended Year ended period ended
June 27, June 26, December 25,
1998 1999 1999
---------- ---------- ------------
<S> <C> <C> <C>
Computed income tax benefit using the
statutory rate......................... (34)% (34)% (34)%
Change in valuation allowance for
deferred income taxes.................. 34 34 34
---- ---- ----
-- % -- % -- %
==== ==== ====
</TABLE>
13. Related Party Transactions:
The Company was assigned an agreement as part of the Aardvark merger (see Note
2) with a related party for consulting services in connection with the
Company's web site operations. In addition, the Company pays compensation under
an informal arrangement to this affiliated company for the services of a former
stockholder of Aardvark and a current stockholder of the Company. The total
amounts charged to operations for the six-month period ended December 25, 1999
relating to these transactions amounted to approximately $341,900. The amount
due to the related party under this agreement included in accounts payable and
accrued expenses at December 25, 1999 was approximately $174,200.
F-42
<PAGE>
C/R CATALOG CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
(information pertaining to the six-month period ending December 25, 1999 is
unaudited)
Management fees paid to Clifcor under an informal arrangement for the six-month
period ended December 25, 1999 were $137,500. Accrued management fees included
in accounts payable and accrued expenses at December 25, 1999 were $12,500.
In June 1997, the Company entered into a services agreement with a company
affiliated with Jelmoli whereby the affiliated company was to take, process and
fill orders from the Company's catalog. Fees for these services were based on
rates as disclosed in the agreement. The agreement was set to expire on May 31,
1999, and therefore the Company entered into a transition agreement with
Jelmoli and the affiliated company through August of 1999, during which time
the Company also entered into an agreement with another fulfillment service
provider (see Note 9). Fulfillment services expense charged to operations under
this agreement for the years ended June 27, 1998 and June 26, 1999, and the
six-month period ended December 25, 1999 were approximately $1,149,500,
$1,284,100, and $91,200, respectively.
Included in accounts payable and accrued expenses at June 27, 1998 and June 26,
1999 were approximately $377,000 and $1,025,000, respectively, of fulfillment
expenses payable to Jelmoli and its affiliated company.
14. Subsequent Events:
On January 18, 2000, the Company entered into an agreement and plan of merger
with Petopia and its wholly owned subsidiary, ICOD Acquisition Corp. (ICOD). In
accordance with the agreement, the Company merged with ICOD, with ICOD being
the surviving entity. All of the outstanding shares of the Company were
exchanged for 2,014,607 shares of Petopia Series E Preferred Stock, par value
$.0001, the assumption of outstanding warrants to purchase an aggregate of
69,647 shares of Series E Preferred Stock, $600,000 in cash, and $2,000,000 of
promissory notes payable on the earlier of the closing of Petopia's initial
public offering or June 15, 2000.
In connection with the merger, Petopia will refinance notes payable with
Clifcor and certain stockholders of the Company (see Note 6) no more than 45
days after the closing.
In January 2000, the Company reached a settlement with Clifcor for breach of
contract in regards to the misrepresentation of the amount of stockholders'
equity as of May 31, 1999. In order to remedy the breach, Clifcor and the
former stockholders of Aardvark were issued one share of common stock of the
Company for each dollar amount of the breach. The total shares issued as a
result of this transaction was 810,323. The total shares issued to former
stockholders of Aardvark were 163,392 and resulted in an adjustment to goodwill
of approximately $470,000 in January 2000.
During January 2000, holders of stock warrants exercised their rights to
purchase 412,496 shares of common stock of the Company at an exercise price of
$1.00 per share. Stock warrants to purchase 165,002 shares of common stock of
the Company were outstanding as of the date of the merger.
F-43
<PAGE>
[ART WORK]
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF PETOPIA.COM]
Shares
Common Stock
------------
PROSPECTUS
------------
, 2000
CIBC World Markets
SG Cowen
Wit SoundView
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. No
dealer, salesperson or other person is authorized to give information that is
not contained in this prospectus. This prospectus is not an offer to sell nor
is it seeking an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in this prospectus is
correct only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or any sale of these securities.
Until , 2000 (25 days after the commencement of the offering), all dealers
that effect transactions in these securities, 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.
<PAGE>
PART II
Information not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Registrant in connection with this offering are
as follows. All amounts are estimates other than the SEC registration fee and
the NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $26,400
NASD filing fee..................................................... 10,500
Nasdaq National Market listing fee.................................. *
Printing fees....................................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Blue sky fees and expenses.......................................... *
Transfer agent and registrar fees................................... *
Miscellaneous fees.................................................. *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. Article IX of
our amended and restated certificate of incorporation (Exhibit 3.2 hereto),
which will be effective upon the closing of this offering, and Article XI of
our amended and restated bylaws (Exhibit 3.4 hereto), which will be effective
upon the closing of this offering, provide for indemnification of our
directors, officers, employees and other agents to the maximum extent permitted
by Delaware law. In addition, we have entered into Indemnification Agreements
(Exhibit 10.1 hereto) with our officers and directors. The Underwriting
Agreement (Exhibit 1.1) also provides for cross-indemnification among
Petopia.com, Inc. and the Underwriters with respect to certain matters,
including matters arising under the Securities Act of 1933, as amended.
Item 15. Recent Sales of Unregistered Securities
Since our inception, we have sold and issued the following securities:
1. On April 2, 1999, we issued a convertible promissory note in the principal
amount of $50,000 to one investor. The note was repaid and cancelled on May 21,
1999.
2. On April 15, 1999, we issued 8,203,502 shares of common stock to nine
founders for an aggregate consideration of $639,873 in cash, assets and
services rendered.
3. On April 19, 1999, we issued a convertible promissory note in the principal
amount of $210,000 to four investors. The note was cancelled and converted into
Series A preferred stock on May 4, 1999.
4. On April 27, 1999, we issued a convertible promissory note in the principal
amount of $148,000 to four investors. The note was cancelled and converted into
Series A preferred stock on May 4, 1999.
5. On May 4, 1999, we issued an aggregate of 9,000,000 shares of Series A
preferred stock to four investors for an aggregate consideration of $9,000,000.
6. On May 4, 1999, we issued four warrants to purchase up to 900,000 shares of
Series A preferred stock to four investors, at an exercise price of $1.75 per
share.
7. On May 10, 1999, we issued four warrants to purchase up to 900,000 shares of
Series A preferred stock to four investors, at an exercise price of $1.75 per
share.
II-1
<PAGE>
8. On May 17, 1999, we entered into a fulfillment agreement with Loveland Pet
Products, Inc., pursuant to which we issued 234,000 shares of common stock to
the two founders of Loveland Pet Products, Inc. for an aggregate consideration
of $23,400 in services rendered.
9. On May 28, 1999, we issued an aggregate of 755,000 shares of Series A
preferred stock to seven investors for an aggregate consideration of $755,000.
10. On July 1, 1999, we issued 7,736,345 shares of Series B preferred stock to
one investor for an aggregate consideration of $19,999,999.09.
11. On July 12, 1999, we issued 3,017,175 shares of Series C preferred stock to
one investor for an aggregate consideration of $7,800,000.
12. On July 12, 1999, we issued 3 warrants to purchase up to 5,119,987 shares
of Series C preferred stock to one investor, with the following exercise
prices: (a) 1,637,486 shares at $5.00 per share, (b) 1,705,715 shares at $7.50
per share, and (c) 1,776,786 shares at $10.00 per share.
13. On July 12, 1999 we issued 904,000 shares of common stock to fourteen
investors for an aggregate consideration of $576,300.
14. On November 29, 1999, we issued 6,257,551 shares of Series D preferred
stock to seventeen investors for an aggregate consideration of $35,080,456 and
12,711 shares of Series D preferred stock to one investor in consideration of
services rendered.
15. On December 1, 1999, we issued 960,692 shares of Series C preferred stock
to one investor in consideration for services rendered.
16. On January 18, 2000, in connection with our acquisition by merger of C/R
Catalog Corp. (d/b/a In the Company of Dogs), we issued 2,014,607 shares of
Series E preferred stock to twenty five individuals and assumed warrants held
by thirteen individuals, which thereupon became exercisable for 69,647 shares
of Series E preferred stock, at an exercise price of $5.6061 per share.
17. On January 21, 2000, we issued 1,783,771 shares of Series D preferred stock
to one investor for an aggregate consideration of $9,999,998.
18. On January 21, 2000, we issued 1,783,771 shares of Series D preferred stock
and a warrant to purchase up to 917,749 shares of common stock, at an exercise
price of $7.50 per share, to one investor in consideration for $9,999,998 worth
of advertising inventory.
19. On January 21, 2000, we issued warrants to purchase up to 918,939 shares of
Series D preferred stock to twenty investors, at an exercise price of $5.6061
per share.
20. On January 31, 2000, we issued a warrant to purchase up to 180,000 shares
of Series E preferred stock to one lender.
21. On March 6, 2000, we issued 3,843,766 shares of Series C preferred stock to
one investor in consideration of services rendered.
22. Since our incorporation, we have issued an aggregate of 12,612,898 options
and stock purchase rights under our 1999 Stock Plan to employees, directors and
consultants with exercise prices ranging from $0.10 to $1.50, 9,946,038 of
which are issued and outstanding as of March 10, 2000, 1,322,005 of which have
been exercised and are outstanding.
No underwriters were involved in the foregoing sales of securities. The
issuance of the above securities were deemed to be exempt from registration
under the Securities Act of 1933, as amended, in reliance on Section 4(2) of
such Securities Act as transactions by an issuer not involving any public
offering, or, in the case of options and stock purchase rights granted under
our 1999 Stock Plan, Rule 701 of the Securities Act of 1933, as amended. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger among Petopia.com, Inc., ICOD Acquisition
Corp. and C/R Catalog Corp. dated December 29, 1999.
2.2 First Amendment to Agreement and Plan of Merger among Petopia.com,
Inc., ICOD Acquisition Corp. and C/R Catalog Corp. dated January 17,
2000.
2.3 Second Amendment to Agreement and Plan of Merger among Petopia.com,
Inc., ICOD Acquisition Corp. and C/R Catalog Corp. dated January 18,
2000.
2.4 Escrow and Indemnity Agreement among Petopia.com, Inc., Chase
Manhattan Bank and Trust Company and the former stockholders and
warrantholders of C/R Catalog Corp. dated January 18, 2000.
2.5 Secured Promissory Note executed by Petopia.com, Inc. in favor of the
former stockholders and warrantholders of C/R Catalog Corp. dated
January 18, 2000.
3.1 Fifth Amended and Restated Certificate of Incorporation.
3.2 Certificate of Amendment to the Fifth Amended and Restated Certificate
of Incorporation.
3.3 Form of Amended and Restated Certificate of Incorporation, to be filed
and effective upon completion of this offering.
3.4 Bylaws of Petopia.
3.5 Form of Amended and Restated Bylaws, to be effective upon completion
of this offering.
4.1* Form of Common Stock Certificate.
4.2 Letter to Purchasers of the Series A Preferred Stock regarding the
Right to Participate in an Initial Public Offering.
5.1* Opinion of Perkins Coie LLP.
10.1 Form of Indemnification Agreement between Petopia.com, Inc. and each
of its directors and officers.
10.2 1999 Stock Plan, as amended.
10.3* Form of 2000 Employee Stock Purchase Plan.
10.4* Form of 2000 Stock Incentive Plan.
10.5 Stock Option Agreement between Petopia.com, Inc. and Prem S. Urali
dated as of September 1, 1999.
10.6 Stock Option Agreement between Petopia.com, Inc. and Scott Vertrees
dated as of February 1, 2000.
10.7 Form of Proprietary Information and Inventions Assignment Agreement.
10.8 Proprietary Information and Inventions Assignment Agreement between
Petopia.com, Inc. and Prem S. Urali dated September 1, 1999.
10.9 Restricted Stock Purchase Agreement with Andrea C. Reisman dated April
15, 1999.
10.10 Restricted Stock Purchase Agreement with David A. Fraze dated April
15, 1999.
10.11 Common Stock Purchase Agreement between Petopia.com, Inc. and Brian K.
Devine dated July 12, 1999.
10.12 Common Stock Purchase Agreement between Petopia.com, Inc. and William
M. Woodard dated July 12, 1999.
10.13 Series A Preferred Stock Purchase Agreement dated May 4, 1999.
10.14 Amendment to Series A Preferred Stock Purchase Agreement dated May 28,
1999.
10.15 Series B Preferred Stock Purchase Agreement dated July 1, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.16 Series C Preferred Stock Purchase Agreement dated July 12, 1999.
10.17 Series D Preferred Stock Purchase Agreement dated November 29, 1999.
10.18 Amendment to Series D Preferred Stock Purchase Agreement dated January
21, 2000.
10.19 Form of Warrant to purchase Series A Preferred Stock issued to entities
associated with Technology Crossover Ventures dated May 4, 1999 and May
10, 1999.
10.20 Form of Warrant to purchase Series C Preferred Stock issued to PETCO
Animal Supplies, Inc. dated July 12, 1999.
10.21 Form of Warrant to purchase Series D Preferred Stock issued to holders
of Series D Preferred Stock dated January 21, 2000.
10.22 Warrant to purchase Common Stock issued to NBC-PETO Holding, Inc. dated
January 21, 2000.
10.23 Form of Warrant to purchase Series E Preferred Stock issued by C/R
Catalog Corp. to certain shareholders of C/R Catalog Corp. and assumed
by Petopia.com, Inc. in connection with the acquisition by merger of
C/R Catalog Corp.
10.24 Warrant to purchase Series E Preferred Stock issued to Greyrock
Capital, a division of Banc of America Commercial Finance Corporation
dated January 31, 2000.
10.25* Separation Agreement and General Release between Petopia.com, Inc. and
Lorne K. Abony dated as of June 18, 1999.
10.26* Separation Agreement and General Release between Petopia.com, Inc. and
Scott Maltz dated as of March 1, 2000.
10.27* Employment Offer Letter with Prem S. Urali dated September 1, 1999.
10.28* Employment Offer Letter with Mark S. Cohon dated September 22, 1999.
10.29 Amended and Restated Investor Rights Agreement among Petopia.com, Inc.
and certain stockholders of Petopia.com, Inc. dated January 18, 2000.
10.30 Commercial Lease with TRANOD for offices at 1200 Folsom Street, San
Francisco, California dated July 15, 1999.
10.31* Alliance Agreement between Petopia.com, Inc. and PETCO Animal Supplies,
Inc. dated July 12, 1999.
10.32* Amendment to Alliance Agreement between Petopia.com, Inc. and PETCO
Animal Supplies, Inc. dated as of March 6, 2000.
10.33* Letter Agreement between Petopia.com, Inc. and ValueVision
International Inc. dated January 21, 2000.
10.34* Fulfillment Agreement between Petopia.com, Inc. and Loveland Pet
Products, Inc. dated March 11, 1999.
10.35* Amendment to Fulfillment Agreement between Petopia.com, Inc. and
Loveland Pet Products, Inc., amended as of May 11, 1999.
10.36 Loan and Security Agreement between Petopia.com, Inc. and Greyrock
Capital, a division of Banc of America Commercial Finance Corporation
dated January 31, 2000.
10.37 Secured Promissory Note between Petopia.com, Inc. and Greyrock Capital,
a division of Banc of America Commercial Finance Corporation dated
January 31, 2000.
10.38 Patent and Trademark Security Agreement between Petopia.com, Inc. and
Greyrock Capital, a division of Banc of America Commercial Finance
Corporation dated January 31, 2000.
10.39 Security Agreement in Copyrighted Works between Petopia.com, Inc. and
Greyrock Capital, a division of Banc of America Commercial Finance
Corporation dated January 31, 2000.
10.40 Pledge Agreement between Petopia.com, Inc. and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation dated
January 31, 2000.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.41 Subordination Agreement between Greyrock Capital, a division of Banc of
America Commercial Finance Corporation, Clifcor Capital, LLC and the
former stockholders of C/R Catalog Corp. dated January 31, 2000.
10.42 Continuing Guarantee executed by C/R Catalog Corp. in favor of Greyrock
Capital, a division of Banc of America Commercial Finance Corporation
dated January 31, 2000.
10.43 Security Agreement between C/R Catalog Corp. and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation dated January
31, 2000.
10.44 Form of Lock-Up Agreement.
21.1 List of subsidiaries.
23.1 Consent of Ernst and Young LLP, Independent Auditors.
23.2 Consent of Goldstein Golub Kessler LLP, Independent Auditors for C/R
Catalog Corp.
23.3 Consent of Perkins Coie LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6 of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
(b) Financial Statement Schedules
No financial statement schedules are provided, because the information called
for is not required or is shown either in the financial statements or the notes
thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the Delaware General Corporation Law, the
certificate of incorporation or the bylaws of the registrant, the underwriting
agreement, 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 of 1933, as amended, 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 of whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933, as amended,
and will be governed by the final adjudication of such issue.
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
as amended, 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 of 1933, as amended,
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, as amended, 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.
II-5
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Francisco, State of California, on this
10th day of March, 2000.
PETOPIA.COM, INC.
/s/ Andrea C. Reisman
By: _________________________________
Andrea C. Reisman
Chief Executive Officer and
Director
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Andrea C. Reisman and David A. Fraze,
and each of them, such individual's true and lawful attorneys-in-fact and
agents with full power of substitution, for such individual and in such
individual's name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this registration
statement, and to sign any registration statement for the same offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such individual might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or such individual's or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Andrea C. Reisman Chief Executive Officer March 10, 2000
______________________________________ and Director
Andrea C. Reisman
/s/ David A. Fraze Chief Financial Officer March 10, 2000
______________________________________
David A. Fraze
/s/ Jay C. Hoag Director March 10, 2000
______________________________________
Jay C. Hoag
/s/ Michael G. Linnert Director March 10, 2000
______________________________________
Michael G. Linnert
/s/ A. Brooke Seawell Director March 10, 2000
______________________________________
A. Brooke Seawell
/s/ Brian K. Devine Director March 10, 2000
______________________________________
Brian K. Devine
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William M. Woodard Director March 10, 2000
______________________________________
William M. Woodard
/s/ Stuart Goldfarb Director March 10, 2000
______________________________________
Stuart Goldfarb
/s/ Michael J. Dodd, Jr. Director March 10, 2000
______________________________________
Michael J. Dodd, Jr.
/s/ Scott Vertrees President and Director March 10, 2000
______________________________________
Scott Vertrees
</TABLE>
II-7
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger among Petopia.com, Inc., ICOD Acquisition
Corp. and C/R Catalog Corp. dated December 29, 1999.
2.2 First Amendment to Agreement and Plan of Merger among Petopia.com,
Inc., ICOD Acquisition Corp. and C/R Catalog Corp. dated January 17,
2000.
2.3 Second Amendment to Agreement and Plan of Merger among Petopia.com,
Inc., ICOD Acquisition Corp. and C/R Catalog Corp. dated January 18,
2000.
2.4 Escrow and Indemnity Agreement among Petopia.com, Inc., Chase
Manhattan Bank and Trust Company and the former stockholders and
warrantholders of C/R Catalog Corp. dated January 18, 2000.
2.5 Secured Promissory Note executed by Petopia.com, Inc. in favor of the
former stockholders and warrantholders of C/R Catalog Corp. dated
January 18, 2000.
3.1 Fifth Amended and Restated Certificate of Incorporation.
3.2 Form of Amended and Restated Certificate of Incorporation, to be filed
and effective upon completion of this offering.
3.3 Certificate of Amendment to the Fifth Amended and Restated Certificate
of Incorporation.
3.4 Bylaws of Petopia.
3.5 Form of Amended and Restated Bylaws, to be effective upon completion
of this offering.
4.1* Form of Common Stock Certificate.
4.2 Letter to Purchasers of the Series A Preferred Stock regarding the
Right to Participate in an Initial Public Offering.
5.1* Opinion of Perkins Coie LLP.
10.1 Form of Indemnification Agreement between Petopia.com, Inc. and each
of its directors and officers.
10.2 1999 Stock Plan, as amended.
10.3 Form of 2000 Employee Stock Purchase Plan.
10.4* Form of 2000 Stock Incentive Plan.
10.5 Stock Option Agreement between Petopia.com, Inc. and Prem S. Urali
dated as of September 1, 1999.
10.6 Stock Option Agreement between Petopia.com, Inc. and Scott Vertrees
dated as of February 1, 2000.
10.7 Form of Proprietary Information and Inventions Assignment Agreement.
10.8 Proprietary Information and Inventions Assignment Agreement between
Petopia.com, Inc. and Prem S. Urali dated September 1, 1999.
10.9 Restricted Stock Purchase Agreement with Andrea C. Reisman dated April
15, 1999.
10.10 Restricted Stock Purchase Agreement with David A. Fraze dated April
15, 1999.
10.11 Common Stock Purchase Agreement between Petopia.com, Inc. and Brian K.
Devine dated July 12, 1999.
10.12 Common Stock Purchase Agreement between Petopia.com, Inc. and William
M. Woodard dated July 12, 1999.
10.13 Series A Preferred Stock Purchase Agreement dated May 4, 1999.
10.14 Amendment to Series A Preferred Stock Purchase Agreement dated May 28,
1999.
10.15 Series B Preferred Stock Purchase Agreement dated July 1, 1999.
10.16 Series C Preferred Stock Purchase Agreement dated July 12, 1999.
10.17 Series D Preferred Stock Purchase Agreement dated November 29, 1999.
10.18 Amendment to Series D Preferred Stock Purchase Agreement dated January
21, 2000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<C> <S>
10.19 Form of Warrant to purchase Series A Preferred Stock issued to
entities associated with Technology Crossover Ventures dated May 4,
1999 and May 10, 1999.
10.20 Form of Warrant to purchase Series C Preferred Stock issued to PETCO
Animal Supplies, Inc. dated July 12, 1999.
10.21 Form of Warrant to purchase Series D Preferred Stock issued to holders
of Series D Preferred Stock dated January 21, 2000.
10.22 Warrant to purchase Common Stock issued to NBC-PETO Holding, Inc.
dated January 21, 2000.
10.23 Form of Warrant to purchase Series E Preferred Stock issued by C/R
Catalog Corp. to certain shareholders of C/R Catalog Corp. and assumed
by Petopia.com, Inc. in connection with the acquisition by merger of
C/R Catalog Corp.
10.24 Warrant to purchase Series E Preferred Stock issued to Greyrock
Capital, a division of Banc of America Commercial Finance Corporation
dated January 31, 2000.
10.25* Separation Agreement and General Release between Petopia.com, Inc. and
Lorne K. Abony dated as of June 18, 1999.
10.26* Separation Agreement and General Release between Petopia.com, Inc. and
Scott Maltz dated as of March 1, 2000.
10.27* Employment Offer Letter with Prem S. Urali dated September 1, 1999.
10.28* Employment Offer Letter with Mark S. Cohon dated September 22, 1999.
10.29 Amended and Restated Investor Rights Agreement among Petopia.com, Inc.
and certain stockholders of Petopia.com, Inc. dated January 18, 2000.
10.30 Commercial Lease with TRANOD for offices at 1200 Folsom Street, San
Francisco, California dated July 15, 1999.
10.31* Alliance Agreement between Petopia.com, Inc. and PETCO Animal
Supplies, Inc. dated July 12, 1999.
10.32* Amendment to Alliance Agreement between Petopia.com, Inc. and PETCO
Animal Supplies, Inc. dated as of March 6, 2000.
10.33* Letter Agreement between Petopia.com, Inc. and ValueVision
International Inc. dated January 21, 2000.
10.34* Fulfillment Agreement between Petopia.com, Inc. and Loveland Pet
Products, Inc. dated March 11, 1999.
10.35* Amendment to Fulfillment Agreement between Petopia.com, Inc. and
Loveland Pet Products, Inc., amended as of May 11, 1999.
10.36 Loan and Security Agreement between Petopia.com, Inc. and Greyrock
Capital, a division of Banc of America Commercial Finance Corporation
dated January 31, 2000.
10.37 Secured Promissory Note between Petopia.com, Inc. and Greyrock
Capital, a division of Banc of America Commercial Finance Corporation
dated January 31, 2000.
10.38 Patent and Trademark Security Agreement between Petopia.com, Inc. and
Greyrock Capital, a division of Banc of America Commercial Finance
Corporation dated January 31, 2000.
10.39 Security Agreement in Copyrighted Works between Petopia.com, Inc. and
Greyrock Capital, a division of Banc of America Commercial Finance
Corporation dated January 31, 2000.
10.40 Pledge Agreement between Petopia.com, Inc. and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation dated
January 31, 2000.
10.41 Subordination Agreement between Greyrock Capital, a division of Banc
of America Commercial Finance Corporation, Clifcor Capital, LLC and
the former stockholders of C/R Catalog Corp. dated January 31, 2000.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No Description
------- -----------
<C> <S>
10.42 Continuing Guarantee executed by C/R Catalog Corp. in favor of
Greyrock Capital, a division of Banc of America Commercial Finance
Corporation dated January 31, 2000.
10.43 Security Agreement between C/R Catalog Corp. and Greyrock Capital, a
division of Banc of America Commercial Finance Corporation dated
January 31, 2000.
10.44 Form of Lock-Up Agreement.
21.1 List of subsidiaries.
23.1 Consent of Ernst and Young LLP, Independent Auditors.
23.2 Consent of Goldstein Golub Kessler LLP, Independent Auditors for C/R
Catalog Corp.
23.3 Consent of Perkins Coie LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6 of the Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and among
PETOPIA.COM, INC.
ICOD ACQUISITION CORP.
and
C/R CATALOG CORP.
dated as of December 29, 1999
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. THE MERGER................................................................... 1
1.1. The Merger................................................................ 1
1.2. Closing................................................................... 1
1.3. Effective Time............................................................ 2
1.4. Conversion of Shares...................................................... 2
1.5. Warrants.................................................................. 4
1.6. Exchange of Certificates Representing Company Capital Stock............... 4
1.7. Adjustment of Exchange Ratio.............................................. 5
1.8. Dissenting Shares......................................................... 6
1.9. Taking of Necessary Action; Further Action................................ 6
ARTICLE II. CERTAIN MATTERS RELATING TO THE SURVIVING CORPORATION....................... 6
2.1. Certificate of Incorporation of the Surviving Corporation................. 6
2.2. By-Laws of the Surviving Corporation...................................... 6
2.3. Directors of the Surviving Corporation.................................... 6
2.4. Officers of the Surviving Corporation..................................... 7
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PETOPIA AND PETOPIA SUB.................. 7
3.1. Existence, Good Standing, Corporate Authority............................. 7
3.2. Authorization of Agreement and Other Documents............................ 7
3.3. No Violation.............................................................. 8
3.4. No Brokers................................................................ 9
3.5. Petopia Series E Preferred Stock.......................................... 9
3.6. Capitalization............................................................ 9
3.7. Litigation................................................................ 10
3.8. Compliance With Laws--General............................................. 11
3.9. Financial Information..................................................... 11
3.10. Affiliated Transactions................................................... 12
3.11. Material Adverse Change................................................... 12
3.12. No Undisclosed Liabilities................................................ 12
3.13. Tax Reorganization........................................................ 12
3.14. Intellectual Property..................................................... 12
3.15. Constituent Documents..................................................... 14
3.16. Disclosure................................................................ 14
3.17. Insurance................................................................. 15
3.18. Employee Benefit Plans.................................................... 15
3.19. Employee Matters.......................................................... 15
3.20. Taxes..................................................................... 15
3.21. Contracts................................................................. 15
3.22. Title to Properties....................................................... 16
3.23. Subsidiaries.............................................................. 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... 17
4.1. Organization, Standing and Qualification.................................. 17
4.2. Capitalization............................................................ 17
4.3. Subsidiaries.............................................................. 18
4.4. Ownership Interests....................................................... 18
4.5. Constituent Documents..................................................... 18
4.6. Authorization of Agreement and Other Documents............................ 18
4.7. No Violation.............................................................. 19
4.8. Compliance with Laws--General............................................. 19
4.9. Financial Information..................................................... 20
4.10. Books and Records......................................................... 20
4.11. Accounts Receivables...................................................... 20
4.12. Intentionally Omitted..................................................... 20
4.13. Bank Accounts............................................................. 20
4.14. Intellectual Property..................................................... 21
4.15. Title to Properties....................................................... 22
4.16. Real Estate; Leased Premises.............................................. 23
4.17. Contracts................................................................. 23
4.18. Insurance................................................................. 24
4.19. Litigation................................................................ 25
4.20. Warranties................................................................ 25
4.21. Products Liability........................................................ 25
4.22. Arbitration............................................................... 25
4.23. Taxes..................................................................... 26
4.24. ERISA..................................................................... 27
4.25. Labor Matters............................................................. 29
4.26. Environmental Matters..................................................... 30
4.27. Interim Conduct of Business............................................... 30
4.28. Affiliated Transactions................................................... 31
4.29. Significant Suppliers and Employees....................................... 32
4.30. Material Adverse Change................................................... 32
4.31. Bribes.................................................................... 32
4.32. Absence of Indemnifiable Claims, etc...................................... 32
4.33. No Undisclosed Liabilities................................................ 32
4.34. No Brokers................................................................ 32
4.35. Tax Reorganization........................................................ 33
4.36. Takeover Statutes......................................................... 33
ARTICLE V. COVENANTS.................................................................... 33
5.1. Alternative Proposals..................................................... 33
5.2. Interim Operations........................................................ 34
5.3. Stockholder Approvals..................................................... 35
5.4. Filings; Other Action..................................................... 36
5.5. Inspection of Records..................................................... 36
5.6. Publicity................................................................. 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
5.7. Further Action............................................................ 37
5.8. Expenses.................................................................. 37
5.9. Tax Treatment of Merger................................................... 37
5.10. Payment of Company Line of Credit......................................... 37
5.11. Company Indemnification Obligations....................................... 38
5.12. Option Grants............................................................. 38
ARTICLE VI. CONDITIONS.................................................................. 38
6.1. Conditions to Each Party's Obligation to Effect the Merger................ 38
6.2. Conditions to Obligation of the Company to Effect the Merger.............. 39
6.3. Conditions to Obligation of Petopia and Petopia Sub to Effect the Merger.. 40
ARTICLE VII. INDEMNIFICATION............................................................ 42
7.1. General................................................................... 42
7.2. Certain Definitions....................................................... 43
7.3. The Holders Indemnification Obligations................................... 43
7.4. Petopia's Indemnification Obligations..................................... 43
7.5. Limitation on Indemnification Obligations................................. 44
7.6. Cooperation............................................................... 44
7.7. Subrogation............................................................... 45
7.8. Indemnification Claims Procedures......................................... 45
7.9. Majority of Stockholders.................................................. 46
ARTICLE VIII. TERMINATION............................................................... 47
8.1. Termination by Mutual Consent............................................. 47
8.2. Termination by Either Petopia or the Company.............................. 47
8.3. Termination by the Company................................................ 47
8.4. Termination by Petopia.................................................... 47
8.5. Effect of Termination and Abandonment..................................... 47
8.6. Extension; Waiver......................................................... 48
ARTICLE IX. GENERAL PROVISIONS.......................................................... 48
9.1. Notices................................................................... 48
9.2. Assignment, Binding Effect................................................ 48
9.3. Entire Agreement.......................................................... 49
9.4. Amendment................................................................. 49
9.5. Governing Law............................................................. 49
9.6. Counterparts.............................................................. 49
9.7. Headings.................................................................. 49
9.8. Interpretation............................................................ 49
9.9. Waivers................................................................... 49
9.10. Incorporation............................................................. 50
9.11. Severability.............................................................. 50
9.12. Enforcement of Agreement.................................................. 50
</TABLE>
iii
<PAGE>
SCHEDULES
Disclosure Statement
Petopia Disclosure Statement
EXHIBITS
- --------
A - Schedule of Holders
B - Promissory Note
C - Form of Escrow Agreement
D - Form of Representation Statement
E - Schedule of Officers of Surviving Corporation
F - Form of Rights Agreement
G - Form of Co-Sale Agreement
H - Form of Voting Agreement
I - Form of Fifth Restated Certificate
J - Option Grants
K-1 - Form of Employment Agreement with Howard Koenig
K-2 - Form of Employment Agreement with Scott Vertrees
L - Schedule of Required Consents
M - Company Counsel Opinions
N - Form of Non-Competition and Non-Solicitation Agreement
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of December 29, 1999 (the
"Agreement") by and among Petopia.com, Inc., a Delaware corporation ("Petopia"),
--------- -------
ICOD Acquisition Corp., a Delaware corporation and the wholly-owned subsidiary
of Petopia ("Petopia Sub"), and C/R Catalog Corp. (d/b/a In the Company of
-----------
Dogs), a Delaware corporation (the "Company"). The stockholders of the Company
-------
(the "Stockholders") and their fully diluted ownership interest in the Company
------------
are listed on Exhibit A attached hereto and the holders of outstanding warrants
---------
and their fully diluted ownership interest in the Company are listed on Exhibit
-------
A attached hereto (the "Warrantholders"). The Stockholders and the
- - --------------
Warrantholders are collectively referred to herein as the "Holders".
-------
WHEREAS, the Board of Directors of each of Petopia and the Company have
determined that a business combination between Petopia and the Company merging
their respective businesses is in the best interests of their respective
companies and stockholders and presents an opportunity for their respective
companies to achieve long-term strategic and financial benefits, and accordingly
have agreed to effect the merger provided for herein upon the terms and subject
to the conditions set forth herein; and
WHEREAS, it is the intention of the parties to this Agreement that (a) for
federal income tax purposes, the merger provided for herein shall qualify as a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"); and (b) the shares of Series E Preferred
----
Stock, par value $0.0001 per share, of Petopia (the "Petopia Series E Preferred
--------------------------
Stock") to be issued pursuant to the Merger shall be exempt from registration
- -----
under the Securities Act of 1933, as amended (the "Securities Act"); and
--------------
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and covenants herein contained, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be forever bound by the terms set
forth herein, do hereby agree as follows:
ARTICLE I.
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this
----------
Agreement, at the Effective Time (as defined in Section 1.3 of this Agreement),
the Company shall be merged with and into Petopia Sub in accordance with the
laws of the State of Delaware and the terms of this Agreement (the "Merger"),
------
whereupon the separate corporate existence of the Company shall cease, and
Petopia Sub shall be the surviving corporation of the Merger (Petopia Sub, as
the surviving corporation after the Merger is sometimes referred to herein as
the "Surviving Corporation").
---------------------
1.2. Closing. Subject to the terms and conditions of this Agreement,
-------
the closing of the Merger (the "Closing") shall take place (a) at the offices
-------
of Perkins Coie LLP, 135 Commonwealth Drive, Menlo Park, CA 94025 at 10:00 a.m.
two business days after all the
1
<PAGE>
conditions set forth in Article VI of this Agreement (other than those that are
waived (in accordance with the provisions of Section 8.6 hereof) by the party or
parties for whose benefit such conditions exist) are satisfied; or (b) at such
other place, time, and/or date as the parties hereto may otherwise agree. The
date upon which the Closing shall occur is referred to herein as the "Closing
-------
Date." The Closing is expected to occur on or about January 11, 2000.
- ----
1.3. Effective Time. If all the conditions to the Merger set forth
--------------
in Article VI of this Agreement have been fulfilled or waived (in accordance
with the provisions of Section 8.6 hereof) and this Agreement shall not have
been terminated as provided in Article VIII hereof, the parties hereto shall
cause a certificate of merger (the "Certificate of Merger") to be properly
---------------------
executed and filed in accordance with the laws of the State of Delaware and the
terms of this Agreement on the Closing Date. The parties hereto shall also take
such further actions as may be required under the laws of the State of Delaware
in connection with the consummation of the Merger. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger (the "Effective Time"). From and after
--------------
the Effective Time, the Surviving Corporation shall possess all the rights,
privileges, powers and franchises and be subject to all of the restrictions,
disabilities and duties of the Company and Petopia Sub, all as provided under
applicable law.
1.4. Conversion of Shares.
--------------------
(a) At the Effective Time:
(i) each share of Common Stock, par value $0.01 per share,
of Petopia Sub outstanding at the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, shall be converted into
and exchanged for one share of Common Stock, par value $0.01 per share, of the
Surviving Corporation;
(ii) each share of Common Stock, $0.001 par value per
share, of the Company (the "Company Capital Stock") outstanding at the Effective
---------------------
Time, by virtue of the Merger and without any action on the part of the holders
thereof, except as otherwise provided in Sections 1.4(d) or 1.8 hereof, shall be
converted into the right to receive the following, which collectively shall be
referred to hereinafter as the "Merger Consideration":
--------------------
(A) the number of shares of Petopia Series E
Preferred Stock equal to the following (the "Exchange Ratio"): (I) 2,080,016;
--------------
divided by (II) the aggregate number of shares of Company Capital Stock
- ----------
outstanding on a fully diluted basis (assuming the exercise immediately prior to
the Merger of all outstanding rights to acquire Company Capital Stock, whether
or not then exercisable) at the Effective Time;
(B) $1,000,000 divided by the aggregate number of
----------
shares of Company Capital Stock outstanding at the Effective Time (including the
number of shares of Company Capital Stock for which any then outstanding
warrants are exercisable) payable in cash at Closing; and
2
<PAGE>
(C) $2,000,000; divided by the aggregate number of
----------
shares of Company Capital Stock outstanding at the Effective Time (including the
number of shares of Company Capital Stock for which any then outstanding
warrants are exercisable), payable in cash to the Stockholders and the Warrant
Holders on the earlier of (i) the closing of Petopia's initial public offering
of common stock on Form S-1 filed with the Securities and Exchange Commission;
or (ii) June 15, 2000, which obligation shall be evidenced by a promissory note,
substantially in the form attached hereto as Exhibit B.
---------
(b) (i) As a condition to the consummation of the Merger, the
Holders shall be required to deposit 208,002 of the shares of Petopia Series E
Preferred Stock to be received by them in the Merger (or the right to receive
such shares upon exercise of the Common Stock Purchase Warrants) into an escrow
account (the "Escrow"), which shares shall be held and released in accordance
------
with the terms of an Escrow Agreement (the "Escrow Agreement") to be entered
----------------
into by and among the Holders and a mutually agreeable escrow agent (the "Escrow
------
Agent"), in substantially the form attached hereto as Exhibit C. Each Holder
- ----- ---------
shall be required to deposit, or shall be responsible to deposit after the
Effective Time upon exercise of outstanding Common Stock Purchase Warrants, as
the case may be, into Escrow their pro rata portion of the total number of
shares of Series E Preferred Stock to be deposited into Escrow based upon the
total number of shares of Company Capital Stock owned by each such Holder, on a
fully diluted basis .
(c) As a result of the Merger and without any action on the
part of the holders thereof, at the Effective Time, all shares of Company
Capital Stock shall cease to be outstanding and shall be canceled and retired
and shall cease to exist, and each holder of shares of Company Capital Stock
shall thereafter cease to have any rights with respect to such shares of Company
Capital Stock, except for the right to receive (except as otherwise provided in
Section 1.8 hereof), without interest, the Merger Consideration set forth in
this Section 1.4 and cash for fractional shares of Petopia Series E Preferred
Stock in accordance with Section 1.6 of this Agreement upon the surrender of a
certificate (each, a "Certificate") representing such shares of Company Capital
-----------
Stock in accordance with the provisions of this Article I.
(d) Each share of Company Capital Stock held by the Company as
treasury stock or owned by Petopia or any Subsidiary (as defined in Section
1.4(e) of this Agreement) of Petopia at the Effective Time shall be canceled,
and no payment shall be made with respect thereto.
(e) For purposes of this Agreement, (i) the word "Subsidiary"
----------
when used with respect to any Person means any corporation or other
organization, whether incorporated or unincorporated, of which (A) at least
fifty percent (50%) of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries; or (B) such Person or any other Subsidiary
of such Person is a general partner, it being understood that representations
and warranties of a Person concerning any former Subsidiary of such Person shall
be deemed to relate only to the periods during which such former Subsidiary was
a Subsidiary of such Person; and (ii) the word "Person" means an individual, a
corporation, a limited liability company, a partnership, an association, a trust
or any other entity or organization, including a government or political
3
<PAGE>
subdivision or any agency or instrumentality thereof, or any affiliate (as that
term is defined in the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (the "Exchange Act")) of any of the
------------
foregoing.
1.5. Warrants. Petopia will assume the Company's Common Stock
--------
Purchase Warrants Series A and Common Stock Purchase Warrants Series B
(collectively, the "Common Stock Purchase Warrants") in accordance with their
respective terms, which shall include the conversion of the number of shares
into which the Common Stock Purchase Warrants may be exercised into the holder
------------------------------
of such Warrants' proportionate share of the Merger Consideration.
1.6. Exchange of Certificates Representing Company Capital Stock.
-----------------------------------------------------------
(a) On or promptly after the Effective Time (but not later
than five (5) business days after the Effective Time), Petopia shall mail to
each holder of record of shares of Company Capital Stock (i) a letter of
transmittal which shall specify that delivery shall be effected, and risk of
loss and title to such shares of Company Capital Stock shall pass, only upon
delivery of the Certificates representing such shares to Petopia, and (ii)
instructions for use in effecting the surrender of such Certificates in exchange
for a portion of the Merger Consideration and cash in lieu of fractional shares.
Upon surrender of a Certificate representing shares of Company Capital Stock for
cancellation to Petopia, together with such letter of transmittal and a Holder
Representation Statement in the form attached hereto as Exhibit D (a "Rep.
--------- ---
Letter"), each duly executed and completed in accordance with the instructions
- ------
thereto, the holder of the shares represented by such Certificate shall be
entitled to receive the consideration set forth in Section 1.4(a) hereof and
cash payable in lieu of any fractional shares, after giving effect to any
required withholding tax and less the number of shares of Petopia Series E
Preferred Stock required to be deposited by such Stockholder into the Escrow
pursuant to the terms of Section 1.4 hereof. No interest will be paid or accrued
on cash payable to holders of shares of Company Capital Stock. Until so
surrendered, each Certificate that, at the Effective Time, represented shares of
Company Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes to evidence a portion of the Merger Consideration set forth
in Section 1.4(a).
(b) As of the Effective Time, Petopia shall deposit or cause to
be deposited with the Escrow Agent a Certificate (issued in the name of the
Escrow Agent or its nominee) representing the Petopia Series E Preferred Stock
deposited in the Escrow ("Escrow Shares"), as described in Section 1.4(b), for
-------------
the purpose of securing the indemnification obligations of the Holders set forth
in this Agreement and the Escrow Agreement. The Escrow Shares shall be held by
the Escrow Agent under the Escrow Agreement pursuant to the terms thereof and
shall be disbursed in accordance with the terms of the Escrow Agreement. The
adoption of this Agreement and the approval of the Merger by the Holders shall
constitute approval of the Escrow Agreement and of all of the arrangements
relating thereto, including without limitation the placement of the Escrow
Shares in escrow and the decision of a "Majority in Interest" (as defined in the
Escrow Agreement) of the Holders being binding on behalf of each Holder with
respect to the subject matter of the Escrow Agreement and for the purpose of the
taking of any and all actions and the making of any decisions required or
permitted to be taken or made by them under the Escrow Agreement.
4
<PAGE>
(c) At or after the Effective Time, there shall be no transfers
on the stock transfer books of the Company of the shares of Company Capital
Stock which were outstanding at the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for the consideration set forth in this Article I
deliverable in respect thereof pursuant to this Agreement in accordance with the
procedures set forth in this Section 1.6.
(d) No fractional shares of Petopia Series E Preferred Stock
shall be issued pursuant hereto. In lieu of the issuance of any fractional share
of Petopia Series E Preferred Stock pursuant to Section 1.4 (which fractional
share amounts shall be determined after aggregating each Stockholder's
allocation of Petopia Series E Preferred Stock), cash adjustments will be paid
to holders in respect of any fractional share of Petopia Series E Preferred
Stock that would otherwise be issuable, and the amount of such cash adjustment
shall be equal to such fractional proportion of $5.6061.
(e) All Holders shall look only to Petopia for payment of the
Merger Consideration and cash in lieu of fractional shares deliverable in
respect of each share of Company Capital Stock such Holder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
(f) None of Petopia, Petopia Sub, the Company, the Surviving
Corporation or any other person shall be liable to any former holder of shares
of Company Capital Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, Petopia will issue
in exchange for such lost, stolen or destroyed Certificate, the Merger
Consideration pursuant to the terms of this Article I formerly represented by
such Certificate.
1.7. Adjustment of Exchange Ratio. In the event that, subsequent to
----------------------------
the date of this Agreement but prior to the Effective Time, the outstanding
shares of Petopia Capital Stock or, Company Capital Stock shall have been
changed into a different number of shares or a different class as a result of a
stock split, reverse stock split, stock dividend, subdivision, reclassification,
split, combination, exchange, recapitalization or other similar transaction, the
Exchange Ratio shall be appropriately adjusted as if the Petopia Series E
Preferred Stock had been issued immediately prior to any such transaction.
1.8. Dissenting Shares Notwithstanding anything to the contrary
-----------------
contained in this Agreement, in the event appraisal rights are available to the
Stockholders pursuant to applicable law, any shares of Company Capital Stock
held by a person who objects to the Merger and who complies with all of the
provisions of applicable law concerning the rights of such person to dissent
from the Merger and to require appraisal of such person's shares of Company
Capital
5
<PAGE>
Stock (the "Company Dissenting Shares"), shall not be converted into the right
-------------------------
to receive the Merger Consideration pursuant to Section 1.4 of this Agreement
but shall become the right to receive such consideration as may be determined to
be due to the holder of such Company Dissenting Shares pursuant to applicable
law; provided, however, that the Company Dissenting Shares held by a person at
-------- -------
the Effective Time who shall, after the Effective Time, withdraw the demand for
appraisal or lose the right to appraisal, in either case pursuant to applicable
law, shall be deemed to have been converted, as of the Effective Time, into the
Merger Consideration pursuant to Section 1.4 of this Agreement.
1.9. 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,
powers and franchises of the Company and Petopia Sub, the officers and directors
of the Company and Petopia Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is consistent with this Agreement.
ARTICLE II.
CERTAIN MATTERS RELATING TO
THE SURVIVING CORPORATION
2.1. Certificate of Incorporation of the Surviving Corporation. The
---------------------------------------------------------
certificate of incorporation of Petopia Sub in effect at the Effective
Time shall be the certificate of incorporation of the Surviving Corporation
until amended in accordance with its terms and pursuant to applicable law.
2.2. By-Laws of the Surviving Corporation. The By-Laws of Petopia
------------------------------------
Sub in effect at the Effective Time shall be the By-Laws of the Surviving
Corporation until amended in accordance with the terms of such By-Laws and
pursuant to applicable law and the Certificate of Incorporation of the Surviving
Corporation.
2.3. Directors of the Surviving Corporation. The directors of
--------------------------------------
Petopia Sub at the Effective Time shall be the directors of the Surviving
Corporation immediately after the Effective Time, to hold office until their
successors are duly appointed or elected in accordance with applicable law.
2.4. Officers of the Surviving Corporation. The officers of the
-------------------------------------
Surviving Corporation immediately after the Effective Time shall consist of the
persons listed on Exhibit E attached hereto who shall hold the offices listed
opposite their respective names until their successors are duly appointed or
elected in accordance with applicable law.
6
<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF PETOPIA AND PETOPIA SUB
Petopia and Petopia Sub represent and warrant to the Company that the
statements contained in this Article III are true and correct, except as set
forth in the disclosure statement delivered by Petopia and Petopia Sub to the
Company concurrently herewith and identified as the "Petopia Disclosure
------------------
Statement." All exceptions noted in the Petopia Disclosure Statement shall be
- ---------
numbered to correspond to the applicable sections or subsections to which such
exception refers.
3.1. Existence, Good Standing, Corporate Authority. Each of Petopia
---------------------------------------------
and Petopia Sub (i) is a corporation duly incorporated, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation;
(ii) has all requisite power and authority to own or lease, and operate its
properties and assets, and to carry on its business as now conducted and as
currently proposed to be conducted, except where the failure to have such power
and authority would not have a Petopia Material Adverse Effect (as defined
herein), and to consummate the transactions contemplated hereby; (iii) is duly
qualified or licensed to do business and is in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed, except where the failure to
so qualify or be licensed, individually or in the aggregate, would not have a
Petopia Material Adverse Effect; and (iv) has obtained all licenses, permits,
franchises and other governmental authorizations necessary to the ownership or
operation of its properties or the conduct of its business, except where the
failure to have obtained such licenses, permits, franchises or authorizations,
individually or in the aggregate, would not have a Petopia Material Adverse
Effect. The copies of Petopia's and Petopia Sub's Certificates of Incorporation
and By-Laws previously delivered to the Company are true and correct. For
purposes of this Agreement, a "Material Adverse Effect" when used with respect
-----------------------
to any entity means (a) a material adverse effect on the business, results of
operations or financial condition of such entity and its subsidiaries, if any,
taken as a whole, or (b) a material impairment in the ability of such entity or
its subsidiaries to perform any of their obligations under this Agreement or to
consummate the Merger.
3.2. Authorization of Agreement and Other Documents. The execution
----------------------------------------------
and delivery of this Agreement and the other documents executed or to be
executed in connection herewith to which Petopia or Petopia Sub is a party
(including, but not limited to, the Escrow Agreement, Fourth Amended and
Restated Investors' Rights Agreement (the "Rights Agreement"), Fourth Amended
----------------
and Restated Co-Sale Agreement (the "Co-Sale Agreement") and Fourth Amended and
-----------------
Restated Voting Agreement (the "Voting Agreement"), attached hereto as Exhibits
---------------- --------
F, G and H, respectively) (collectively, the "Petopia Ancillary Documents") have
- - - - ---------------------------
been duly authorized by the Board of Directors of Petopia and Petopia Sub and no
other proceedings on the part of Petopia or Petopia Sub or their respective
stockholders are necessary to authorize the execution, delivery or performance
of this Agreement or any Petopia Ancillary Document; except (i) the approval of
Petopia's Fifth Amended and Restated Certificate of Incorporation attached
hereto as Exhibit I (the "Fifth Restated Certificate") by its stockholders, and
--------- --------------------------
(ii) the approval of the parties to the Third Amended and Restated Investors'
Rights Agreement (the "Prior Rights Agreement"), the Third Amended and Restated
----------------------
Co-Sale Agreement (the "Prior Co-Sale Agreement") and the Third Amended and
-----------------------
Restated Voting Agreement (the "Prior Voting Agreement"), respectively, in
----------------------
accordance with
7
<PAGE>
the terms thereof. This Agreement is, and, as of the Closing Date, each of the
Petopia Ancillary Documents will be, a valid and binding obligation of Petopia
and/or Petopia Sub to the extent each is a party thereto, enforceable against
Petopia and/or Petopia Sub to the extent each is a party thereto in accordance
with its terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting enforcement of creditors' rights generally, and by
general principles of equity (regardless of whether enforcement is considered in
a proceeding at law or in equity).
3.3. No Violation. Neither the execution and delivery by Petopia and
------------
Petopia Sub of this Agreement nor the Petopia Ancillary Documents, nor the
consummation by Petopia and Petopia Sub of the transactions contemplated hereby
and thereby in accordance with their respective terms, will (a) conflict with or
result in a breach of any provisions of the Certificates of Incorporation or By-
Laws of Petopia or Petopia Sub; (b) result in a breach or violation of, a
default under, or the triggering of any payment or other material obligations
pursuant to, or accelerate vesting under, any of the Petopia stock option plans,
or any grant or award made under any of the foregoing; (c) violate, conflict
with, result in a breach of any provision of, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
result in the termination, or in a right of termination or cancellation of,
accelerate the performance, or create a right to accelerate the performance,
required by, result in the triggering of an increase in any payment or other
material obligations pursuant to, result in the creation of any lien, security
interest, charge or encumbrance upon any of the material properties of Petopia
or Petopia Sub under, or result in being declared void, voidable, or without
further binding effect, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any material license, franchise,
permit, lease, contract, agreement or other instrument, commitment or obligation
to which Petopia or Petopia Sub is a party, or by which Petopia or Petopia Sub
or any of their respective properties is bound or affected, except for any of
the foregoing matters which would not, individually or in the aggregate, have a
Petopia Material Adverse Effect; (d) contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Petopia or Petopia Sub, except for any
of the foregoing matters which would not have a Petopia Material Adverse Effect;
or (e) other than the approvals and filings provided for in Sections 1.3 and
5.7, filings under applicable federal, state and local laws and regulations, the
Securities Act, or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Filings"), require any material consent,
-------
approval, order or authorization of, or declaration, qualification, designation,
filing or registration with, any domestic governmental or regulatory authority,
the failure to obtain or make which would have a Petopia Material Adverse
Effect. Petopia and Petopia Sub are not in violation or default of any
provisions of (a) their respective Certificates of Incorporation or By-Laws, (b)
any instrument, judgment, order, writ, decree or contract to which either
Petopia or Petopia Sub is a party or by which either of them is bound; (c) any
mortgage, indenture, lease, license, other agreement or instrument by which
either of them is bound or to which either of them or any of their properties
are subject; or (d) any license, permit, franchise or other governmental
authorization and, to the knowledge of Petopia, no suspension or cancellation of
any of them is threatened.
3.4. No Brokers. Petopia has not entered into any contract,
----------
arrangement or understanding with any person or firm which may result in the
obligation of the Company or Petopia, Petopia Sub or their respective
Subsidiaries to pay any finder's fee, brokerage or agent's commissions
8
<PAGE>
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
3.5. Petopia Series E Preferred Stock. Upon receipt of stockholder
--------------------------------
approval for and filing of the Fifth Restated Certificate by Petopia, the
issuance and delivery by Petopia of shares of Petopia Series E Preferred Stock
in connection with the Merger and this Agreement will be duly and validly
authorized by all necessary corporate action on the part of Petopia. The shares
of Petopia Series E Preferred Stock to be issued in connection with the Merger
and this Agreement, when issued in accordance with the terms of this Agreement,
will be duly and validly issued, fully paid and nonassessable.
3.6. Capitalization. As of the date hereof:
--------------
(a) The total authorized capital stock of Petopia consists of:
(i) 49,180,000 shares of Preferred Stock, (i) 11,555,000
of which shares have been designated Series A Preferred Stock, 9,755,000 of
which are issued and outstanding immediately prior to the date hereof and
1,800,000 of which have been reserved for issuance upon exercise of outstanding
warrants to purchase shares of Series A Preferred Stock (the "Series A
--------
Warrants"), (ii) 8,000,000 of which have been designated Series B Preferred
- --------
Stock, 7,736,345 of which are issued and outstanding immediately prior to the
date hereof, (iii) 12,940,620 of which have been designated Series C Preferred
Stock, 3,017,175 of which are issued and outstanding immediately prior to the
date hereof, 4,803,458 of which have been reserved for issuance to PETCO Animal
Supplies, Inc. ("PETCO") upon the achievement by PETCO of certain milestones
-----
(the "PETCO Shares"), and 5,119,987 of which have been reserved for issuance
------------
upon exercise of outstanding warrants to purchase shares of Series C Preferred
Stock (the "Series C Warrants"), and (iv) 14,000,000 of which have been
-----------------
designated Series D Preferred Stock, 6,270,262 of which are issued and
outstanding immediately prior to the date hereof. The rights, privileges and
preferences of the Series A, Series B, Series C and Series D Preferred Stock are
as stated in Petopia's Fourth Amended and Restated Certificate of Incorporation,
and at the Effective Time, will be as stated in the Fifth Restated Certificate.
All issuances of shares of Series A, Series B, Series C and Series D Preferred
Stock referenced above, other than the PETCO Shares, have been consummated. The
shares of Series A, Series B, Series C and Series D Preferred Stock issued by
Petopia were duly authorized, validly issued, fully paid, nonassessable, free
and clear of all liens, pledges, security interests, claims or other
encumbrances and restrictions on voting and transfer (other than those imposed
by the purchasers thereof), and based in part on the representations made by the
purchasers thereof, were exempt from registration under Section 5 of the
Securities Act of 1933, as amended and the California Corporate Securities Law
of 1968, as amended. The rights of PETCO as set forth in Section 6.6 of the
Series C Preferred Stock Purchase Agreement dated July 12, 1999 by and between
Petopia and PETCO expired prior to any exercise thereof.
(ii) 71,180,000 shares of Common Stock, 9,595,671shares
of which are issued and outstanding immediately prior to the date hereof. All of
the outstanding shares of Common Stock were duly authorized, validly issued,
fully paid and nonassessable and were issued in compliance with all applicable
federal and state laws.
9
<PAGE>
(iii) Petopia has reserved 7,500,000 shares of Common Stock
for issuance to officers, directors, employees and consultants of Petopia
pursuant to its 1999 Stock Plan duly adopted by the Board of Directors and
approved by the Petopia's stockholders (the "Stock Plan"), of which options to
----------
purchase 5,431,316 shares of Common Stock are outstanding as of the date hereof,
1,751,110 shares of Common Stock have been issued and 317,574 shares are
available for future issuance under the Stock Plan. Petopia has reserved (A)
11,555,000 shares of Common Stock for issuance upon conversion of the Series A
Preferred Stock, (B) 8,000,000 shares of Common Stock for issuance upon
conversion of the Series B Preferred Stock, (C) 12,940,620 shares of Common
Stock for issuance upon conversion of the Series C Preferred Stock, (D)
14,000,000 shares of Common Stock for issuance upon conversion of the Series D
Preferred Stock, and (E) 585,000 shares of Common Stock for issuance upon the
exercise of outstanding warrants to purchase Common Stock (the "Common
------
Warrants"). Prior to Closing, Petopia shall have reserved 2,330,000 shares of
- --------
Common Stock for issuance upon conversion of the Series E Preferred Stock.
(b) Except for (A) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series A Warrants, Common Warrants, the PETCO Shares and the
Series C Warrants, (B) the rights of first refusal as set forth in the Rights
Agreement and the Co-Sale Agreement, (C) the rights to participate in the
initial public offering as indicated in Section 2.6 of the Rights Agreement and
in the IPO Allocation Agreement dated as of May 4, 1999 between Petopia and
certain purchasers of Series A Preferred Stock (the "May IPO Allocation
------------------
Agreement"), and (D) 7,500,000 shares of Common Stock reserved for issuance
- ---------
pursuant to the Stock Plan, there are currently no outstanding (i) securities
convertible into or exchangeable for any capital stock of Petopia or any of its
Subsidiaries; (ii) options, warrants or other rights to purchase or subscribe to
capital stock of Petopia or any of its Subsidiaries or securities convertible
into or exchangeable for capital stock of Petopia or any of its Subsidiaries, or
(iii) contracts, commitments, agreements, understandings, arrangements, calls or
claims of any kind relating to the issuance of any capital stock of Petopia or
any of its Subsidiaries.
(c) The total authorized capital stock of Petopia Sub consists of
100 shares of common stock, $0.01 par value per share, all of which are issued,
outstanding and owned by Petopia.
3.7. Litigation. There is no litigation or proceeding, in law or in
----------
equity, and there are no proceedings or governmental investigations before any
commission or other administrative authority, pending or, to Petopia's
knowledge, threatened against Petopia, any of its Subsidiaries or any of
Petopia's or its Subsidiaries' respective officers, directors or affiliates,
with respect to or affecting Petopia's or any of its Subsidiaries' operations,
business, products, assets, properties, sales practices or financial condition,
or related to the consummation of the transactions contemplated hereby, or by
the Petopia Ancillary Documents or the Ancillary Documents which, individually
or in the aggregate, is reasonably likely to have a Petopia Material Adverse
Effect or result in any change in the current equity ownership of Petopia. There
are no facts or circumstances known to Petopia which, if known by a potential
claimant or governmental authority, would give rise to a claim or proceeding
which, individually or in the aggregate, is reasonably likely to have a Petopia
Material Adverse Effect.
10
<PAGE>
3.8. Compliance With Laws--General.
-----------------------------
(a) Petopia and each of its Subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals of any court, arbitral,
tribunal, administrative agency or commissioner or other governmental or other
regulatory authority or agency ("Governmental Entities") necessary for the
---------------------
lawful conduct of its business (the "Permits"), except as would not,
-------
individually or in the aggregate, have a Petopia Material Adverse Effect.
(b) Petopia and its Subsidiaries are in compliance with the
terms of its Permits, except for such noncompliance as would not, individually
or in the aggregate, have a Petopia Material Adverse Effect.
(c) Petopia, its Subsidiaries and, to Petopia's knowledge, any
officer, key employee or stockholder of Petopia or any of its Subsidiaries, in
his or her capacity as such, are in compliance with all laws, ordinances or
regulations of all Governmental Entities (including, but not limited to, those
related to occupational health and safety, controlled substances or employment
and employment practices) that are applicable to Petopia or any of its
Subsidiaries or affect or relate to this Agreement or the transactions
contemplated hereby, except for such noncompliance as would not, individually or
in the aggregate, have a Petopia Material Adverse Effect
(d) As of the date of this Agreement, and as of the Closing, no
investigation, review, inquiry or proceeding by any Governmental Entity with
respect to Petopia or any of its Subsidiaries is, to the knowledge of Petopia,
pending or threatened, except as would not, individually or in the aggregate,
have a Petopia Material Adverse Effect.
(e) Neither Petopia nor any of its Subsidiaries are subject to
any agreement, contract or decree with any Governmental Entities arising out of
any current or previously existing violations of any laws, ordinances or
regulations applicable to Petopia or any of its Subsidiaries.
3.9. Financial Information.
---------------------
(a) The Petopia Disclosure Statement contains a true and
correct copy of the unaudited balance sheet of Petopia as of November 30, 1999
(the "Petopia Interim Balance Sheet") and the related statements of income and
cash flow for the eleven-month period then ended (the "Petopia Interim Financial
Statements").
(b) The Petopia Interim Financial Statements (A) were prepared
in accordance with the books and records of Petopia, (B) fairly present in all
material respects the financial condition of Petopia as at the respective dates
indicated and the results of operations of Petopia for the respective periods
indicated and (C) have been prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP"), except for the absence of
----
complete footnote disclosure as required by GAAP and subject, in the case of the
Petopia Interim Financial Statements, to changes resulting from normal year-end
audit adjustments, which adjustments are neither individually or in the
aggregate material.
11
<PAGE>
3.10. Affiliated Transactions. As of the date hereof, neither Petopia
-----------------------
nor any of its Subsidiaries has been a party to any transaction (other than
previous rounds of preferred stock financing, employee compensation and other
ordinary incidents of employment) with a "Related Party". For purposes of this
Agreement, the term "Related Party" shall mean, with respect to an entity: any
-------------
present or former officer or director, 10% stockholder of such entity or any of
its Subsidiaries, any present or former known spouse, ancestor or descendant of
any of the aforementioned persons or any trust or other similar entity for the
benefit of any of the foregoing persons. No property or interest in any property
(including, without limitation, designs and drawings concerning machinery) which
relates to and is or will be necessary or useful in the present or currently
contemplated future operation of Petopia's or its Subsidiaries' respective
businesses, is presently owned by or leased or licensed by or to any Related
Party. Except for the ownership of securities representing less than a 2% equity
interest in various publicly traded companies, neither Petopia, its
Subsidiaries, nor to Petopia's knowledge, any Related Party has an interest,
directly or indirectly, in any business, corporate or otherwise, which relates
to the on-line sale of pet products.
3.11. Material Adverse Change. Since November 30, 1999, neither
-----------------------
Petopia nor its Subsidiaries has suffered or been threatened with (and Petopia
has no knowledge of any facts which could reasonably cause or result in) any
material adverse change in the business, operations, assets, liabilities,
financial condition or prospects of Petopia or its Subsidiaries, taken as a
whole.
3.12. No Undisclosed Liabilities. There are no liabilities or
--------------------------
obligations of any nature whatsoever (whether accrued, absolute, contingent or
otherwise) of Petopia or its Subsidiaries in excess of $100,000 other than (i)
liabilities disclosed or provided for in the Petopia Interim Financial
Statements; (ii) liabilities which, individually or in the aggregate, are not
material to Petopia or its Subsidiaries; (iii) liabilities under this Agreement
(or contemplated hereby) or disclosed in the Petopia Disclosure Statement and
(iv) liabilities incurred since the date of the Petopia Interim Financial
Statements in the ordinary course of business and consistent with past
practices.
3.13. Tax Reorganization. Neither Petopia nor any of its Subsidiaries
------------------
has taken or failed to take any action which would prevent the Merger from
constituting a reorganization within the meaning of section 368(a) of the Code.
3.14. Intellectual Property. The following categories of Intellectual
---------------------
Property are necessary or required for the conduct of Petopia's business as
currently conducted: (a) trademarks, trade names and service marks; (b) Internet
domain names, URLs and registrations for the same; (c) copyrights and other
items of Intellectual Property embodied in the content for Petopia's web site;
and (d) the right to use computer software and certain other items of
Intellectual Property under license from third parties (collectively, the
"Petopia Intellectual Property"). The Petopia Disclosure Statement sets out a
-----------------------------
true and complete list of: (i) all registrations for any trademarks, trade names
and service marks, Internet domain names, URLs which are necessary or required
for the conduct Petopia's business as currently conducted, as well as all
applications pending for any trademark, trade name, service mark or domain name
registrations relating thereto, (ii) any common law trademarks, trade names and
service marks that are necessary or required for the conduct of the business of
Petopia as currently conducted, (iii) any registered and unregistered copyrights
in writings, designs, mask works or other works used in the operation of
Petopia's web site, and (iv) all material licenses
12
<PAGE>
granted to Petopia and all other material agreements to which Petopia is a party
and which relate, in whole or in part, to any items of the categories mentioned
in (i) above, any computer software ("Petopia Third Party Software") and any
----------------------------
other copyrighted or trademarked materials licensed from third parties which are
necessary or required for the conduct of Petopia's business as currently
conducted ("Petopia Intellectual Property Licenses"). To Petopia's knowledge
--------------------------------------
knowledge there are no other items of Petopia Intellectual Property or Petopia
Intellectual Property Licenses which are necessary or required for the conduct
of Petopia's business as currently conducted.
(a) Petopia has good and valid title to, and owns free and clear
of all encumbrances, or has licensed from third parties, the exclusive right to
use, sell, transfer, license (or sublicense) and dispose of each and every one
of the trade names, trademarks and service marks or applications for
registration set forth on the Petopia Disclosure Statement.
(b) Petopia has good and valid title to, and owns free and clear
of all encumbrances, or has licensed from third parties, the exclusive right to
use, sell, transfer, license (or sublicense) and dispose of each and every one
of Internet domain name or URL or applications therefore set forth on the
Petopia Disclosure Statement.
(c) Petopia is not in breach of any material provisions of any
of the Petopia Intellectual Property Licenses set forth on the Petopia
Disclosure Statement, those Petopia Intellectual Property Licenses are valid and
the subject matter thereof are validly used by Petopia and may be used by
Petopia pursuant to the applicable license or agreement with respect thereto
without the consent or notice to any third party.
(d) Petopia has good and valid title to, and owns free and clear
of all encumbrances, or has licensed from third parties, the exclusive right to
use, sell, transfer, license (or sublicense) and dispose of each and every one
of the copyrights or applications for registration set forth on the Petopia
Disclosure Statement.
(e) To the best knowledge of Petopia and except as set forth on
the Petopia Disclosure Statement, the Petopia Intellectual Property and the
marketing, sale, transmission, delivery (electronically or otherwise), or use of
any product or service currently sold, marketed, transmitted, broadcast,
delivered (electronically or otherwise) or used by Petopia or currently offered
for sale, marketing, transmission, broadcast or delivery (electronically or
otherwise) does not violate any Petopia Intellectual Property License or
infringe any common law or statutory rights of any party, including, without
limitation, relating to defamation, contractual rights, Petopia Intellectual
Property and rights of privacy or publicity; nor to best knowledge of Petopia,
is there any threatened use or encroachment by any third party upon the Petopia
Intellectual Property set forth on the Petopia Disclosure Statement; and there
is no pending or, to the best knowledge of Petopia, threatened claim or
litigation contesting the validity, ownership or right to use, sell, transfer,
license (or sublicense) and dispose of the Petopia Intellectual Property set
forth on the Petopia Disclosure Statement, nor, to the best knowledge of Petopia
is there any basis for any such claim, nor has Petopia received any notice that
the marketing, sale, transmission, delivery (electronically or otherwise), or
use of any product or service currently sold, marketed, transmitted, broadcast,
delivered (electronically or otherwise) or used by Petopia or currently offered
for sale, marketing, transmission, broadcast or delivery (electronically or
otherwise) or disposition of any of the Petopia Intellectual Property set
13
<PAGE>
forth on the Petopia Disclosure Statement conflicts with the rights of any other
party, nor, to the best knowledge of Petopia, is there any basis for any such
assertion.
(f) All of the current and former officers, employees,
consultants, and independent contractors have executed and delivered to and in
favor of Petopia an agreement regarding the protection of confidential and
proprietary information and the assignment to Petopia of any applicable Petopia
Intellectual Property arising from the employment of, or services performed by
such persons. Petopia has taken and will take through the Effective Time all
steps necessary, appropriate or desirable to safeguard and maintain the secrecy
and confidentiality of, and its proprietary rights in, the Petopia Intellectual
Property set forth on the Petopia Disclosure Statement.
(g) As used herein, the term "Intellectual Property" shall
---------------------
mean all intellectual property rights, including, without limitation, patents,
patent applications, patent rights, trademarks, trademark applications, trade
names, service marks, service mark applications, copyrights, copyright
applications, franchises, licensees, databases, "URLs" and Internet domain names
and applications therefor (and all interest therein), computer programs and
other computer software, user interfaces, know-how, trade secrets, customer
lists, proprietary technology, processes, formulae, source code, object code,
algorithms, architecture, structure, display screens, layouts, development
tools, instructions, marketing materials, inventions, trade dress, logos and
designs and all documentation and media constituting, describing and relating to
the foregoing.
3.15. Constituent Documents. True and complete copies of Petopia's
---------------------
Fourth Amended and Restated Certificate of Incorporation and all amendments
thereto, the By-Laws as amended and currently in force, all stock records, and
all corporate minute books and records of Petopia and each of its Subsidiaries
have been furnished or made available by Petopia to the Company for inspection.
Said stock records accurately reflect all stock transactions and the current
stock ownership of Petopia and each of its Subsidiaries. The corporate minute
books and records of Petopia and each of its Subsidiaries contain true and
complete copies of all resolutions adopted by the stockholders or the Board of
Directors of Petopia and each of its Subsidiaries and any other action formally
taken by them respectively as such.
3.16. Disclosure. Petopia has fully provided the Company with all
----------
information that the Company has requested for deciding whether to engage in the
transactions contemplated hereby. To Petopia's knowledge, neither this
Agreement, nor any other statements or certificates made or delivered in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein not misleading.
3.17. Insurance. As of the date hereof, the Petopia Disclosure
---------
Statement contains a true and correct list of all insurance policies which are
owned by Petopia or any of its Subsidiaries or which name Petopia or any of its
Subsidiaries as an insured (or loss payee), including without limitation those
which pertain to Petopia's or any of its Subsidiaries' assets, employees or
operations. All such insurance policies are in full force and effect and neither
Petopia nor any of its Subsidiaries have received notice of cancellation of any
such insurance policies.
14
<PAGE>
3.18. Employee Benefit Plans. Petopia does not have any "Employee
----------------------
Benefit Plan" as such term is defined in the Employee Retirement Income Security
Act of 1974, as amended to date.
3.19. Employee Matters. Each employee, director, consultant and
----------------
officer of Petopia and each of its Subsidiaries has executed an agreement with
Petopia or a Subsidiary, as applicable, regarding confidentiality and
proprietary information. Petopia is not aware that any of its employees or
consultants is in violation thereof. Except as set forth on the Petopia
Disclosure Statement, neither Petopia nor any of its Subsidiaries has in effect,
and their respective assets are not subject to, any employment agreements,
consulting agreements, deferred compensation, pension or retirement agreements
or arrangements, bonus, incentive or profit-sharing plans or arrangements, or
labor or collective bargaining agreements, written or oral.
3.20. Taxes. Petopia and each of its Subsidiaries have filed all
-----
Returns (as defined herein) as required by law. These Returns are true and
correct in all material respects and were filed within the applicable periods
for such filings. Petopia and each of its Subsidiaries have paid all Taxes (as
defined herein) and other assessments due. Petopia and each of its Subsidiaries
have established adequate reserves (net of estimated Tax payments already made)
for the payment of all Taxes payable in respect of the period subsequent to the
last periods covered by such Returns. There is no pending dispute with any
taxing authority relating to any of such Returns and neither Petopia nor any of
its Subsidiaries has received notice of any proposed liability for any Tax to be
imposed upon the properties or assets of Petopia or any of its Subsidiaries. No
deficiencies for any Tax are currently assessed against Petopia or any of its
Subsidiaries, and no Returns of Petopia or any of its Subsidiaries have ever
been audited, and, to the knowledge of Petopia, there is no such audit pending
or threatened. There is no tax lien, whether imposed by any federal, state or
local taxing authority, outstanding against the assets, properties or business
of Petopia or any of its Subsidiaries. Neither Petopia nor its Subsidiaries has
liabilities for Taxes that are accrued whether or not yet due and payable.
3.21. Contracts.
---------
(a) All agreements, understandings, instruments or contracts
to which Petopia and each of its Subsidiaries is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to,
Petopia or any of its Subsidiaries in excess of $50,000, (ii) the license of any
patent, copyright, trade secret or other proprietary right to or from Petopia or
any of its Subsidiaries, or (iii) the grant of rights to manufacture, produce,
assemble, license, market, or sell its products to any other person or affect
Petopia's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products, and all agreements between Petopia and its officers,
directors, consultants and employees (collectively, the "Contracts") are set
---------
forth in Section 3.21 of the Petopia Disclosure Statement. All of the Contracts
are valid and binding obligations of Petopia and in full force and effect in all
material respects and enforceable by Petopia in accordance with their respective
terms in all material respects, subject to the effect of applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium, usury or other
laws of general application relating to or affecting enforcement of creditors'
rights and rules or laws concerning equitable remedies. Petopia is not in
material default under any of such Contracts.
15
<PAGE>
(b) Neither Petopia nor any of its Subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
3.22. Title to Properties. Petopia and its Subsidiaries own their
-------------------
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair Petopia's or its Subsidiaries'
ownership or use of such property or assets, and, to the knowledge of Petopia,
there exists no material violation by Petopia or any Subsidiary of any law,
regulation or ordinance (including, without limitation, laws, regulations or
ordinances relating to zoning, environmental, city planning or similar matters)
relating to any real property owned, leased or subleased by Petopia or any of
its Subsidiaries. With respect to the property and assets they lease, Petopia
and each of its Subsidiaries is in material compliance with such leases and, to
Petopia's knowledge, hold a valid leasehold interest free of any liens, claims
or encumbrances. There are no defaults by Petopia or, to the knowledge of
Petopia, by any other party thereto, which might curtail in any material respect
the current use of Petopia's or any of its Subsidiaries' property.
3.23. Subsidiaries. Except for Petopia Sub, Petopia has no
------------
Subsidiaries.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Petopia and Petopia Sub that
the statements contained in this Article IV are true and correct, except as set
forth in the disclosure statement delivered by the Company to Petopia and
Petopia Sub concurrently herewith and identified as the "Disclosure Statement."
--------------------
All exceptions noted in the Disclosure Statement shall be numbered to correspond
to the applicable sections or subsections to which such exception refers;
provided, however that any disclosure set forth on any particular schedule shall
- -------- -------
be deemed disclosed in reference to all applicable schedules.
4.1. Organization, Standing and Qualification. The Company (i) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation; (ii) has all requisite power and authority
to own or lease, and operate its properties and assets, and to carry on its
business as now conducted and as currently proposed to be conducted, except
where the failure to have such power and authority would not have a Company
Material Adverse Effect, and to consummate the transactions contemplated hereby;
(iii) is duly qualified or licensed to do business and is in good standing in
all jurisdictions in which it owns or leases property or in which the conduct of
its business requires it to so qualify or be licensed, except where the failure
to so qualify or be licensed, individually or in the aggregate, would not have a
Company Material Adverse Effect; and (iv) has obtained all licenses, permits,
franchises and other
16
<PAGE>
governmental authorizations necessary to the ownership or operation of its
properties or the conduct of its business, except where the failure to have
obtained such licenses, permits, franchises or authorizations, individually or
in the aggregate, would not have a Company Material Adverse Effect.
4.2. Capitalization.
--------------
(a) The total authorized capital stock of the Company consists
of (i) 10,000,000 shares of common stock, par value $0.01 per share, 2,730,574
shares of which are issued and outstanding as of the date of this Agreement; and
(ii) 8,000,000 shares of preferred stock, par value $0.01 per share, none of
which are issued and outstanding as of the date of this Agreement. There are no
shares of capital stock of the Company of any other class authorized, issued or
outstanding. The Stockholders and Warrantholders and their respective fully
diluted ownership interest in the Company are listed on Exhibit A attached
----------
hereto.
(b) Each share of the outstanding Company Capital Stock is (i)
duly authorized and validly issued and were issued in compliance with all
federal and state laws; (ii) fully paid and nonassessable and free of preemptive
and similar rights; and (iii) free and clear of all liens, pledges, security
interests, claims or other encumbrances and restrictions on voting and transfer
other than restrictions on transfer imposed by Federal and state securities
laws.
(c) The Company has reserved 500,000 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its 1999 Stock Plan duly adopted by the Board of Directors of the
Company (the "Board") and approved by the Company's stockholders (the "1999
----- ----
Stock Plan"), none of which are currently outstanding, no shares of Common Stock
- ----------
have been issued and 500,000 shares are available for future issuance under the
Stock Plan. The Company has also reserved 412,496 and 165,002 shares of Common
Stock (or other securities under certain circumstances) for issuance upon the
exercise of the Common Stock Purchase Warrants, all of which were issued to
former shareholders of Aardvark Pet Supplies, Inc. Except as set forth in the
prior sentence, there are currently no outstanding, and, as of the Closing,
there will be no outstanding (i) securities convertible into or exchangeable for
any capital stock of the Company, (ii) options, warrants or other rights to
purchase or subscribe to capital stock of the Company or securities convertible
into or exchangeable for capital stock of the Company, or (iii) contracts,
commitments, agreements, understandings, arrangements, calls or claims of any
kind to which the Company is a party or is bound relating to the issuance of any
capital stock of the Company.
4.3. Subsidiaries. The Company has no Subsidiaries.
------------
4.4. Ownership Interests. The Company does not own any direct or
-------------------
indirect interest in any corporation, joint venture, limited liability company,
partnership, association or other entity. Since its formation, the Company has
not (i) disposed of the capital stock (other than Company Capital Stock) or all
or substantially all of the assets of any ongoing business, or (ii) purchased
the business and/or all or substantially all of the assets of another person,
firm or corporation (whether by purchase of stock, assets, merger or otherwise).
17
<PAGE>
4.5. Constituent Documents. True and complete copies of the
---------------------
Certificate of Incorporation and all amendments thereto, the By-Laws as amended
and currently in force, all stock records, and all corporate minute books and
records of the Company have been furnished or made available by the Company to
Petopia for inspection. Said stock records accurately reflect all stock
transactions and the current stock ownership of the Company. The corporate
minute books and records of the Company contain true and complete copies of all
resolutions adopted by the stockholders or the Board and any other action
formally taken by them respectively as such.
4.6. Authorization of Agreement and Other Documents. The execution
----------------------------------------------
and delivery of this Agreement and the other documents executed or to be
executed in connection herewith to which the Company is a party (including but
not limited to the Escrow Agreement) (collectively, the "Ancillary Documents")
--------------------
have been duly authorized by the Board and no other proceedings on the part of
the Company are necessary to authorize the execution, delivery or performance of
this Agreement or any Ancillary Document, except the approval of the Merger by
the Stockholders. This Agreement is, and, as of the Closing Date, each of the
Ancillary Documents will be, a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting enforcement of creditors' rights generally, and by general principles
of equity (regardless of whether enforcement is considered in a proceeding at
law or in equity) and subject to the receipt of Stockholder approval of the
Merger.
4.7. No Violation. Neither the execution and delivery of this
------------
Agreement nor the Ancillary Documents by the Company nor the consummation by the
Company of the transactions contemplated hereby and thereby in accordance with
their respective terms, will (a) conflict with or result in a breach of any
provisions of the Certificate of Incorporation or By-Laws of the Company; (b)
result in a breach or violation of, a default under, or the triggering of any
payment or other material obligations pursuant to, or accelerate vesting under,
any of the Company stock option plans, or any grant or award made under any of
the foregoing; (c) violate, conflict with, result in a breach of any provision
of, constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, result in the termination, or in a
right of termination or cancellation of, accelerate the performance, or create a
right to accelerate the performance, required by, result in the triggering of an
increase in any payment or other material obligations pursuant to, result in the
creation of any lien, security interest, charge or encumbrance upon any of the
material properties of the Company under, or result in being declared void,
voidable, or without further binding effect, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust or any material
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which the Company is a party, or by which the
Company or any of its properties is bound or affected; (d) contravene or
conflict with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to the Company,
except for any of the foregoing matters which would not have a Company Material
Adverse Effect; or (e) other than the Filings, require any material consent,
approval, order or authorization of, or declaration, qualification, designation,
filing or registration with, any domestic governmental or regulatory authority,
the failure to obtain or make which would have a Company Material Adverse
Effect. The Company is not in violation or default of any provisions of (a) its
Certificate of Incorporation or By-Laws, (b) any instrument, judgment, order,
18
<PAGE>
writ, decree or contract to which the Company is a party or by which it is
bound; (c) any mortgage, indenture, lease, license, other agreement or
instrument by which it is bound or to which it or any of its properties are
subject; or (d) any license, permit, franchise or other governmental
authorization and, to the knowledge of the Company, no suspension or
cancellation of any of them is threatened.
4.8. Compliance with Laws--General.
-----------------------------
(a) The Company holds all Permits, except as would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(b) The Company is in compliance with the terms of its
Permits, except for such noncompliance as would not, individually or in the
aggregate, have a Company Material Adverse Effect.
(c) The Company and, to the Company's knowledge, any officer,
key employee or stockholder of the Company, in his or her capacity as such, are
in compliance with all laws, ordinances or regulations of all Governmental
Entities (including, but not limited to, those related to occupational health
and safety, controlled substances or employment and employment practices) that
are applicable to the Company or affect or relate to this Agreement or the
transactions contemplated hereby, except for such noncompliance as would not,
individually or in the aggregate, have a Company Material Adverse Effect.
(d) As of the date of this Agreement, and as of the Closing,
no investigation, review, inquiry or proceeding by any Governmental Entity with
respect to the Company is, to the knowledge of the Company, pending or
threatened, except as would not, individually or in the aggregate, have a
Company Material Adverse Effect.
(e) The Company is not subject to any agreement, contract or
decree with any Governmental Entities arising out of any current or previously
existing violations of any laws, ordinances or regulations applicable to the
Company.
4.9. Financial Information.
---------------------
(a) The Disclosure Statement contains a true and correct copy
of the following financial statements (collectively, the "Company Financial
-----------------
Statements"):
- ----------
(i) the unaudited balance sheet of the Company as of
November 28, 1999 (the "Company Interim Balance Sheet") and the related
-----------------------------
statements of income and cash flow for the five-month period then ended (the
"Company Interim Financial Statements"); and
------------------------------------
(ii) the unaudited balance sheets of the Company as at
June 27, 1998 and June 26, 1999 (the "Company Year-End Balance Sheets"), and the
related unaudited statements of income and cash flow for the years then ended.
(b) The Company Financial Statements (A) were prepared in
accordance with the books and records of the Company, (B) fairly present in all
material respects the financial
19
<PAGE>
condition of the Company as at the respective dates indicated and the results of
operations of the Company for the respective periods indicated and (C) have been
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except for the absence of complete footnote
----
disclosure as required by GAAP and subject, in the case of the Company Interim
Financial Statements, to changes resulting from normal year-end audit
adjustments, which adjustments are neither individually or in the aggregate
material.
4.10. Books and Records. The Company's books, accounts and records
-----------------
are, in all material respects, maintained in the Company's usual, regular and
ordinary manner, and all material transactions to which the Company is or has
been a party are properly reflected therein.
4.11. Accounts Receivables. Substantially all of the Company's sales
--------------------
are paid for by credit card or by checks which are cashed prior to shipment of
product. The Company does not have a material amount of accounts receivable
directly from its customers.
4.12. Intentionally Omitted
---------------------
4.13. Bank Accounts. The Disclosure Statement contains a list
-------------
showing: (a) the name of each bank, safe deposit company or other financial
institution in which the Company has an account, lock box or safe deposit box;
(b) the names of all persons authorized to draw thereon or to have access
thereto and the names of all persons and entities, if any, holding powers of
attorney from the Company; and (c) all instruments or agreements to which the
Company is a party as an endorser, surety or guarantor, other than checks or
other instruments endorsed for collection or deposit.
4.14. Intellectual Property.
---------------------
The following categories of Intellectual Property are necessary or
required for the conduct of the business of the Company as currently conducted:
(a) trademarks, trade names and service marks; (b) Internet domain names, URLs
and registrations for the same; (c) copyrights and other items of Intellectual
Property embodied in the content for Company's web site and catalog business;
and (d) the right to use computer software and certain other items of
Intellectual Property under license from third parties (collectively, the
"Company Intellectual Property"). The Disclosure Statement sets out a true and
-----------------------------
complete list of: (i) all registrations for any trademarks, trade names and
service marks, Internet domain names, URLs which are necessary or required for
the conduct of the business of the Company as currently conducted, as well as
all applications pending for any trademark, trade name, service mark or domain
name registrations relating thereto, (ii) any common law trademarks, trade names
and service marks that are necessary or required for the conduct of the business
of the Company as currently conducted, (iii) registered and unregistered
copyrights in writings, designs, mask works or other works used in the operation
of Company's web site and catalog business, and (iv) all material licenses
granted to the Company and all other material agreements to which the Company is
a party and which relate, in whole or in part, to any items of the categories
mentioned in (i) above, any computer software ("Company Third Party Software")
----------------------------
and any other copyrighted or trademarked materials licensed from third parties
which are necessary or required for the conduct of the business of the Company
as currently conducted ("Company Intellectual Property Licenses"). To the
Company's knowledge there are no other items of Company
20
<PAGE>
Intellectual Property or Company Intellectual Property Licenses which are
necessary or required for the conduct of the business of the Company as
currently conducted. The Company has a legal right to use all Company Third
Party Software and Company Intellectual Property Licenses currently being used
by the Company.
(a) The Company has good and valid title to, and owns free and clear
of all encumbrances, or has licensed from third parties, the exclusive right to
use, sell, transfer, license (or sublicense) and dispose of each and every one
of the trade names, trademarks and service marks or applications for
registration set forth on the Disclosure Statement.
(b) The Company has good and valid title to, and owns free and clear
of all encumbrances, or has licensed from third parties, the exclusive right to
use, sell, transfer, license (or sublicense) and dispose of each and every one
of Internet domain name or URL or applications therefore set forth on the
Disclosure Statement.
(c) The Company has good and valid title to, and owns free and clear
of all encumbrances, or has licensed from third parties, the exclusive right to
use, sell, transfer, license (or sublicense) and dispose of each and every one
of the copyrights or applications for registration set forth on the Disclosure
Statement.
(d) The Company is not in breach of any material provisions of any of
the Company Intellectual Property Licenses set forth on the Disclosure
Statement, those Company Intellectual Property Licenses are valid and the
subject matter thereof are validly used by the Company and may be used by the
Company pursuant to the applicable license or agreement with respect thereto
without the consent or notice to any third party and is freely and fully
utilizable by the Surviving Corporation without the consent of or notice of any
third party.
(e) To the best knowledge of the Company, the Company Intellectual
Property, the marketing, sale, transmission, delivery (electronically or
otherwise), or use of any product or service currently sold, marketed,
transmitted, broadcast, delivered (electronically or otherwise) or used by the
Company or currently offered for sale, marketing, transmission, broadcast or
delivery (electronically or otherwise) does not violate any Company Intellectual
Property License or infringe any common law or statutory rights of any party,
including, without limitation, relating to defamation, contractual rights,
Intellectual Property and rights of privacy or publicity; nor to best knowledge
of the Company, is there any threatened use or encroachment by any third party
upon the Company Intellectual Property; and there is no pending or, to the best
knowledge of the Company, threatened claim or litigation contesting the
validity, ownership or right to use, sell, transfer, license (or sublicense) and
dispose of the Company Intellectual Property set forth on the Disclosure
Statement, nor, to the best knowledge of the Company is there any basis for any
such claim, nor has the Company received any notice that the marketing, sale,
transmission, delivery (electronically or otherwise), or use of any product or
service currently sold, marketed, transmitted, broadcast, delivered
(electronically or otherwise) or used by the Company or currently offered for
sale, marketing, transmission, broadcast or delivery (electronically or
otherwise) or disposition of any of the Company Intellectual Property set forth
on the Disclosure Statement conflicts with the rights of any other party, nor,
to the best knowledge of the Company, is there any basis for any such assertion.
21
<PAGE>
(f) All of the current and former officers, employees consultants,
and independent contractors have executed and delivered to and in favor of the
Company an agreement regarding the protection of confidential and proprietary
information and the assignment to the Company of any applicable Company
Intellectual Property arising from the employment of, or services performed by
such persons. The form of such agreement is attached to the Disclosure
Statement. The Company has taken and will take through the Effective Time all
steps necessary, appropriate or desirable to safeguard and maintain the secrecy
and confidentiality of, and its proprietary rights in, the Company Intellectual
Property set forth on the Disclosure Statement.
(g) The Company has not altered any of the Company Third Party
Software without authorization from the applicable licensor. The Company has
performed all regularly scheduled maintenance, and installed all provided
upgrades, on the Company Third Party Software. The Company has reported any
errors or bugs in the Company Third Party Software and implemented any fixes or
workarounds provided by the applicable licensor.
4.15. Title to Properties. Attached to the Disclosure Statement is a list
-------------------
and description of each item of real or tangible personal property owned by the
Company which has a net book value in excess of $10,000. The Company (i) has
good, marketable, legal and valid title to such property free and clear of all
liens, claims, encumbrances or security interests (collectively, "Liens"),
-----
except for (x) mechanic's, materialmen's, and similar liens, (y) liens arising
under worker's compensation, unemployment insurance, social security,
retirement, and similar legislation and (z) liens on goods in transit incurred
pursuant to documentary letters of credit; and (ii) enjoys peaceful and
undisturbed possession under all leases to which it is a party as lessee. All of
the leases to which the Company is a party (other than leases for Leased
Premises) are legal, valid and binding obligations of the Company and in full
force and effect, and no default by the Company, or, to the knowledge of the
Company, any other party thereto has occurred or is continuing thereunder. The
Disclosure Statement lists all properties and assets used by the Company in
connection with the operation of its business which are held under any lease or
under any conditional sale or other title retention agreement. Except for such
assets and facilities as are immaterial to the business of the Company, all
tangible assets and facilities of the Company are in good operating condition
and repair (ordinary wear and tear excepted) and, in the aggregate with the
intangible assets of the Company, are sufficient to conduct the business of the
Company as previously conducted prior to the date hereof.
4.16. Real Estate; Leased Premises.
----------------------------
(a) The Company owns no real estate, nor does it have the option
to acquire any real estate.
(b) The Company does not lease any real estate other than the
premises identified in the Disclosure Statement as being so leased (the "Leased
------
Premises"). The Leased Premises are leased to the Company, pursuant to written
- --------
leases, true, correct and complete copies of which have been provided to Petopia
or its counsel. None of the businesses conducted or proposed to be conducted by
the Company thereon, are, to the Company's knowledge, in violation of any use or
occupancy restriction, limitation, condition or covenant of record or any zoning
or building law, code or ordinance, public utility or other easements or other
applicable law, except for
22
<PAGE>
violations which do not have a Company Material Adverse Effect or materially
interfere with the conduct of the business of the Company. No material
expenditures are required to be made for the repair or maintenance of any
improvements on the Leased Premises or for the Leased Premises to be used for
its intended purpose. The Company is not in default under any agreement relating
to the Leased Premises nor, to the knowledge of the Company, is any other party
thereto in default thereunder.
4.17. Contracts.
---------
(a) The Company is not a party to, or bound by, or the issuer or
beneficiary of, any written or oral: (i) agreement or arrangement obligating the
Company to pay or receive, or pursuant to which the Company has previously paid
or received since January 1, 1999, an amount in excess of $50,000 (excluding
purchase and sale orders entered into by the Company in the ordinary course of
business consistent with past practices); (ii) employment or consulting
agreement or arrangement; (iii) collective bargaining agreement; (iv) plan or
contract or arrangement providing for bonuses, severance, options, deferred
compensation, retirement payments, profit sharing, medical and dental benefits
or the like covering employees of the Company, other than Plans, Welfare Plans
and Employee Benefit Plans (in each case as defined herein) described in the
Disclosure Statement; (v) agreement restricting in any manner the Company's
right to compete with any other person or entity, the Company's' right to sell
to or purchase from any other person or entity, the right of any other party to
compete with the Company, or the ability of such person or entity to employ any
of the Company's employees; (vi) secrecy or confidentiality agreements; (vii)
any distributorship, non-employee commission or marketing agent, representative
or franchise agreement providing for the marketing and/or sale of the products
or services of the Company; (viii) agreement between the Company and any of its
Related Parties (as herein defined); (ix) guaranty, performance, bid or
completion bond, or surety or indemnification agreement; (x) requirements
contract; (xi) loan or credit agreement, pledge agreement, note, security
agreement, mortgage, debenture, indenture, factoring agreement or letter of
credit; (xii) agreement for the treatment or disposal of Materials of
Environmental Concern (as defined herein); (xiii) power of attorney; (xiv) any
agreement relating to the ownership or control of any interest in a partnership,
corporation, limited liability company, joint venture or other entity or similar
arrangement; (xv) any contract, agreement or arrangement containing change of
control provisions; or (xvi) any agreement relating to the sale, license, lease
or other disposition of any Intellectual Property. The Company is not currently
negotiating (and has not entered into preliminary discussions with respect to)
any transaction involving an aggregate payment by the Company and/or receipts to
the Company in excess of $50,000 excluding purchase and sale orders entered into
by the Company in the ordinary course of business consistent with past
practices.
(b) All agreements, leases, subleases and other instruments
referred to in this Section 4.17, are, pursuant to their terms, in full force
and binding upon the Company, and, to the knowledge of the Company, the other
parties thereto. The Company is not and, to the Company's knowledge, none of the
other parties thereto are in default of a material provision under any such
agreement, lease, sublease or other instrument. No event, occurrence or
condition exists which, with the lapse of time, the giving of notice, or both,
or the happening of any further event or condition, would become a default of a
material provision under any such agreement, lease, sublease or other instrument
by the Company, or, to the knowledge of the Company, the other contracting party
except
23
<PAGE>
as would not, individually or in the aggregate, have a Company Material Adverse
Effect. The Company has not released or waived any right under any such
agreement, lease, sublease or other instrument material to the Company other
than in the ordinary course of business consistent with past practices.
(c) Neither the Company, nor any of its Stockholders are parties
to any registration rights agreement, stockholders agreement, management
agreement, or any other agreement relating to the equity or management of the
Company.
4.18. Insurance. As of the date hereof, the Disclosure Statement contains
---------
a true and correct list of all insurance policies which are owned by the Company
or which name the Company as an insured (or loss payee), including without
limitation those which pertain to the Company's assets, employees or operations.
All such insurance policies are in full force and effect and the Company has not
received notice of cancellation of any such insurance policies. In the one (1)
year period ending on the date hereof, the Company has not received any written
notice from, or on behalf of, any insurance carrier relating to or involving an
annual increase by over 10% in insurance rates (except to the extent that
insurance risks may be increased for all similarly situated risks) or non-
renewal of a policy, or requiring or suggesting material alteration of any of
the Company's assets, purchase of additional equipment, or material modification
of any of the Company's methods of doing business. The Disclosure Statement sets
forth the insurance premiums paid by the Company as of the date hereof. The
Company has not ever made any claim for reimbursement from its insurance
carriers.
4.19. Litigation. There is no litigation or proceeding, in law or in
----------
equity, and there are no proceedings or governmental investigations before any
commission or other administrative authority, pending or, to the Company's
knowledge, threatened against the Company or any of its officers, directors or
affiliates, with respect to or affecting the Company's operations, business,
products, assets, properties, sales practices or financial condition, or related
to the consummation of the transactions contemplated hereby or by the Petopia
Ancillary Documents or the Ancillary Documents. There are no facts or
circumstances known to the Company which, if known by a potential claimant or
governmental authority, would reasonably give rise to a claim or proceeding
which, individually or in the aggregate, is reasonably likely to have a Company
Material Adverse Effect.
4.20. Warranties. To the Company's knowledge, the Company has not made
----------
any oral or written warranties with respect to the quality or absence of defects
of its products or services which they have sold or performed which are in force
as of the date hereof. There are no material claims pending or, to the knowledge
of the Company, threatened against the Company with respect to the quality of or
absence of defects in such products or services nor are there any facts known to
the Company relating to the quality of or absence of defects in such products or
services which, if known by a potential claimant or governmental authority,
would reasonably give rise to a material claim or proceeding. The Disclosure
Statement sets forth a summary, which is accurate in all material respects, of
all returns of products and all credits and allowances for returned products
given to customers during the period from June 27, 1999 through November 28,
1999 to the extent that such returns, credits and allowances with respect to any
one product exceeds $5,000 in the aggregate, and said summary contains a
description of any reoccurring product defects (other than returns due
24
<PAGE>
to date expirations). The Company has no knowledge of or reason to believe that
the percentage of warranty claims or product returns for products sold by the
Company prior to the Closing will exceed historical levels.
4.21. Products Liability. The Company has not received any written notice
------------------
relating to, nor does the Company have knowledge of any facts or circumstances
which could reasonably give rise to, any claim involving any product
manufactured, produced, distributed or sold by or on behalf of the Company
resulting from an alleged defect in design, manufacture, materials or
workmanship, or any alleged failure to warn, or from any breach of implied
warranties or representations, other than notices or claims that have been
settled or resolved by the Company prior to the date of this Agreement.
4.22. Arbitration. The Company is not a party to, or bound by, any
-----------
decree, order or arbitration award (or agreement entered into in any
administrative, judicial or arbitration proceeding with any governmental
authority) with respect to or affecting the properties, assets, personnel or
business activities of the Company.
4.23. Taxes
-----
(a) As used in this Agreement, (i) the term "Taxes" means all
-----
federal, state, local, foreign and other net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of a similar nature, 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; and (ii) the
---
term "Returns" means all returns, declarations, reports, statements and other
-------
documents required to be filed in respect of Taxes, and the term "Return" means
------
any one of the foregoing Returns.
(b) There have been properly completed and filed on a timely basis
and in correct form all material Returns required to be filed by the Company. As
of the time of filing, the foregoing Returns were correct and complete in all
material respects. An extension of time within which to file any Return which
has not been filed has not been requested or granted.
(c) With respect to all Taxes imposed upon the Company, or for
which the Company is liable, whether to taxing authorities (as, for example,
under law) or to other persons or entities (as, for example, under tax
allocation agreements), (i) all applicable tax laws and agreements have been
complied with in all material respects, and (ii) all amounts required to be paid
by the Company, to taxing authorities or others, on or before the date hereof
have been paid or adequately reserved for on the Company Financial Statements,
and any Taxes accrued but not due and payable as of the date hereof have been
accrued or otherwise reserved for in the Company Interim Financial Statements.
There are no Liens filed against any asset of the Company resulting from the
failure to pay any Tax when due.
(d) To the Company's knowledge, no issues have been raised in
writing (and are currently pending) by any taxing authority in connection with
any of the Returns. No
25
<PAGE>
waivers of statutes of limitation with respect to the Returns have been given by
the Company (or with respect to any Return which a taxing authority has asserted
should have been filed by the Company) which waivers are still in effect. The
Disclosure Statement sets forth those years for which tax examinations of the
Company have been completed, those years for which examinations of the Company
are presently being conducted, and those years for which returns of the Company
will be required but are not yet due to be filed and have not yet been filed.
All Tax deficiencies asserted in writing or assessments made as a result of any
examinations of the Company have been fully paid, or are fully reflected as a
liability in the Company Interim Financial Statements, or are being contested
and an adequate reserve therefor has been established and is fully reflected as
a liability in the financial statements contained in the Company Interim
Financial Statements.
(e) The unpaid Taxes of the Company do not materially exceed the
reserve for tax liability (excluding any reserve for deferred Taxes established
to reflect timing differences between book and tax income) set forth or included
in the Company Interim Financial Statements, as adjusted for the passage of time
through the Closing.
(f) The Company is not a party to or bound by any tax indemnity, tax
sharing or tax allocation agreement.
(g) The Company has not ever been a member of an affiliated group of
corporations, within the meaning of section 1504 of the Code, that filed a
consolidated federal income tax return.
(h) All material elections with respect to Taxes affecting the
Company that are currently effective as of the date hereof that are not
reflected in the Company's Returns are set forth in the Disclosure Statement.
4.24. ERISA. Neither the Company nor any corporation or business which is
-----
now or at the relevant time was an affiliate of the Company as determined under
the Code section 414(b), (c), (m) or (o) ("ERISA Affiliate") maintains,
---------------
administers, contributes to or has (or could reasonably be likely to have) any
liability under, or has maintained, administered, contributed to or had (or
could reasonably be likely to have had) any liability under any: employee
pension benefit plan (as defined in Section 3(2) of ERISA), including, without
limitation, any multi-employer plan as defined in Section 3(37) of ERISA
("Multi-Employer Plan"), non-qualified deferred compensation plan or other
-------------------
retirement plan; employee welfare benefit plan (as defined in Section 3(1) of
ERISA), or any other plan, program, payroll practice, agreement or arrangement
under which former employees of the Company or an ERISA Affiliate (or their
beneficiaries) are entitled, or current employees of the Company or an ERISA
Affiliate will be entitled, following termination of employment, to medical,
health or life insurance or other benefits other than pursuant to benefit
continuation rights granted by state or federal law; or bonus, stock, stock
purchase, or stock option plan, severance plan, salary continuation, vacation,
sick leave, fringe benefit, incentive, insurance, welfare or similar plan or
arrangement, or any employment, consulting or personal services agreement
(collectively, "Employee Benefit Plans");
----------------------
(a) All Employee Benefit Plans and any related trust agreements,
insurance contracts or annuity contracts (or any related trust instruments)
comply in all material
26
<PAGE>
respects with and are and have been operated in all material respects in
accordance with each applicable provision of ERISA, the Code (including, without
limitation, the requirements of Code section 401(a) to the extent any Plan is
intended to conform to that section), other Federal statutes, state law
(including, without limitation, state insurance law) and the regulations and
rules promulgated pursuant thereto or in connection therewith. Each Employee
Benefit Plan which is a group health plan (within the meaning of section
5000(b)(1) of the Code) complies in all material respects with and has been
maintained and operated in all material respects in accordance with each of the
applicable requirements of section 162(k) of the Code as in effect for years
beginning prior to 1989 (if applicable), Section 4980B of the Code for years
beginning after December 31, 1988 and Part 6 of Subtitle B of Title I of ERISA.
The Company has never applied for a determination as to the qualification under
the Code for any of the Employee Benefit Plans. Each trust funding Employee
Benefit Plan, which is intended to be tax-exempt under the Code is tax-exempt
and each Plan and related trust agreement which is intended to be qualified
under the Code remains qualified under the Code. All required reports, notices
and descriptions with respect to the Employee Benefit Plans have been
appropriately filed or distributed (including without limitation IRS Forms 5500
Annual Reports, summary plan descriptions, summary annual reports, notice to
interested parties and any notice of plan amendment which is required prior to
the effectiveness of such amendments) and all required surety bonds have been
properly and timely purchased and maintained. The costs of administering the
Employee Benefit Plans, including fees for the trustees and other service
providers which are customarily paid by the Company and which have become due on
or prior to the date hereof, have been paid or will be paid or accrued on the
Company's financial statements prior to the date hereof. Neither the Company,
nor, to the knowledge of the Company, any other person or entity, has engaged in
any transaction or conduct in respect of any Employee Benefit Plan that could
reasonably be expected to cause the Company or, following the Closing, Petopia
or Petopia Sub, to be subject to liability under or pursuant to the Code, ERISA
or other applicable law.
(b) Neither any Employee Benefit Plan fiduciary nor any Employee
Benefit Plan has engaged in any transaction in violation of Section 406 of ERISA
or any "prohibited transaction" (as defined in section 4975(c)(1) of the Code)
for which a valid exemption is not available. Neither the Company nor any ERISA
Affiliate has failed to make any contributions or to pay any amounts due and
owing to an Employee Benefit Plan, as required by the terms of any Employee
Benefit Plan, or collective bargaining agreement or ERISA or any other
applicable law. Full payment has been made or such amount has been accrued on
the Company's financial statements of all amounts which the Company or any ERISA
Affiliate is required or committed to pay to each of the Employee Benefit Plans
as of the date hereof;
(c) True and complete copies of each Employee Benefit Plan, related
trust agreements, insurance contracts, annuity contracts or other funding
vehicles, determination letters, summary plan descriptions, service provider
agreements, surety bonds, indemnification agreements and annual reports on Form
5500, Form 990 financial statements and actuarial reports for the most recent
five Plan years, have been furnished to Petopia and its counsel. With respect
to each Employee Benefit Plan, the Disclosure Statement sets forth the name and
address of the administrator and trustees and the policy number and insurer
under all insurance policies;
(d) Neither the Company nor any ERISA Affiliate has ever maintained or
contributed to (or been obligated to contribute to) (i) any Multi-Employer Plan,
(ii) any multiple
27
<PAGE>
employer plan within the meaning of Section 4063 or 4064 of ERISA or Section
413(c) of the Code, or (iii) any employee benefit plan, fund, program, contract
or arrangement that is subject to Section 412 of the Code, Section 302 of ERISA
or Title IV of ERISA. None of the Employee Benefit Plans intended to qualify
under Section 401(a) of the Code is a "top-heavy" plan, as defined in Section
416 of the Code as of its most recent determination date;
(e) There are no pending or, to the knowledge of the Company,
threatened claims, lawsuits or arbitration asserted or instituted against any
Employee Benefit Plan, or fiduciaries thereof, by any employee or beneficiary
covered under any Employee Benefit Plan or otherwise involving any Employee
Benefit Plan (other than routine claims for benefits), and the Company has no
knowledge of any facts which would give rise to or could reasonably be expected
to give rise to any such claims, lawsuits or arbitrations; and
(f) The Company has not made any payments, is not obligated to make
any payments and is not a party to any agreement that could obligate it to make
any payments that would not be deductible under Section 280G of the Code (or any
similar provision of state, local or foreign law). The consummation of the
transaction contemplated by this Agreement (either alone or together with any
other transaction or event) will not (i) entitle any current or former officer,
employee, agent, director or independent contractor of the Company or any ERISA
Affiliate to any bonus, severance or other benefit, or otherwise increase the
amount of compensation due such individual, (ii) result in any benefit or right
becoming established or increased, or accelerate the time of payment or vesting
of any benefit, under any Employee Benefit Plan, or (iii) require the Company to
transfer or set aside any assets to fund or otherwise provide for any benefits
for any such individual.
4.25. Labor Matters. Except for events that occur after the date hereof
-------------
which are disclosed in writing by the Company to Petopia, (a) there is no labor
strike, dispute, slowdown, work stoppage or lockout pending or, to the knowledge
of the Company, threatened against or affecting the Company and during the past
three years, there has not been any such action; (b) there are no union claims
to represent the employees of the Company; (c) the Company is not a party to or
bound by any collective bargaining or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to employees of the Company; (d) none of the
employees of the Company is represented by any labor organization and the
Company does not have any knowledge of any current union organizing activities
among the employees of the Company, nor to the knowledge of the Company does any
question concerning representation exist with respect to such employees; (e) to
the knowledge of the Company, the Company is, and has at all times been, in
material compliance with all applicable employment laws and practices,
including, without limitation, any such laws relating to employment
discrimination, occupational safety and health and unfair labor practices; (f)
there is no unfair labor practice charge or complaint against the Company
pending or, to the knowledge of the Company, threatened before the National
Labor Relations Board or, to the knowledge of the Company, any charges or
complaints, or facts which could reasonably give rise to a charge or complaint,
pending or threatened with any Governmental Entity who has jurisdiction over
unlawful employment practices; (g) there is no grievance or arbitration
proceeding arising out of any collective bargaining agreement or other grievance
procedure pending relating to the Company; (h) the Company is not delinquent in
payments to any of its employees for any wages, salaries, commissions, bonuses
or other direct
28
<PAGE>
compensation for any services performed by them to the date of this Agreement or
amounts required to be reimbursed to such employees; (i) upon termination of the
employment of any of the employees of the Company after the Closing, the
Surviving Corporation will not be liable to any of its employees for severance
pay, except as otherwise required by federal law; (j) the employment of each of
the Company's' employees is terminable at will without cost to the Company
except for payments disclosed on the Disclosure Statement or required under the
Employee Benefit Plans and payment of accrued salaries or wages and vacation
pay; (k) no employee or former employee of the Company has any right to be
rehired by the Company prior to the Company's' hiring a person not previously
employed by the Company; and (l) the Disclosure Statement contains a true and
complete list of all employees who are employed by the Company as of the date
hereof, and said list correctly reflects their salaries, wages, other
compensation (other than benefits under the Employee Benefit Plans), dates of
employment and positions. The Company does not owe any past or present employee
any sum in excess of $5,000 individually or $10,000 in the aggregate other than
for accrued wages or salaries for the current payroll period, and amounts
payable under the Employee Benefit Plans. No employee owes any sum to the
Company in excess of $5,000, and all employees together do not owe the Company
in excess of $10,000.
4.26. Environmental Matters.
---------------------
(a) The Company and its assets and businesses are in substantial
compliance with and have no material obligations under all Environmental Laws
applicable to them. The Company has delivered to Petopia copies of all
environmental reports with respect to the Leased Premises in its possession
(other than reports prepared by or on behalf of Petopia) which were conducted
during the last five years.
(b) For the purposes of this Agreement: "Environmental Laws" means
------------------
all federal, state and local statutes, regulations, ordinances, rules,
regulations and policies, all court orders and decrees and arbitration awards
applicable to the Company, and the common law, which pertain to environmental
matters or contamination of any type whatsoever or the health and safety of
employees.
4.27. Interim Conduct of Business. Except as otherwise contemplated by
---------------------------
this Agreement, since November 30, 1999, the Company has not:
(a) sold, assigned, leased, exchanged, transferred or otherwise
disposed of any material portion of its assets or property, except for sales of
Inventory and cash applied in the payment of the Company's liabilities in the
usual and ordinary course of business in accordance with the Company's past
practices;
(b) written off any asset which has a net book value which exceeds
$15,000 individually or $30,000 in the aggregate in value, or suffered any
casualty, damage, destruction or loss, or interruption in use, of any material
asset, property or portion of Inventory (whether or not covered by insurance),
on account of fire, flood, riot, strike or other hazard or Act of God;
29
<PAGE>
(c) waived any right arising out of the conduct of, or with
respect to, its business which is material to the Company;
(d) made (or committed to make) capital expenditures in an amount
which exceeds $15,000 for any item or $30,000 in the aggregate;
(e) made any change in accounting methods or principles;
(f) borrowed any money or issued any bonds, debentures, notes or
other corporate securities (other than equity securities), including without
limitation, those evidencing borrowed money;
(g) entered into any transaction with, or made any payment to, or
incurred any liability to, any Related Party (as defined herein) (except for
payment of salary and other customary expense reimbursements made in the
ordinary course of business to Related Parties who are employees of the
Company);
(h) increased the compensation payable to any employee, except for
normal pay increases in the ordinary course of business consistent with past
practices;
(i) made any payments or distributions to its employees, officers or
directors except such amounts as constitute currently effective compensation for
services rendered, or reimbursement for reasonable ordinary and necessary
out-of-pocket business expenses;
(j) paid or incurred any management or consulting fees, or engaged
any consultants, except in the ordinary course of business;
(k) hired any employee who has an annual salary in excess of $35,000,
or employees with aggregate annual salaries or wages in excess of $70,000;
(l) terminated any employee having an annual salary or wages in
excess of $35,000 or employees with aggregate annual salaries or wages in excess
of $70,000;
(m) adopted any new Employee Benefit Plan;
(n) issued or sold any securities of any class;
(o) discharged any liability except in the usual and ordinary course
of business in accordance with past practices, or prepaid any liability;
(p) paid, declared or set aside any dividend or other distribution on
its securities of any class, or purchased, exchanged or redeemed any of its
securities of any class; or
(q) without limitation by the enumeration of any of the foregoing,
entered into any transaction other than in the usual and ordinary course of
business in accordance with past practices which are material to the Company.
30
<PAGE>
4.28. Affiliated Transactions. As of the date hereof, the Company is
-----------------------
not a party to any transaction (other than employee compensation and other
ordinary incidents of employment) with a Related Party. No property or interest
in any property (including, without limitation, designs and drawings concerning
machinery) which relates to and is or will be necessary or useful in the present
or currently contemplated future operation of the Company's business, is
presently owned by or leased or licensed by or to any Related Party. Prior to
the Closing, all amounts due and owing to or from the Company by or to any of
the Related Parties (excluding employee compensation and other incidents of
employment) shall be paid in full. Except for the ownership of securities
representing less than a 2% equity interest in various publicly traded
companies, neither the Company nor to the Company's knowledge, any Related Party
has an interest, directly or indirectly, in any business, corporate or
otherwise, which relates to the catalog or on-line sales of pet products.
4.29. Significant Suppliers and Employees. The Disclosure Statement
-----------------------------------
sets forth an accurate list of the Company's Significant Suppliers (as defined
herein) and Significant Employees (as defined herein). The Company has no
knowledge of any intention or indication of intention by a Significant Supplier
to terminate its business relationship with the Company or to limit or alter its
business relationship with the Company in any material respect; or a Significant
Employee intends to terminate his employment with the Company. As used herein,
"Significant Supplier" means any supplier of the Company from whom the Company
--------------------
has purchased $50,000 or more of goods during the most recent fiscal year end or
from such time until the date hereof, for use in the Company's business and
"Significant Employee" means the Chief Executive Officer, the President, any
Vice President, or any Director.
4.30. Material Adverse Change. Since November 30, 1999, the Company
-----------------------
has not suffered or been threatened with (and the Company has no knowledge of
any facts which could reasonably cause or result in) any material adverse change
in the business, operations, assets, liabilities, financial condition or
prospects of the Company.
4.31. Bribes. Neither the Company nor, to the Company's knowledge,
------
any of its officers, directors, employees, agents or representatives has made,
directly or indirectly, with respect to the Company or its business activities,
any bribes or kickbacks, illegal political contributions, payments from
corporate funds not recorded on the books and records of the Company, payments
from corporate funds to governmental officials, in their individual capacities,
for the purpose of affecting their action or the action of the government they
represent, to obtain favorable treatment in securing business or licenses or to
obtain special concessions, or illegal payments from corporate funds to obtain
or retain business. Without limiting the generality of the foregoing, the
Company has not directly or indirectly made or agreed to make (whether or not
said payment is lawful) any payment to obtain, or with respect to, sales other
than usual and regular compensation to its employees and sales representatives
with respect to such sales.
4.32. Absence of Indemnifiable Claims, etc. There are no pending
------------------------------------
claims and, to the knowledge of the Company, no facts that would reasonably
entitle any director, officer or employee of the Company to indemnification by
the Company under applicable law, the Certificate of Incorporation or By-laws of
the Company or any insurance policy maintained by the Company.
31
<PAGE>
4.33. No Undisclosed Liabilities. There are no liabilities or
--------------------------
obligations of any nature whatsoever (whether accrued, absolute, contingent or
otherwise) of the Company in excess of $10,000 other than (i) liabilities
disclosed or provided for in the Company Interim Financial Statements; (ii)
liabilities which, individually or in the aggregate, are not material to the
Company; (iii) liabilities under this Agreement (or contemplated hereby) or
disclosed in the Disclosure Statement; and (iv) liabilities incurred since the
date of the Company Interim Financial Statements in the ordinary course of
business and consistent with past practices.
4.34. No Brokers. The Company has not entered into any contract,
----------
arrangement or understanding with any person or firm which may result in the
obligation of the Company or Petopia, Petopia Sub or their respective
Subsidiaries, if any, to pay any finder's fee, brokerage or agent's commissions
or other like payments in connection with negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
4.35. Tax Reorganization. The Company has not taken or failed to
------------------
take any action which would prevent the Merger from constituting a
reorganization within the meaning of section 368(a) of the Code.
4.36. Takeover Statutes. No "fair price", "moratorium", "control
-----------------
share acquisition" or other similar antitakeover statute or regulation enacted
under state or federal laws in the United States, applicable to the Company is
applicable to the Merger or the other transactions contemplated hereby.
ARTICLE V.
COVENANTS
5.1. Alternative Proposals. Prior to the Effective Time, the
---------------------
Company agrees that, neither it shall, nor any of its employees, directors,
representatives, affiliates or advisors (including, without limitation, legal,
accounting, financial and investment banking advisors) will (i) initiate,
solicit, encourage or take any other action to facilitate, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer that constitutes, or may reasonably be expected to lead to, any
Alternative Proposal or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Alternative Proposal, or otherwise facilitate any effort or
attempt to make or implement an Alternative Proposal, (ii) that it will
immediately terminate any existing activities, discussions or negotiations with
any person conducted heretofore with respect to any of the foregoing, provided,
--------
however, that the Company shall not initiate communications (whether orally or
- -------
in writing) in any manner with Pets.com prior to the Effective Time, and (iii)
that it will notify Petopia immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with the Company.
Notwithstanding the foregoing, if the Company or any of its employees or agents
receives an unsolicited call or written information from any person (including
Pets.com) relating to an Alternative Proposal, the Company and/or its employees
shall be entitled to inform such person that they are unable to talk to them at
this time. As used herein, the term "Alternative Proposal" means
--------------------
32
<PAGE>
(i) a merger, consolidation or other business combination with the Company, or
any agreement or letter of intent or understanding relating to any such
transaction, (ii) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition involving a substantial part of the Company's assets, or any
agreement or letter of intent or understanding relating to such transaction,
(iii) the acquisition by any person of 25% or more of the outstanding capital
stock or capital stock equivalents of the Company, or (iv) any reclassification
of securities or recapitalization of the Company or other transaction that has
the effect, directly or indirectly, of increasing the proportionate share of any
class of equity security (including securities convertible into equity
securities) of the Company that is owned by any person, or any agreement or
letter of intent or understanding relating to such transaction.
5.2. Interim Operations.
------------------
(a) During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, except as set forth in the Disclosure Statement, unless Petopia
has consented in writing thereto (which consent shall not be unreasonably
withheld), the Company:
(i) Shall conduct its operations according to its
usual, regular and ordinary course in substantially the same manner as
heretofore conducted;
(ii) To the extent consistent with its business, shall
use commercially reasonable efforts to preserve intact its business organization
and goodwill, keep available the services of its officers and employees and
maintain satisfactory relationships with those persons having business
relationships with it;
(iii) Shall not amend its Certificate of Incorporation or
By-Laws or comparable governing instruments;
(iv) Shall promptly notify Petopia of any material
emergency or other Company Material Adverse Effect, any material litigation or
material governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the material breach of any
representation or warranty contained herein;
(v) Shall not (A) except for the exercise of warrants,
conversion rights and other contractual rights existing on the date hereof and
disclosed pursuant to this Agreement, issue any shares of its capital stock,
effect any stock split or otherwise change its capitalization as it existed on
the date hereof; (B) grant, confer or award any option, warrant, conversion
right or other right not existing on the date hereof to acquire any shares of
its capital stock; (C) increase any compensation or enter into or amend any
employment agreement with any of its present or future officers, directors or
employees, except for normal increases consistent with past practice, but in any
event, not in excess of 5% per annum per employee; (D) grant any severance or
termination package to any employee or consultant, except to the extent
consistent with past practices; (E) hire any new employee who shall have, or
terminate the employment of any employee who has, an annual salary in excess of
$35,000; or (F) adopt any new employee benefit plan (including any stock option,
stock benefit or stock purchase plan), or amend any existing employee
33
<PAGE>
benefit plan in any material respect, except for changes which are less
favorable to participants in such plans or as may be required by law;
(vi) Shall not (A) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares of
its capital stock or other ownership interests; or (B) directly or indirectly,
redeem, purchase or otherwise acquire any shares of its capital stock, or make
any commitment for any such action;
(vii) Shall not enter into any agreement or transaction,
or agree to enter into any agreement or transaction, outside the ordinary course
of business, including, without limitation, any transaction involving a merger,
consolidation, joint venture, license agreement (including any license of
Intellectual Property), partial or complete liquidation or dissolution,
reorganization, recapitalization, restructuring or a purchase, sale, lease or
other disposition of a material portion of assets or capital stock;
(viii) Shall not incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of others other than (i) in
the ordinary course of its business consistent with past practices, but in no
event in an amount exceeding $5,000 individually or $15,000 in the aggregate
(other than normal expenditures for the purchase of raw materials or other
supplies) or (ii) pursuant to the Company's line of credit with Clifcor Capital
LLC in the ordinary course of business consistent with past practices;
(ix) Shall not make any loans, advances or capital
contributions to, or investments in, any other Person;
(x) Except as described in the Disclosure Statement,
shall not make or commit to made any capital expenditures in excess of $5,000
individually or $15,000 in the aggregate;
(xi) Shall not apply any of its assets to the direct or
indirect payment, discharge, satisfaction or reduction of any amount payable
directly or indirectly to or for the benefit of any Related Party of the Company
or enter into any transaction with any Related Party of the Company (except for
payment of salary and other customary expense reimbursements made in the
ordinary course of business to Related Parties who are employees of the Company
and repayments of amounts drawn under the Company's line of credit with Clifcor
Capital LLC);
(xii) Shall not alter the manner of keeping its books,
accounts or records, or change in any manner the accounting practices therein
reflected;
(xiii) Shall not grant or make any mortgage or pledge or
subject itself or any of its material properties or assets to any lien, charge
or encumbrance of any kind, except Liens for taxes not currently due; and
(xiv) Shall use reasonable efforts to maintain insurance
on its tangible assets and its businesses in such amounts and against such risks
and losses as are currently in effect.
34
<PAGE>
5.3. Stockholder Approvals
---------------------
(a) The Company will take all action necessary in accordance
with applicable law and its Certificate of Incorporation and By-Laws to solicit
written consents from the Holders to approve the Merger and the transactions
contemplated hereby, and shall take all other action necessary or advisable to
secure the vote or consent of its Holders required by Delaware Law to effect the
Merger.
(b) Petopia will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and By-Laws to solicit
written consents from its stockholders to approve the Fifth Restated Certificate
and shall take all other action necessary or advisable to secure the vote or
consent of its stockholders required by Delaware Law to effect the transactions
contemplated hereby. Additionally, Petopia will take all action necessary in
accordance with the terms of the Prior Rights Agreement, the Prior Co-Sale
Agreement, and the Prior Voting Agreement to solicit the approval of the parties
thereto for an amendment and restatement of such agreements in the form of the
Rights Agreement, the Co-Sale Agreement and the Voting Agreement, respectively.
5.4. Filings; Other Action. Subject to the terms and conditions
---------------------
herein provided, the Company and Petopia shall: (a) use all commercially
reasonable efforts to cooperate with one another in (i) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained prior
to the Effective Time from, governmental or regulatory authorities of the United
States, the several states and foreign jurisdictions in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby; and (ii) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations; (b) use
commercially reasonable efforts to obtain all consents under or with respect to,
any contract, lease, agreement, purchase order, sales order or other instrument,
permit or Environmental Permit, where the consummation of the transactions
contemplated hereby would be prohibited or constitute an event of default, or
grounds for acceleration or termination, in the absence of such consent; and (c)
take, or cause to be taken, all other commercially reasonable actions as are
reasonably necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If, at any time after the Effective
Time, any further commercially reasonable action is necessary or desirable to
carry out the purpose of this Agreement, the proper officers and directors of
Petopia and the Surviving Corporation shall take all such necessary action.
5.5. Inspection of Records. From the date hereof to the Effective
---------------------
Time, the Company shall (a) allow all designated officers, attorneys,
accountants and other representatives of Petopia reasonable access at all
reasonable times to the offices, records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs of the Company; (b) furnish to Petopia, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such persons may reasonably request; and (c) instruct
the employees, counsel and financial advisors of the Company to cooperate with
Petopia and its investigation of the business of the Company. From the date
hereof to the Effective Time, Petopia shall (a) furnish to the Company, its
counsel, financial advisors, auditors and other
35
<PAGE>
authorized representative such financial and operating data and other
information as such persons may reasonably request, and (b) instruct the
officers, counsel and financial advisors of Petopia to cooperate with the
Company in its investigation of the business of Petopia or its Subsidiaries. All
information disclosed by the Company to Petopia and its representatives or by
Petopia to the Company and its representatives shall be subject to the terms of
that certain Confidentiality and Non-Disclosure Agreement (the "Confidentiality
---------------
Agreement") dated as of November 13, 1999 between Petopia and the Company;
- ---------
provided, however, the Confidentiality Agreement is hereby modified to dispense
with its requirements that (i) all disclosed documents and other materials be
marked "confidential" and (ii) notices be delivered (within 30 days of
disclosure) to the party receiving information that has been disclosed orally or
otherwise regarding the confidential nature of such information.
5.6. Publicity. None of the Company, Petopia nor Petopia Sub shall
---------
make any press release or public announcement with respect to this Agreement,
the Merger or the transactions contemplated hereby without the prior written
consent of the other parties hereto (which consent shall not be unreasonably
withheld); provided, however, that each party hereto may make any disclosure or
announcement which such party, in the opinion of its legal counsel, is obligated
to make pursuant to applicable law, in which case, the party desiring to make
the disclosure shall consult with the other parties hereto prior to making such
disclosure or announcement.
5.7. Further Action. Each party hereto shall, subject to the
--------------
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
5.8. Expenses. (a) Whether or not the Merger is consummated, and
--------
except as otherwise provided herein, Petopia and the Company shall each be
solely responsible for any and all of their respective costs, fees and expenses,
including, without limitation, expenses of legal counsel, environmental
consultants, brokers, accountants, and other advisors, incurred at any time in
connection with pursuing or consummating the transactions contemplated hereby,
provided, however, that, if the Company's out of pocket costs and expenses
- -------- -------
related to the transaction exceed $50,000 in the aggregate (not including up to
$50,000 in costs and expenses related to the Company's financial audit), such
excess shall reduce Petopia's indebtedness under the Promissory Note.
5.9. Tax Treatment of Merger. From and after the date hereof and
-----------------------
until the Effective Time, neither Petopia nor the Company nor Petopia's
Subsidiaries or any of their respective affiliates shall knowingly take any
action, or knowingly fail to take any action, that would jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code. After the Effective Time, Petopia shall not take or fail to
take (and shall cause the Surviving Corporation not to take or fail to take) any
action that is reasonably likely to jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
5.10. Payment of Company Line of Credit. Petopia shall refinance the
---------------------------------
Working Capital Credit and Security Agreement and Revolving Promissory Note,
both dated September 13, 1999 by and between the Company and Clifcor Capital
LLC; the First Amendment to the Working Capital Credit and Security Agreement
and Revolving Promissory Note, both dated November 3,
36
<PAGE>
1999 by and between the Company and Clifcor Capital LLC; and the Security
Agreement and Revolving Promissory Note, both dated November 18, 1999 by and
between the Company, on the one hand, and Robert Ian Chaplin and Scott Galloway,
on the other, and the corresponding Notes (collectively, the "LOC") not more
---
than forty-five (45) days after the Closing.
5.11. Company Indemnification Obligations. Petopia shall honor or
-----------------------------------
cause to be honored all obligations of the Company in respect of the
indemnification of any director or officer of the Company that are listed on the
Disclosure Statement.
5.12. Option Grants. Subject to the approval of the Board of
-------------
Directors of Petopia, within thirty (30) days after the Effective Time, Petopia
shall grant options to purchase shares of Petopia Common Stock to the
individuals and in the amounts set forth on Exhibit J attached hereto. To the
maximum permissible extent, such options will be "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended. The exercise price per share will be equal to the fair market value of
a share of Petopia Common Stock on the date the option is granted or on the
first day of employment of each person listed on Exhibit J, whichever is later
and shall be exercisable for a period of ten (10) years from the date of grant.
Any option will be subject to the terms and conditions applicable to options
granted under Petopia's 1999 Stock Plan, as described in that Plan and the
applicable stock option agreement. The options shall vest: twenty-five percent
(25%) on the date of grant and seventy-five percent (75%) on the earlier of (a)
one year from the Effective Time; provided that the employee or service provider
is on such date an employee or service provider of the Company; or (b) the date
that such employee or service provider is terminated for any reason other than
cause. Termination for other than Cause shall mean any termination occurring for
reasons other than: (a) optionee dies; (b) optionee becomes disabled; or (c)
optionee: (1) has been convicted of a crime involving fraud, theft, embezzlement
or similar criminal conduct or moral turpitude; (2) has failed or refused to
follow policies or directives established by the management of the Company; (3)
has committed acts amounting to gross negligence or willful misconduct to the
detriment of the Company; or (4) has breached any of the material terms and
provisions of his or her employment and/or consulting agreement.
ARTICLE VI.
CONDITIONS
6.1. Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of each of the following
conditions (unless waived by each of the parties hereto in accordance with the
provisions of Section 8.6 hereof):
(a) No preliminary or permanent injunction or other order or
decree by any federal or state court which prevents the consummation of the
Merger or materially changes the terms or conditions of this Agreement shall
have been issued and remain in effect. In the event any such order or injunction
shall have been issued, each party agrees to use its reasonable efforts to have
any such injunction lifted.
37
<PAGE>
(b) The Fifth Restated Certificate of Petopia shall have been
approved by the stockholders of Petopia in accordance with Delaware law and
Petopia's current Certificate of Incorporation, as amended and restated, and By-
Laws;
(c) All material consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commission,
board or other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or made,
except for filings in connection with the Merger and any other documents
required to be filed after the Effective Time, but only to the extent that the
failure to obtain such consents, authorizations, orders and approvals (or
filings or registrations) would have a Petopia Material Adverse Effect or a
Company Material Adverse Effect.
(d) Petopia, the Holders and the Escrow Agent shall have
entered into the Escrow Agreement.
(e) This Agreement and the Merger and other transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of the Holders.
(f) The parties thereto shall have agreed to amend and
restate the Prior Rights Agreement, the Prior Co-Sale Agreement, and the Prior
Voting Agreement in the form of the Rights Agreement, the Co-Sale Agreement and
the Voting Agreement, respectively, and the Stockholders shall have executed and
delivered signature pages thereto.
6.2. Conditions to Obligation of the Company to Effect the Merger.
------------------------------------------------------------
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions (unless
waived by the Company in accordance with the provisions of Section 8.6 hereof):
(a) Petopia and Petopia Sub shall have performed, in all
material respects, all of their respective agreements contained herein that are
required to be performed by Petopia or Petopia Sub on or prior to the Closing
Date, and the Company shall have received certificates of executive officers of
each of Petopia and Petopia Sub, dated the Closing Date, certifying to such
effect.
(b) The representations and warranties of Petopia and Petopia
Sub contained in this Agreement and in any document delivered in connection
herewith shall be true and correct as of the Closing (except for representations
and warranties made as of a particular date, which shall be true as of such
date) in all material respects, and the Company shall have received certificates
of executive officers of each of Petopia and Petopia Sub, dated the Closing
Date, certifying to such effect.
(c) The Company shall have received from Petopia certified
copies of the resolutions of Petopia's and Petopia Sub's Boards of Directors and
stockholders approving and adopting this Agreement, the Petopia Ancillary
Documents, the Fifth Restated Certificate and the transactions contemplated
hereby and thereby.
38
<PAGE>
(d) The Company shall have received the opinion of Perkins
Coie LLP as to substantially the same matters as set forth in Exhibit M,
---------
subject to customary qualifications, exceptions and limitations.
(e) From the date of this Agreement through the Effective
Time, there shall not have occurred any event that would have or would be
reasonably likely to have a material adverse effect in the financial condition,
business, operations or prospects of Petopia and its Subsidiaries, taken as a
whole.
(f) Petopia and Petopia Sub shall have executed and delivered
such other customary corporate deliverables as the Company shall reasonably
request.
(g) Petopia shall have entered into the Employment Agreements
with Howard Koenig and Scott Vertrees in the forms attached hereto as Exhibits
K-1 and K-2, respectively.
- --- ---
(h) Petopia shall have executed the Promissory Note.
6.3. Conditions to Obligation of Petopia and Petopia Sub to Effect
-------------------------------------------------------------
the Merger. The obligations of Petopia and Petopia Sub to effect the Merger
- ----------
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions (unless waived by Petopia in accordance with the provisions
of Section 8.6 hereof):
(a) The Company shall have performed, in all material
respects, all of its agreements contained herein that are required to be
performed by the Company on or prior to the Closing Date, and Petopia shall have
received a certificate of the Chairman or President of the Company, dated the
Closing Date, certifying to such effect.
(b) The representations and warranties of the Company
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct as of the Closing (except for representations and
warranties made as of a particular date, which shall be true as of such date) in
all material respects, and Petopia shall have received a certificate of the
Chairman or President of the Company, dated the Closing Date, certifying to such
effect.
(c) Petopia shall have received from the Company certified
copies of the resolutions of the Company's Board of Directors and Stockholders
approving and adopting this Agreement, the Ancillary Documents and the
transactions contemplated hereby and thereby.
(d) Petopia shall have received the opinion of Cahill Gordon
& Reindel as to the matters set forth in Exhibit M, subject to customary
---------
qualifications, exceptions and limitations.
(e) From the date of this Agreement through the Effective
Time, there shall not have occurred any event that would have or would be
reasonably likely to have a material adverse effect in the financial condition,
business, operations or prospects of the Company.
<PAGE>
(f) The holders of not more than five percent (5%) of the
outstanding Company Capital Stock shall have perfected dissenters' rights under
applicable law.
(g) The Company shall have received the consents to the
assignment of the parties to the agreements listed on Exhibit L hereto.
---------
(h) Howard Koenig and Scott Vertrees shall have entered into
Employment Agreements with Petopia in the forms attached hereto as Exhibits K-1
-------- ---
and K-2, respectively.
---
(i) All beneficial owners of five percent (5%) or more of the
Company Capital Stock as of the Effective Time and all employees of the Company
who hold any shares of Company Capital Stock shall have executed and delivered
to Petopia a Non-Competition and Non-Solicitation Agreement in the form attached
hereto as Exhibit N.
---------
(j) The outstanding balance under the Company's LOC, together
with all other outstanding indebtedness (other than debt to be converted into
Company Common Stock prior to the Effective Time) not characterized as accounts
payable and accrued expenses on the Company's financial statements dated as of
the Effective Time prepared in the same manner as the Interim Financial
Statements, shall be less than $1.2 million in the aggregate.
(k) The Holders shall have executed and delivered an
intercreditor agreement in the form requested by Greyrock Capital (the "Senior
------
Secured Creditor"), pursuant to which the Holders' security interest in the
- ---------------
assets of Petopia with respect to the obligations of Petopia under the
Promissory Note shall be subordinated to the security interest of the Senior
Secured Creditor.
(l) The Company shall have delivered to Petopia audited
financial statements for the fiscal years ended June 27, 1998 and June 26, 1999
(the "Audited Statements").
------------------
(m) All outstanding indebtedness of the Company that is
convertible into shares of Company Common Stock (including $610,000 owed to
Clifcor Capital LLC and $210,000 owed to certain founders of the Company, but
excluding the LOC, which right to convert shall have been waived) shall have
been so converted.
(n) Any Common Stock Purchase Warrants that will remain
outstanding after the Effective Time shall have been properly legended to
provide that such Common Stock Purchase Warrants are subject to the terms and
conditions of the Escrow Agreement.
(o) The parties to that certain Stockholder Agreement dated
as of August 26, 1999 shall have waived their rights to the acceleration of
vesting of the shares of Company Common Stock owned by them upon the
consummation of the Merger.
(p) The relevant provisions of the LOC shall have been
amended to (a) terminate all rights to convert the outstanding indebtedness
thereunder into capital stock of the Company; (b) extend the payment date until
at least forty-five days after the Effective Time; (c) waive the event of
default and acceleration provisions of the LOC which occurs upon the
40
<PAGE>
consummation of the transactions contemplated by this Agreement; and (d) waive
all past defaults prior to the Effective Time.
(q) The Contribution Agreement dated July 2, 1999 and the Agreement
dated October 8, 1999 between Clifcor Capital LLC and Robert Ian Chaplin, Scott
Galloway, Geoffrey Hale, Jason Stavers, Doug Bertozzi, Connie Hallquist, Lee
Lodes, Jarom Smith, Pete Baltaxe, Jamie Cheng, Clifford Lindsay and Jawad
Mohammed shall have terminated and all rights thereunder shall have been waived
by the parties thereto, including, without limitation, the rights contained in a
letter dated December 21, 1999 from William Rauhauser and Ann Counts to the
Company.
(r) The exclusivity provisions contained in that certain Service
Agreement dated as of August 9, 1999 between the Company and Distribution
Associates, Inc. shall have been waived.
(s) The Shareholders Agreement dated as of July 2, 1999 (as amended)
shall have been terminated, the transfer restrictions contained therein shall
have been waived and all necessary consents to the transactions contemplated by
this Agreement contained therein shall have been obtained.
(t) Termination of (a) all management agreements between the Company
and third parties; and (b) the employment agreement between the Company and
William Rauhauser, including a waiver and release of all prior claims.
(u) The Company shall have executed and delivered such other
customary corporate deliverables as Petopia shall reasonably request.
ARTICLE VII.
INDEMNIFICATION
7.1. General. From and after the Closing, the parties shall indemnify
-------
each other as provided in this Article VII. For the purposes of this Article
VII, each party shall be deemed to have remade all of its representations and
warranties contained in this Agreement at the Closing with the same effect as if
originally made at the Closing (except for representations and warranties made
as of a particular date, which shall be deemed to have been remade as of such
date); provided, however, that the Petopia Disclosure Statement and the
-------- -------
Disclosure Statement may be updated at the Closing by Petopia or the Company, as
the case may be, and no indemnity shall be provided hereunder with respect to
the matters set forth therein. No disclosure contained in the updated Petopia
Disclosure Statement or the updated Disclosure Statement, as the case may be,
shall be deemed a waiver of Petopia's or the Company's representations and
warranties made on the date hereof with respect to the conditions to closing set
forth in Sections 6.2(b) and 6.3(b) hereof.
7.2. Certain Definitions. As used in this Article VII, the following
-------------------
terms shall have the indicated meanings:
41
<PAGE>
(a) "Damages" shall mean all liabilities, assessments, levies,
-------
losses, fines, penalties, damages, costs and expenses, including, without
limitation, reasonable fees and expenses of attorneys, accountants and other
professionals, but including any insurance proceeds actually received, actually
sustained or incurred by an Indemnified Party in connection with the defense or
investigation of any claim (after giving effect to any insurance proceeds
actually received by an Indemnified Party).
(b) "Indemnified Party" shall mean a party hereto who is
-----------------
entitled to indemnification from another party hereto pursuant to this Article
VII.
(c) "Indemnifying Party" shall mean a party hereto who is
------------------
required to provide indemnification under this Article VII to another party
hereto.
(d) "Third Party Claims" shall mean any claims for Damages
------------------
which are asserted or threatened by a party other than the parties hereto, their
successors and permitted assigns, against any Indemnified Party or to which an
Indemnified Party is subject.
7.3. The Holders Indemnification Obligations. Each of the Holders
---------------------------------------
shall indemnify, save and keep Petopia, Petopia Sub, the Surviving Corporation,
each of their respective Subsidiaries and their respective successors and
permitted assigns (each a "Petopia Indemnitee" and collectively the "Petopia
------------------ -------
Indemnitees") harmless against and from all Damages sustained or incurred by any
- -----------
Petopia Indemnitee, as a result of or arising out of: (a) any inaccuracy in or
breach of any representation and warranty made by the Company to Petopia as of
the Closing (except for representations and warranties made as of a particular
date, which shall be deemed to have been made as of such date) in this Agreement
or in the Escrow Agreement or made by any Holder in the Rep. Letter; and (b) any
breach by the Company or the Majority in Interest of the Holders of, or failure
of the Company or the Majority in Interest of the Holders to comply with, any of
the covenants or obligations under this Agreement, the Escrow Agreement or the
Rep. Letter to be performed by the Company or such Holders (including without
limitation the Holders obligations under this Article VII).
7.4. Petopia's Indemnification Obligations. Petopia shall indemnify,
-------------------------------------
save and keep the Holders and their respective successors and permitted assigns
(each a "Seller Indemnitee" and collectively the "Seller Indemnitees"), forever
----------------- ------------------
harmless against and from all Damages sustained or incurred by any Seller
Indemnitee, as a result of or arising out of: (a) any inaccuracy in or breach of
any representation and warranty made by Petopia or Petopia Sub to the Company as
of the Closing (except for representations and warranties made as of a
particular date, which shall be deemed to have been made as of such date)
herein; and (b) any breach by Petopia or Petopia Sub of, or failure by Petopia
or Petopia Sub to comply with, any of the covenants or obligations under this
Agreement or the Escrow Agreement to be performed by Petopia or Petopia Sub
(including without limitation Petopia or Petopia Sub's obligations under this
Article VII).
7.5. Limitation on Indemnification Obligations.
-----------------------------------------
(a) All representations, warranties, covenants and obligations
contained in this Agreement, the Escrow Agreement and the Rep. Letter shall
survive the Closing for a period
42
<PAGE>
of six (6) months from the Effective Time; provided, however, that the
representations and warranties set forth in Section 4.2 of this Agreement,
Section 1.4 of the Escrow Agreement and Sections 1(d) and 1(f) of the Rep.
Letter shall survive the Closing for a period of eighteen (18) months from the
Effective Time (the "Survival Period"). A claim by a Petopia Indemnitee or a
---------------
Seller Indemnitee for indemnification under this Article VII for Damages
incurred during the Survival Period must be asserted within the Survival Period.
(b) Notwithstanding anything to the contrary contained herein,
(i) the Petopia Indemnitees shall not be entitled to indemnification pursuant to
Section 7.3 hereof for individual claims for indemnification under $1,000 and
shall only be entitled to indemnification pursuant to Section 7.3 hereof once
the Petopia Indemnitees' aggregate claims for indemnification exceed $200,000,
but after such claims exceed such amount, the Petopia Indemnitees shall be
entitled to seek indemnification for all indemnification claims from the first
dollar of Damages above $1,000; and (ii) the indemnification obligations of the
Holders pursuant to Section 7.3 hereof (other than a Claim relating to a breach
of Section 4.2 of this Agreement, Section 1.4 of the Escrow Agreement or
Sections 1(d) and 1(f) of the Rep. Letter, which claims shall be subject to the
limitations contained in the Escrow Agreement) shall be limited to the amount
deposited by the Holders into the Escrow and the Petopia Indemnitees shall not
be entitled to pursue any claims for indemnification against the Holders
directly or personally (except for Claims relating to a breach of Section 4.2 of
this Agreement, Section 1.4 of the Escrow Agreement or Sections 1(d) and 1(f) of
the Rep. Letter) and the sole recourse of the Petopia Indemnitees shall be to
make claims against the Escrow in accordance with the terms of the Escrow
Agreement (except for Claims relating to a breach of Section 4.2 of this
Agreement, Section 1.4 of the Escrow Agreement or Sections 1(d) and 1(f) of the
Rep. Letter).
(c) Notwithstanding anything to the contrary contained herein,
(i) the Seller Indemnitees shall not be entitled to indemnification pursuant to
Section 7.4 hereof for individual claims for indemnification under $1,000 and
shall only be entitled to indemnification pursuant to Section 7.4 hereof once
the Seller Indemnitees' aggregate claims for indemnification exceed $200,000,
but after such claims exceed such amount, the Seller Indemnitees shall be
entitled to seek indemnification for all indemnification claims from the first
dollar of Damages above $1,000; and (ii) the indemnification obligations of
Petopia pursuant to Section 7.4 hereof shall be limited to an amount equal to
$1,000,000 in the aggregate.
7.6. Cooperation. Subject to the provisions of Section 7.8, the
-----------
Indemnifying Party shall have the right, at its own expense, to participate in
the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
Claim and the party undertaking the defense of any Third Party Claim, if not the
Indemnifying Party, shall give consideration to the recommendations of the
Indemnifying Party.
7.7. Subrogation. The Indemnifying Party shall not be entitled to
-----------
require that any action be brought against any other person before action is
brought against it hereunder by the Indemnified Party and shall not be
subrogated to any right of action until it has paid in full or successfully
defended against the Third Party Claim for which indemnification is sought.
43
<PAGE>
7.8. Indemnification Claims Procedures.
---------------------------------
(a) Promptly following the receipt of notice by the Petopia
Indemnitees of a Third Party Claim which the Petopia Indemnitees believe may
result in a demand against the Escrow, Petopia shall notify the Stockholders of
such claim in accordance with the provisions of the Escrow Agreement. Promptly
following the receipt of notice by the Stockholder Indemnitees of a Third Party
Claim which the Stockholder Indemnitees believe may result in a demand for
indemnification pursuant to Section 7.4 hereof, the Stockholders shall notify
Petopia of such claim. The party receiving the notice of the Third Party Claim
shall notify the other party hereto of such Third Party Claim. The failure to
give such notice shall not relieve the Indemnifying Party of its obligations
under this Agreement except to the extent that the Indemnifying Party is
substantially prejudiced as a result of the failure to give such notice. Within
fifteen (15) business days after receipt of the notice by the Indemnifying Party
pursuant to the preceding sentence, the Indemnifying Party shall notify the
Indemnified Party whether it elects to control the defense of the Third Party
Claim. If the Indemnifying Party elects to undertake the defense of such Third
Party Claim, it shall do so at its own expense with counsel of its own choosing
and it shall acknowledge in writing without qualification its indemnification
obligations as provided in this Agreement to the Indemnified Party as to such
Third Party Claim. If the Indemnifying Party elects not to defend the Third
Party Claim or fails to pursue such Third Party Claim diligently, the
Indemnified Party shall have the right to undertake, conduct and control the
defense of such Third Party Claim through counsel of its own choosing; provided
that where the Indemnified Party is the Company, Petopia shall reimburse the
Company for any expenses arising out of such defense in cash or Petopia Series E
Preferred Stock. The party that litigates or contests the Third Party Claim
shall keep the other party fully advised of the progress and disposition of such
claim.
(b) In the event the Indemnifying Party elects not to undertake
the defense of the Third Party Claim or fails to pursue diligently the defense
of such a claim and the Indemnified Party litigates or otherwise contests or
settles the Third Party Claim, then, provided that a final determination has
been made that the Indemnified Party is entitled to indemnification hereunder,
the Indemnifying Party shall promptly reimburse the Indemnified Party for all
amounts paid to settle such claim or all amounts paid in satisfaction of a
judgment against the Indemnified Party in contesting such claim and in providing
its right to indemnification hereunder, all in accordance with the provisions of
this Article VII. Notwithstanding the foregoing, no settlement of any Third
Party Claim without the prior written consent of the Indemnifying Party shall be
determinative of the validity of any claim that the Indemnified Party is
entitled to indemnification hereunder.
(c) No Third Party Claim will be settled by the Indemnifying
Party without the prior written consent of the Indemnified Party, which consent
will not be unreasonably withheld; provided, however, that if such claim asserts
that the Indemnifying Party is jointly and severally liable and the Indemnified
Party shall be fully released from all liability relating to such Third Party
Claim in connection with such settlement, the Indemnifying Party shall not be
required to obtain the consent of the Indemnified Party. If, however, the
Indemnified Party refuses to consent to a bona fide offered settlement which the
Indemnifying Party wishes to accept, the Indemnified Party may continue to
pursue such Third Party Claim free of any participation by the Indemnifying
Party, at the sole expense of the Indemnified Party. In such event, the
Indemnifying Party shall pay to the Indemnified Party the amount of the offer of
settlement which the Indemnified Party refused
44
<PAGE>
to accept, plus the costs and expenses incurred by the Indemnified Party prior
to the date the Indemnifying Party notifies the Indemnified Party of the offer
of settlement, all in accordance with the terms of this Article VII, and, upon
the payment or receipt of such amount, as the case may be, the Indemnifying
Party shall have no further liability with respect to such Third Party Claim.
The Indemnifying Party shall be entitled to recover from the Indemnified Party
any additional expenses incurred by such Indemnifying Party as a result of the
decision of the Indemnified Party to pursue the matter.
7.9. Majority of Stockholders.
------------------------
(a) A Majority in Interest of the Holders, for and on behalf of
the Holders, shall have the power to take any and all actions required to be
taken by the Holders pursuant to this Agreement or the Escrow Agreement,
including, without limitation, the power to give and receive notices and
communications, to enter into and perform the Escrow Agreement, to make claims
for indemnification against Petopia, to authorize delivery to Petopia of Petopia
Series E Preferred Stock or other property from Escrow in satisfaction of claims
by Petopia, 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 appropriate or in the judgment of a Majority in Interest of
the Holders for the accomplishment of the foregoing. Effective upon the approval
of this Agreement by the Stockholders, the Holders individually shall have no
power or authority to take any actions against Petopia or otherwise pursuant to
this Agreement or the Escrow Agreement, and all actions of the Holders, whether
pursuant to this Agreement or the Escrow Agreement, must be taken solely by a
Majority in Interest of the Holders.
(b) Petopia shall have no liability of any kind to any Holder as
a result of or arising out of any action taken or not taken by a Majority in
Interest of the Holders at any time under this Agreement or the Escrow Agreement
and each Holder hereby releases Petopia from any such liability. Petopia may
conclusively rely, without any obligation of investigation or inquiry of any
kind, on any action taken by a Majority in Interest of the holders as having
been fully authorized and approved by all necessary action by each Holder
(except such Holders, if any, as shall have perfected their dissenter rights
under applicable law).
ARTICLE VIII.
TERMINATION
8.1. Termination by Mutual Consent. This Agreement may be terminated
-----------------------------
and the Merger may be abandoned at any time prior to the Effective Time by the
mutual written consent of Petopia and the Company.
8.2. Termination by Either Petopia or the Company. This Agreement may
--------------------------------------------
be terminated and the Merger may be abandoned by action of the Board of
Directors of either Petopia or the Company if (a) the Merger shall not have been
consummated on or prior to the later of January 17, 2000 or five business days
after the Company shall have delivered the Audited
45
<PAGE>
Statements to Petopia, but in no event later than January 31, 2000; provided,
however, that the right to terminate this Agreement under this Section 8.2(a)
will not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the Merger
to occur on or before such date; (b) the approval of the Stockholders shall not
have been obtained; provided, however, that the Company shall not have the right
-------- -------
to terminate this Agreement under this Section 8.2(b) if the Company caused
(directly or indirectly) or aided in the failure to obtain such approval; or (c)
a court of competent jurisdiction or a governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action either (i) permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement; or (ii)
compelling Petopia, Petopia Sub or the Surviving Corporation to dispose of or
hold separate all or a material portion of the respective businesses or assets
of Petopia, the Company or Petopia's Subsidiaries, and such order, decree,
ruling or other action shall have become final and non-appealable.
8.3. Termination by the Company. This Agreement may be terminated and
--------------------------
the Merger may be abandoned at any time prior to the Effective Time by action of
the Board of Directors of the Company, if there has been a material breach by
Petopia or Petopia Sub of any representation, warranty, covenant or agreement
set forth in this Agreement on the part of Petopia, which breach is not curable
or, if curable, is not cured within 20 days after written notice of such breach
is given by the Company to Petopia.
8.4. Termination by Petopia. This Agreement may be terminated and the
----------------------
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Petopia, if there has been a material breach by the
Company of any representation, warranty, covenant or agreement set forth in this
Agreement on the part of the Company, which breach is not curable or, if
curable, is not cured within 20 days after written notice of such breach is
given by Petopia to the Company.
8.5. Effect of Termination and Abandonment. In the event of
-------------------------------------
termination of this Agreement and the abandonment of the Merger pursuant to this
Article 8, all obligations of the parties hereto shall terminate, except the
obligations of the parties pursuant to Sections 5.6 and 5.8 hereof and pursuant
to the Confidentiality Agreement (as amended by Section 5.5 hereof), which
obligations shall survive the termination of this Agreement.
8.6. Extension; Waiver. At any time prior to the Effective Time, any
-----------------
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto; and (c) 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.
46
<PAGE>
ARTICLE IX.
GENERAL PROVISIONS
9.1. Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three (3) business days after being deposited in the
United States mail, postage prepaid, registered or certified mail. Notices
delivered by hand, by facsimile (with electronic confirmation of receipt), or by
nationally recognized private carrier shall be deemed given on the day following
receipt. All notices shall be addressed as follows:
If to Petopia or Petopia Sub: If to the Company or the Holders:
Petopia.com, Inc. Clifcor Capital, LLC
1200 Folsom Street 2890 Pio Pico Drive, Suite 201
San Francisco, CA 94103 Carlsbad, CA 92008
Attn: Andrea Reisman Attn: Howard Koenig
Fax: (415) 503-2710 Fax: (760) 730-9695
With copies to: With copies to:
Perkins Coie LLP Cahill Gordon & Reindel
135 Commonwealth Drive, Suite 250 80 Pine Street
Menlo Park, CA 94025 New York, NY 10005
Attn: Mark Albert Attn: Gerald S.Tanenbaum
Fax: (650) 752-6050 Fax: (212) 269-5420
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
9.2. Assignment, Binding Effect. Neither this Agreement nor any of
--------------------------
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent 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 permitted successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Sections 1.4, 1.5, 1.6, 1.7, 1.8, 2.3 and 2.4, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
9.3. Entire Agreement. This Agreement, the Disclosure Statement, the
----------------
Petopia Disclosure Statement, the Confidentiality Agreement (as amended by
Section 5.5 hereof), the Ancillary Documents, the Petopia Ancillary Agreements,
and any other documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the
47
<PAGE>
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto (specifically including, but not limited
to, the letter of intent dated December 9, 1999). No addition to or modification
of any provision of this Agreement shall be binding upon any party hereto unless
made in writing and signed by all parties hereto.
9.4. Amendment. This Agreement may be amended by the parties hereto,
---------
by action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
Stockholders, but after any such Stockholder approval, no amendment shall be
made which by law requires the further approval of Stockholders without
obtaining such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
9.5. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws.
9.6. Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
9.7. Headings. Headings of the Articles and Sections of this
--------
Agreement are for the convenience of the parties only and shall be given no
substantive or interpretive effect whatsoever.
9.8. Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
9.9. Waivers. Except as provided in this Agreement, no action taken
-------
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
9.10. Incorporation. The Disclosure Statement and the Petopia
-------------
Disclosure Statement, as each may be updated, are hereby incorporated herein and
made a part hereof for all purposes as if fully set forth herein.
9.11. Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
48
<PAGE>
9.12. Enforcement of Agreement. The parties hereto agree that
------------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any Delaware Court, this
being in addition to any other remedy to which they are entitled at law or in
equity.
49
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
PETOPIA.COM, INC.,
a Delaware corporation
By: /s/ Andrea Reisman
-------------------------------------
Name: Andrea Reisman, CEO
ICOD ACQUISITION CORP.,
a Delaware corporation
By: /s/ Andrea Reisman
-------------------------------------
Name: Andrea Reisman, CEO
C/R CATALOG CORP.
(d/b/a In the Company of Dogs),
a Delaware corporation
By: /s/ Scott Vertrees
-------------------------------------
Name: Scott Vertrees, President
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
This First Amendment to the Agreement and Plan of Merger (the "Amendment
Agreement") is made as of the 17/th/ day of January, 2000 by and among
Petopia.com, Inc., a Delaware corporation ("Petopia"), ICOD Acquisition Corp., a
-------
Delaware corporation and the wholly-owned subsidiary of Petopia ("Petopia Sub"),
-----------
and C/R Catalog Corp. (d/b/a In the Company of Dogs), a Delaware corporation
(the "Company").
-------
WHEREAS, on December 29, 1999 Petopia, Petopia Sub and the Company entered
into an Agreement and Plan of Merger (the "Merger Agreement").
WHEREAS, Petopia, Petopia Sub and the Company now wish to amend the Merger
Agreement to reflect certain additional agreements among the parties thereto.
WHEREAS, Section 9.4 of the Merger Agreement provides that the parties
thereto may amend the Merger Agreement by written amendment.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged and agreed, the
parties hereto mutually agree as follows:
1. Definitions. All capitalized terms used and not otherwise defined
-----------
herein shall have the respective meanings assigned to them in the Merger
Agreement.
2. Amendment of Section 1.4(a)(ii)(B). Section 1.4(a)(ii)(B) of the
----------------------------------
Merger Agreement is hereby amended by deleting the number "$1,000,000" contained
therein and replacing it with the number "$600,000".
3. Amendment to Section 6.3(o). Section 6.3(o) of the Merger Agreement is
---------------------------
hereby deleted in its entirety.
4. Amendment of Section 8.2(a). Section 8.2(a) of the Merger Agreement is
---------------------------
hereby amended by deleting the date "January 17, 2000" contained therein and
replacing it with the date "January 18, 2000".
5. Amendment to Exhibits K-1 and K-2. Exhibits K-1 and K-2 to the Merger
---------------------------------
Agreement are attached hereto as Exhibits A and B.
6. No Further Changes. All other terms, conditions and representations in
------------------
the Merger Agreement shall remain unaltered by this Amendment Agreement.
7. Counterparts. This Amendment Agreement may be executed in any number
------------
of counterparts and signature pages may be delivered by facsimile, each of which
may be executed by less than all of the parties hereto, each of which shall be
enforceable against each of the parties hereto actually executing such
counterparts, and all of which together shall constitute one instrument.
1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement and
caused the same to be duly delivered on their behalf on the day and year
first written above.
PETOPIA.COM, INC.,
a Delaware corporation
By: /s/ Andrea Reisman
------------------------------
Name: Andrea Reisman, CEO
ICOD ACQUISITION CORP.,
a Delaware corporation
By: /s/ Andrea Reisman
------------------------------
Name: Andrea Reisman, CEO
C/R CATALOG CORP.
(d/b/a In the Company of Dogs),
a Delaware corporation
By: /s/ Scott Vertrees
-------------------------
Name: Scott Vertrees
Title: President
<PAGE>
Exhibit 2.3
SECOND AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
This Second Amendment to the Agreement and Plan of Merger (the "Amendment
Agreement") is made as of the 18/th/ day of January, 2000 by and among
Petopia.com, Inc., a Delaware corporation ("Petopia"), ICOD Acquisition Corp., a
-------
Delaware corporation and the wholly-owned subsidiary of Petopia ("Petopia Sub"),
-----------
and C/R Catalog Corp. (d/b/a In the Company of Dogs), a Delaware corporation
(the "Company").
-------
WHEREAS, on December 29, 1999 Petopia, Petopia Sub and the Company entered
into an Agreement and Plan of Merger (the "Merger Agreement").
WHEREAS, on January 17, 2000 Petopia, Petopia Sub and the Company entered
into the First Amendment to Agreement and Plan of Merger.
WHEREAS, Petopia, Petopia Sub and the Company now wish to amend the Merger
Agreement to reflect certain additional agreements among the parties thereto.
WHEREAS, Section 9.4 of the Merger Agreement provides that the parties
thereto may amend the Merger Agreement by written amendment.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged and agreed, the
parties hereto mutually agree as follows:
1. Definitions. All capitalized terms used and not otherwise defined
-----------
herein shall have the respective meanings assigned to them in the Merger
Agreement.
2. Amendment of Section 1.4(a)(ii)(A). Section 1.4(a)(ii)(A) of the
----------------------------------
Merger Agreement is hereby amended by deleting the number "2,080,016" contained
therein and replacing it with the number "2,084,266".
3. Amendment of Section 1.4(b)(i). Section 1.4(b)(i) of the Merger
------------------------------
Agreement is hereby amended by deleting the number "208,002" contained therein
and replacing it with the number "208,427".
4. Amendment of Section 6.3(i). Section 6.3(i) of the Merger Agreement
---------------------------
is hereby amended by adding the following to the end of the sentence: "provided,
however, that Scott Galloway and Ian Robert Chaplin shall not be required to
sign such Non-Competition and Non-Solicitation Agreement".
5. Amendment to Exhibit J. Exhibit J to the Merger Agreement is hereby
----------------------
amended by deleting the name "Denise Vergnes" and deleting the number "4,250"
set forth opposite her name.
6. Amendment to Exhibit L. Exhibit L to the Merger Agreement is hereby
----------------------
amended by deleting paragraph 2 therein.
7. No Further Changes. All other terms, conditions and representations
------------------
in the Merger Agreement shall remain unaltered by this Amendment Agreement.
1
<PAGE>
8. Counterparts. This Amendment Agreement may be executed in any
------------
number of counterparts and signature pages may be delivered by facsimile, each
of which may be executed by less than all of the parties hereto, each of which
shall be enforceable against each of the parties hereto actually executing such
counterparts, and all of which together shall constitute one instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement and
caused the same to be duly delivered on their behalf on the day and year
first written above.
PETOPIA.COM, INC.,
a Delaware corporation
By: /s/ Andrea Reisman
-----------------------------------
Name: Andrea Reisman, CEO
ICOD ACQUISITION CORP.,
a Delaware corporation
By: /s/ Andrea Reisman
-----------------------------------
Name: Andrea Reisman, CEO
C/R CATALOG CORP.
(d/b/a In the Company of Dogs),
a Delaware corporation
By: /s/ Scott Vertrees
-----------------------------------
Name: Scott Vertrees
Title: President
<PAGE>
EXHIBIT 2.4
ESCROW AND INDEMNITY AGREEMENT
------------------------------
THIS ESCROW AND INDEMNITY AGREEMENT (this "Agreement") is made and
---------
entered into as of January 18, 2000, by and among Petopia.com, Inc., a Delaware
corporation ("Petopia"), the stockholders listed on Exhibit A hereto
------- ---------
(collectively the "Stockholders"), the warrant holders listed on Exhibit B (the
------------ ---------
"Warrant Holders"), and Chase Manhattan Bank and Trust Company, N.A., as escrow
---------------
agent (the "Escrow Agent"). For purposes of this Agreement, the Stockholders
------------
and the Warrant Holders are collectively referred to herein as the "Holders".
-------
RECITALS
A. WHEREAS, pursuant to the provisions of that certain Agreement and Plan
of Merger dated as of December 29, 1999 (the "Merger Agreement"), by and among
----------------
Petopia, ICOD Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Petopia ("Petopia Sub"), and C/R Catalog Corp. (d/b/a In the
-----------
Company of Dogs), a Delaware corporation (the "Company"), the parties thereto
-------
intend to effect the merger of the Company with and into the Petopia Sub (the
"Merger"). Capitalized terms used herein and not otherwise defined herein
- -------
shall have the meanings ascribed to them in the Merger Agreement.
B. WHEREAS, under the terms of the Merger Agreement, a portion of the
shares (the "Escrow Shares") of the Series E Preferred Stock of Petopia, par
-------------
value $0.0001 per share (the "Petopia Series E Preferred"), to be issued in the
--------------------------
Merger in exchange for shares of the Company's capital stock and a portion of
the shares (the "Warrant Shares") of Petopia Series E Preferred to be issued
--------------
upon the exercise of the Common Stock Purchase Warrants Series A and the Common
Stock Purchase Warrants Series B (the "Common Stock Purchase Warrants") are to
------------------------------
be subject to an escrow account with the Escrow Agent. Such shares of Petopia
Series E Preferred will remain subject to any indemnification claims Petopia may
have under this Agreement and Article VII of the Merger Agreement, until
released by the Escrow Agent pursuant to the terms hereof.
C. WHEREAS, the Merger Agreement provides that the Escrow Agent shall
hold and administer the Escrow Shares so deposited and will administer the
Warrant Shares in accordance with the terms of this Agreement.
D. WHEREAS, the execution and delivery of this Agreement in the form
hereof is a condition precedent to the obligations of the parties under the
Merger Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and covenants herein contained, and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto intending to be forever bound by the terms set
forth herein, do hereby agree as follows:
<PAGE>
Article I
ESCROW FUND AND INDEMNITY
--------------------------
1.1 Delivery of Shares. Escrow Agent hereby acknowledges the receipt of
------------------
201,457 shares of Petopia Series E Preferred from or on behalf of the
Stockholders, which shares shall constitute the Escrow Shares. 6,970 shares
represented by the Common Stock Purchase Warrants shall also be subject to the
terms of this Agreement, and shall constitute the Warrant Shares. The Escrow
Shares shall be considered to have been deposited herein by the Stockholders and
such shares of Petopia Series E Preferred and all other securities or other
property issued on conversion thereof or in exchange therefor, including all
dividends and distributions made thereon and all interest earned thereon,
together with the Warrant Shares are hereinafter called the "Escrow Fund". For
-----------
purposes of this Agreement, the Escrow Shares and the Warrant Shares are
collectively referred to herein as the "Indemnity Shares."
1.2 Consent of Holders.
------------------
(a) By virtue of the approval by the Holders of the Merger Agreement and
the Merger, each of the Holders have, without any further act of any Holder,
consented to: (a) the establishment of the Escrow Fund to secure the
indemnification obligations of the Holders under Article VII of the Merger
Agreement in the manner set forth therein, (b) the decision of a Majority in
Interest (as defined in Section 4.1 hereof) being binding on each Holder with
respect to the subject matter hereof, and for the purpose of taking of any and
all actions and the making of any decisions required or permitted to be taken or
made by them under this Agreement, and (c) all of the other terms, conditions
and limitations set forth in this Agreement.
1.3 Heldback Shares. During the term of this Agreement, each
---------------
Warrantholder agrees not to exercise his or her Common Stock Purchase Warrants
with respect to the number of shares of Petopia Series E Preferred Stock as set
forth opposite his or her name on Exhibit B attached hereto (the "Heldback
--------- --------
Shares"). Each time the Escrow Agent releases Escrow Shares to the Stockholders
- -------
pursuant to Section 2.3 hereof, the number of Heldback Shares will be reduced by
the following fraction, the numerator of which is equal to the number of Escrow
Shares so released to the Stockholders and the denominator of which is equal to
the total number of Escrow Shares originally deposited in Escrow (subject to
adjustment for stock splits, recapitalization and like actions). Upon each
release, if any, of Indemnity Shares to Petopia in satisfaction of Claims
pursuant to Section 2.1 hereof, the number of shares for which each Common Stock
Purchase Warrant is exercisable shall be permanently reduced by the following:
the number of Heldback Shares of each Common Stock Purchase Warrant multiplied
by a fraction, the numerator of which is equal to the number of Escrow Shares
released to Petopia and the denominator of which is equal to the total number of
Escrow Shares originally deposited into Escrow (subject to adjustment for stock
splits, recapitalization and like actions). Each Warrantholder acknowledges
that such Warrantholder simultaneously with the execution of this Agreement has
delivered certificates for his or her Common Stock Purchase Warrants to Petopia
for purposes of being legended reflecting the above.
-2-
<PAGE>
1.4 Holder Indemnity. For a period of eighteen months from the date
----------------
hereof, each of the Holders hereby agrees to severally (and not jointly)
indemnify, save and keep each Petopia Indemnitee harmless against and from all
Damages sustained or incurred by any Petopia Indemnitee, as a result of or
arising out of any inaccuracy in or breach of any representation or warranty
made by the Company or any Holder to Petopia in Section 4.2 of the Merger
Agreement or Sections 1(d) and 1(f) of the Rep. Letter (as defined in the Merger
Agreement). During the first six months after the Effective Time, Petopia shall
first make any Claim for breach of Section 4.2 of the Merger Agreement or
Sections 1(d) and 1(f) of the Rep. Letter against the Escrow Fund pursuant to
the procedures set forth in this Agreement until the Escrow Fund has been fully
depleted, at which time, Petopia shall be entitled to proceed directly against
the Holders for any unsatisfied portion of any Claim for a breach of Section 4.2
of the Merger Agreement or Sections 1(d) and 1(f) of the Rep. Letter. The
terms, conditions and limitations of such indemnification otherwise shall be as
set forth in Article VII of the Merger Agreement except that the Survival Period
shall end eighteen months from the Effective Time. In all events, the Holders
liability in the aggregate pursuant to this Section 1.4 shall not exceed
$1,166,080 whether paid from the Indemnity Shares or directly from the Holders
and each Holder's liability shall not exceed each Holder's Proportionate
Interest of such aggregate amount.
Article II
COLLATERAL SECURITY, DISBURSEMENT OF COLLATERAL;
RELEASE OF ESCROW
2.1 Collateral Security. The Holders have agreed in Article VII of the
-------------------
Merger Agreement to indemnify and hold harmless the Petopia Indemnitees from and
against specified losses. The Escrow Fund shall be security for this indemnity
obligation of the Holders, subject to the limitations, and in the manner
provided, in this Agreement and the Merger Agreement.
2.2 Petopia's Claims.
----------------
(a) At any time (or from time to time), Petopia may give written notice (a
"Claim Notice") to the Holders and the Escrow Agent that Petopia claims all or
------------
any part of the Indemnity Shares (each a "Claim") in satisfaction of any Damages
-----
suffered by Petopia prior to July 18, 2000 for which the Holders are obligated
to indemnify Petopia pursuant to Article VII of the Merger Agreement. The Claim
Notice shall set forth in reasonable detail (i) a statement that Petopia has
paid or incurred or reasonably anticipates that it will incur Damages relating
to Claims that arose prior to the expiration of the Survival Period that on a
cumulative basis with all prior Damages exceed $200,000; (ii) if applicable, the
item or items of Damages giving rise to the Claim and the date each such Damage
was paid or incurred, or the basis for such anticipated liability prior to the
expiration of the Survival Period; (iii) if applicable, the nature of the
misrepresentation, breach of warranty or covenant in the Merger Agreement or
other document to which such item or items are related; and (iv) the amount of
the Claim (hereinafter referred to as the "Claim Amount").
(b) Upon receipt of a Claim Notice, a Majority in Interest of the Holders
shall have thirty (30) days to dispute the Claim by delivering written notice to
Petopia and the Escrow
-3-
<PAGE>
Agent specifying in reasonable detail the basis for the dispute, the names of
the Holders disputing the Claim and the number of shares of Petopia Series E
Preferred beneficially owned by such Holders (a "Dispute Notice").
--------------
(c) If (i) a Majority in Interest of the Holders approve all or a part of
the Claim Amount, or (ii) upon the expiration of the thirty (30) day period
referred to in Section 2.2(b), a Dispute Notice has not been delivered to the
Escrow Agent, the Escrow Agent shall release to Petopia that number of Indemnity
Shares equal to the quotient of (x) the Claim Amount (or such part thereof which
is approved by a Majority in Interest of the Holders and not disputed) and (y)
$5.6061 (the "Series E Price"). The relative number of Escrow Shares and
--------------
Warrant Shares to be released to Petopia shall be based on the proportions of
Escrow Shares and Warrant Shares set forth as Exhibit C attached hereto. The
---------
Escrow Agent shall give written notice to Petopia and the Holders of the number
of Escrow Shares and Warrant Shares released. The Escrow Agent shall deliver to
Petopia the Escrow Shares so released.
(d) If, within the thirty (30) day period referred to in Section 2.2(b), a
Majority in Interest of the Holders shall, in good faith, deliver a Dispute
Notice to Petopia and the Escrow Agent, Petopia and a Majority in Interest of
the Holders shall undertake to obtain as promptly as possible a final resolution
of such Claim. If Petopia and a Majority in Interest of the Holders are unable
to resolve a dispute within thirty (30) days after the delivery to Petopia and
the Escrow Agent of a Dispute Notice, then Petopia and a Majority in Interest of
the Holders shall jointly submit their dispute to an independent and impartial
arbitrator (the "Arbitrator") for resolution. The Arbitrator shall be selected
----------
as follows: Petopia shall select an appointing arbitrator and a Majority in
Interest of the Holders shall select an appointing arbitrator, and the two
appointing arbitrators so selected shall mutually appoint the Arbitrator who
shall be a nationally recognized accounting firm not acting for Petopia or any
of the Holders; provided, however, that if either party fails to select an
-------- -------
appointing arbitrator within thirty (30) days after the expiration of the thirty
(30) day period referred to in this Section 2.2(d), the appointing arbitrator
selected by the other party shall serve as the Arbitrator if such arbitrator is
a nationally recognized accounting firm; otherwise, such arbitrator shall select
the Arbitrator. The Arbitrator's determination as to a dispute shall be final
and binding on the parties hereto. Petopia shall pay the fees and expenses of
the Arbitrator.
(e) Upon the delivery of any of the following to the Escrow Agent, the
Escrow Agent shall promptly release to Petopia from the Escrow that number of
Indemnity Shares equal to the following (the number of Escrow Shares and Warrant
Shares to be so released shall be allocated in accordance with Section 1.3
hereof and which number shall be set forth in the following notice):
(i) a joint direction executed by a Majority in Interest of the
Holders and Petopia directing the Escrow Agent to pay a specified amount to
Petopia divided by the Series E Price; or
(ii) a direction letter executed by the Arbitrator directing the
Escrow Agent to pay a specified amount to Petopia divided by the Series E Price.
-4-
<PAGE>
2.3 Release and Transfer of Escrow Fund.
-----------------------------------
(a) On July 18, 2000, the Escrow Agent is hereby authorized and directed to
release to the Holders according to their Proportionate Interest (as defined
herein) all Indemnity Shares subject to the Escrow after the satisfaction of
Petopia's Claims pursuant to Section 2.1 hereof less the aggregate of: (i) that
portion of the Indemnity Shares as shall be required to satisfy the sum of all
Claims made in good faith then pending, whether or not payment of such Claims is
being disputed by a Majority in Interest of the Holders; and (ii) that portion
of any unpaid reimbursement expenses payable to Petopia pursuant to Section 5.1
hereof. For purposes of this Agreement, the "Proportionate Interest" of each
----------------------
Holder shall be as set forth on Exhibit A hereto.
---------
(b) The Escrow Agent shall release to the Holders according to their
Proportionate Interests that portion of the Escrow Fund which was withheld by
the Escrow Agent pursuant to Section 2.3(a) promptly upon the delivery to the
Escrow Agent of a joint written direction to that effect from Petopia and a
Majority in Interest of the Holders.
(c) Promptly upon final resolution and payment of all Claims outstanding as
provided in Section 2.2 hereof, the balance of the Escrow Fund then remaining,
if any, shall be released to the Holders according to their Proportionate
Interests.
Article III
ESCROW AGENT
------------
3.1 Compensation. All fees of the Escrow Agent, as provided on Exhibit D
------------ ---------
attached hereto, and all reasonable expenses, disbursements and advances
incurred or paid by the Escrow Agent (including, without limitation, reasonable
attorneys' fees) shall be paid by Petopia.
3.2 Legal Counsel. If the Escrow Agent is joined into any litigation
-------------
involving the Escrow Fund or this Agreement, the Escrow Agent shall have the
right to retain counsel and shall have a lien on the property deposited
hereunder for any and all reasonable costs, attorneys' and solicitors' fees,
charges, disbursements, and expenses incurred in connection with such
litigation; and shall be entitled to reimburse itself therefor out of the
property deposited hereunder, and if it shall be unable to reimburse itself from
the property deposited hereunder, Petopia agrees to pay to the Escrow Agent on
demand, its reasonable charges, counsel and attorneys' fees, disbursements, and
expenses in connection with such litigation.
-5-
<PAGE>
3.3 Resignation. The Escrow Agent reserves the right to resign at any
-----------
time by giving written notice of resignation to Petopia and a Majority in
Interest of the Holders, specifying the effective date of such resignation.
Within thirty (30) days after receiving such notice, Petopia and a Majority in
Interest of the Holders agree to appoint a successor escrow agent to which the
Escrow Agent will distribute the property then held hereunder, less the Escrow
Agent's fees, costs and expenses. If a successor escrow agent has not been
appointed and has not accepted such appointment by the end of the thirty (30)
day period, the Escrow Agent may apply to a court of competent jurisdiction for
the appointment of a successor Escrow Agent, and the costs, expenses and
reasonable attorneys' fees which are incurred in connection with such a
proceeding shall be paid by Petopia. The Escrow Agent shall continue to serve
as escrow agent hereunder until its successor accepts the escrow and receives
the Escrow Fund.
3.4 Liability. The Escrow Agent undertakes to perform only such duties as
---------
are specifically set forth herein. The Escrow Agent, if acting or refraining
from acting in good faith, shall not be liable for any mistake of fact or error
in judgment by it or for any acts or omissions by it of any kind unless caused
by its willful misconduct or gross negligence, and shall be entitled to rely
conclusively upon (i) any written notice, instrument or signature believed by it
to be genuine and to have been signed or presented by the proper party or
parties duly authorized to do so, and (ii) the advice of counsel retained by it.
Petopia shall indemnify the Escrow Agent for any damages it incurs for its
acting or refraining from acting in good faith hereunder, which damages were not
caused by its willful misconduct or gross negligence. The Escrow Agent is not
responsible for any of the terms and/or conditions of the Merger Agreement and
may rely exclusively on the directions of the parties as set forth in this
Agreement to satisfy its role as Escrow Agent. Neither Petopia nor the Escrow
Agent shall be liable to the Stockholders for any portion of the Escrow Fund
properly distributed to the Stockholders pursuant to the terms of this Agreement
or any portion of the Heldback Shares properly cancelled in accordance with
section 1.1 hereof. In no event shall the Escrow Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Escrow Agent has been advised of the
likelihood of such loss or damage, and regardless of the form of action.
3.5 Controversies. If any controversy arises between Petopia and a
-------------
Majority in Interest of the Holders or with any third person with respect to the
subject matter of this Agreement, the Escrow Agent shall not be required to
determine the same or take any action with respect thereto, but may await the
final resolution of any such controversy, anything in the instructions delivered
by the parties hereto to the contrary notwithstanding, and in such event it
shall not be liable for interest or damage.
3.6 Discharge of the Escrow Agent. The Escrow Agent agrees that Petopia
-----------------------------
and a Majority in Interest of the Holders may, by mutual agreement at any time,
remove the Escrow Agent as escrow agent hereunder, and substitute a bank or
trust company therefor, in which event, upon receipt of written notice thereof,
payment by Petopia of any accrued but unpaid fees due the Escrow Agent and
reimbursement of the Escrow Agent's other fees and expenses from the Escrow Fund
in accordance with Section 3.4 hereof, the Escrow Agent shall account for and
deliver to such substituted escrow agent the Escrow Fund held by it, and the
Escrow Agent shall thereafter be discharged from all liability hereunder.
-6-
<PAGE>
3.7 Court Orders. If the Escrow Fund shall be attached, garnished, or
------------
levied upon pursuant to any court order, or the delivery of the Escrow Fund
shall be stayed or enjoined by any court order, or any court order shall be made
or entered into affecting the Escrow Fund, or any part thereof, the Escrow Agent
is hereby expressly authorized, in its sole direction, to obey and comply with
any court order so entered or issued, which it is advised by legal counsel of
its own choosing is binding upon it, whether with or without jurisdiction, and
in case the Escrow Agent obeys or complies with any court order, it shall not be
liable to any of the parties hereto or to any other person, firm or corporation,
by reason of such compliance notwithstanding such court order be subsequently
reversed, modified, annulled, set aside or vacated.
3.8 Merger. Any company into which the Escrow Agent may be merged or
------
converted, or into which it may be consolidated, or any company resulting from
such merger, conversion or consolidation to which it shall be a party, or any
company to which the Escrow Agent may sell or transfer all or substantially all
of its escrow/custody business, provided such company shall be eligible to serve
as escrow agent hereunder, shall be the successor hereunder to the Escrow Agent
without the execution or filing of any paper or any further act.
3.9 Incumbency Certificates. Upon execution of this Agreement, the
-----------------------
parties hereto shall each deliver an authorized certificate with specimen
signatures to the Escrow Agent, substantially in the form attached hereto as
Exhibit D.
- ---------
Article IV
STOCKHOLDER ACTIONS
-------------------
4.1 Majority in Interest.
--------------------
(a) The Holders of a majority of the Indemnity Shares (a "Majority in
-----------
Interest"), for and on behalf of Holders, shall have the power to take any and
- --------
all actions required to be taken by the Holders pursuant to this Agreement,
including, without limitation, the power to give and receive notices and
communications, to perform this Agreement, to make claims for indemnification
against Petopia, to authorize delivery to Petopia of Indemnity Shares or other
property from the Escrow Fund and the cancellation of the Heldback Shares in
satisfaction of claims by Petopia, 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 appropriate or in the judgment of a
Majority in Interest for the accomplishment of the foregoing. The Holders
individually shall have no power or authority to take any actions against
Petopia or otherwise pursuant to this Agreement or the Merger Agreement, and all
actions of the Holders, whether pursuant to this Agreement or the Merger
Agreement, must be taken solely by a Majority in Interest.
(b) Petopia shall have no liability of any kind to any Holders as a result
of or arising out of any action taken or not taken by a Majority in Interest,
and each Holder hereby releases Petopia from any such liability. Petopia may
conclusively rely, without any obligation of
-7-
<PAGE>
investigation or inquiry of any kind, on any action taken by a Majority in
Interest as having been fully authorized and approved by all necessary action by
each Holder.
Article V
MISCELLANEOUS
-------------
5.1 Reimbursement of Petopia. Notwithstanding anything to the contrary
------------------------
contained herein to the effect that (i) Petopia will pay the fees and expenses
of the Arbitrator pursuant to Section 2.2(d) hereof, (ii) Petopia will pay
expenses, disbursements and advances incurred or paid by the Escrow Agent
(including, without limitation, reasonable attorneys' fees), and (iii) Petopia
shall pay any claims for indemnification to the Escrow Agent pursuant to Section
3.4 hereof, to the extent the Escrow Fund (together with the Heldback Shares)
then contains sufficient assets, Petopia shall be entitled to be reimbursed from
the Escrow Fund and the Heldback Shares for one-half of such fees, expenses,
payments or reimbursements if Holders have not otherwise paid Petopia such
amounts; provided, however, that Petopia shall not be entitled to be reimbursed
-------- -------
for payment of any fee necessary in order to establish and maintain the Escrow
Fund and allow the Escrow Agent to enter into this Agreement.
5.2 Notices. All notices required or permitted to be given hereunder
-------
shall be in writing and shall be deemed given when delivered in person, by
facsimile (with electronic confirmation of receipt) or by a nationally
recognized private carrier, or on the third business day after being deposited
in the United States mail, postage prepaid, registered or certified mail,
addressed as follows:
TO PETOPIA.COM, INC.:
Petopia.com, Inc.
1200 Folsom Street
San Francisco, CA 94103
Fax: (650) 752-2710
Attn: Andrea C. Reisman
with a copy to:
Perkins Coie LLP
135 Commonwealth Drive, Suite 250
Menlo Park, CA 94025
Fax: (650) 752-6050
Attn: Mark S. Albert, Esq.
TO THE HOLDERS:
To the addresses set forth on Exhibit A and Exhibit B hereto.
--------- ---------
-8-
<PAGE>
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Fax: (212) 269-5420
Attn: Gerald S. Tanenbaum, Esq.
TO THE ESCROW AGENT:
Chase Manhattan Bank and Trust Company, N.A.
101 California Street, Suite 2735
San Francisco, CA 94111
Fax: (415) 693-8850
Attn: Mitch Gardner
and/or at such other addresses and/or addressees as may be designated by notice
given in accordance with the provisions of this Section 5.2.
5.3 Termination of Agreement. This Agreement shall continue in force
------------------------
until the final distribution of all portions of the Escrow Fund held by the
Escrow Agent hereunder or until terminated by written notice signed by Petopia
and a Majority in Interest of the Holders; provided, that the obligations of the
Holders contained in Section 1.3 shall survive the termination of this Agreement
for the period set forth therein.
5.4 Expenses. Except as otherwise provided herein, both Petopia and the
--------
Holders shall be responsible for their own costs and expenses with respect to
matters involving this Agreement.
5.5 Headings. The section headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular or plural, as the identity of the persons,
firm or corporation may require in the context thereof.
5.6 Severability. If any provision of this Agreement, or any covenant,
------------
obligation or agreement contained herein is determined by a court to be invalid
or unenforceable, such determination shall not affect any other provision,
covenant, obligation or agreement, each of which shall be construed and enforced
as if such invalid or unenforceable portion were not contained herein. Such
invalidity or unenforceability shall not affect any valid and enforceable
application thereof, and each such provision, covenant, obligation or agreement,
shall be deemed to be effective, operative, made, entered into or taken in the
manner and to the full extent permitted by law.
5.7 Construction. This Agreement shall be construed, and the rights and
------------
duties of the parties hereto determined, in accordance with the laws of the
State of California.
-9-
<PAGE>
5.8 Limitation of Remedy. Nothing contained in this Agreement shall limit
--------------------
or impair, or be construed to limit or impair, any right or remedy to which any
party hereto may become entitled by virtue of any breach by any party under the
terms and provisions of the Merger Agreement; provided, however, that such
-------- -------
rights and remedies shall be limited as set forth in the Merger Agreement.
5.9 Multiple Counterparts. This Agreement may be executed in two or more
---------------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute but one and the same instrument.
5.10 Amendments and Waivers. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and there respective successors and
assigns. No amendment, supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by all the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
[Remainder of Page Intentionally Left Blank]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Escrow and
Indemnity Agreement as of the date first above written.
PETOPIA:
PETOPIA.COM, INC.,
a Delaware corporation
By: /s/ Andrea C. Reisman
-------------------------------------------------
Andrea C. Reisman, President & CEO
ESCROW AGENT:
By: /s/ Mitch Gardner
-------------------------------------------------
Name: Mitch Gardner
-----------------------------------------------
Title: Assistant Vice President
----------------------------------------------
THE STOCKHOLDERS:
Clifcor Capital, LLC
By: /s/ Scott Vertrees
------------------------------------------------
Name: Scott Vertrees
----------------------------------------------
Title: President
By: /s/ Scott Vertrees
------------------------------------------------
Scott Vertrees , as attorney in fact on behalf of
Ann Counts
William Rauhauser
John E. Flatley
W.W. McGlothlin
James O'Malley
Helen Counts
Bascom B. Matney
Ronelle L. Rotterman-Matney
Robert N. Beck, as Trustee under the Robert N. Beck
Living Trust UTD 10/31/94
Georgena M. Beck, as Trustee under the Georgena M. Beck
<PAGE>
Living Trust UTD 10/31/94
Pete Baltaxe
Doug Bertozzi
Ian Chaplin
Jamie Cheng
Michael Dunn
Scott Galloway
Geoffrey Hale
Connie Halquist
Clifford Lindsay
Lee Lodes
Jawad Mohammed
Jarom Smith
Jason Stavers
THE WARRANTHOLDERS:
By: /s/ Scott Vertrees
---------------------
Scott Vertrees , as attorney in fact on behalf of
Pete Baltaxe
Doug Bertozzi
Ian Chaplin
Jamie Cheng
Michael Dunn
Scott Galloway
Geoffrey Hale
Connie Halquist
Clifford Lindsay
Lee Lodes
Jawad Mohammed
Jarom Smith
Jason Stavers
<PAGE>
EXHIBIT 2.5
PETOPIA.COM,INC.
SECURED PROMISSORY NOTE
$2,000,000.00 January 18, 2000
San Francisco, California
FOR VALUE RECEIVED, the undersigned, PETOPIA.COM, INC., a Delaware
corporation, hereby promises to pay to the order of each of the persons listed
on Exhibit A attached hereto in the percentages listed on Exhibit A attached
hereto set forth opposite each such person's name (together with their
successors and assigns, each a "Holder" and collectively the "Holders") the
principal sum of Two Million dollars ($2,000,000.00) on or before the earlier of
(i) two business days following the closing of the undersigned's initial public
offering of common stock on Form S-1 filed with the Securities and Exchange
Commission; or (ii) June 15, 2000 (the "Maturity Date"). The Holders include
holders (the "Warrantholders") of unexercised C/R Catalog Corp. Common Stock
Purchase Warrants Series A and Common Stock Purchase Warrants Series B ("Company
Stock Purchase Warrants") which have been assumed by the undersigned. Interest
shall accrue from the date of this Note on the unpaid principal amount at the
rate of seven percent (7%) per annum until paid. All interest shall be due and
payable at the Maturity Date. On each payment date under this Note, each Holder
shall be entitled to receive an amount equal to the aggregate amount of the
payment multiplied by each Holder's percentage interest in the Note set forth
opposite each Holder's name on Exhibit A; provided, however, that the payments
due to Holders who are Warrantholders shall be made at the times and to the
extent they exercise the Company Stock Purchase Warrants, but in any event, such
payments shall not be made prior to the Maturity Date and interest on the
portion of this Note to be paid to the Warrantholders shall cease to bear
interest on the Maturity Date. Payments shall be made to each Holder at their
respective addresses set forth on Exhibit A attached hereto.
The prompt payment when due of all amounts due hereunder are secured by a
security interest created by this Note in all the undersigned's assets, wherever
located. All actions to enforce the payments due under this Note shall be taken
by a majority in interest of the Holders.
The undersigned hereby grants to the Holders a continuing security interest
in all of the assets of the undersigned, wherever located, owned, licensed,
leased, consigned, arising or acquired, whether now existing or hereafter coming
into existence, including, without limitation, all accounts, goods (including
all consumer goods, equipment, motor vehicles, fixtures and inventory), general
intangibles, instruments, securities, chattel paper, documents and letters of
credit, together with all accessions, additions, attachments, improvements,
substitutions and replacements thereto and therefor, all products thereof, all
accessories, parts and other property used in connection therewith, all books,
ledgers, books of account, records, writing, data bases, information and other
property relating to, incorporating or referring to any of the foregoing, and
all proceeds, products, offspring, rents, issues, profits and returns of and
from any of the foregoing (collectively, the "Collateral").
The undersigned hereby represents, warrants and covenants that: (a) except
for the security interest granted by this Note and the security interests
granted to Greyrock Capital, the undersigned owns the Collateral free and clear
of any lien, security interest, claim or
<PAGE>
encumbrance; (b) the undersigned will notify Holders in writing at least thirty
(30) days prior to any change in the undersigned's name, address or identity;
and (c) the undersigned will take all actions reasonably requested by a majority
in interest of the Holders to assure the continued protection, validity and
perfection of the Holders' security interest in all Collateral and other rights
hereunder, including, without limitation, by delivery to the Holders of
appropriate financing statements duly executed by the undersigned and ready for
filing.
Each of the following events or occurrences shall constitute a "default"
under this Note: (a) the undersigned shall fail to pay any amount of principal
or interest due hereunder when due; (b) the undersigned shall fail to perform
any other obligation hereunder and such failure continues for a period of thirty
(30) days after receipt by the undersigned of written notice of such failure
from a majority in interest of the Holders; (c) a default shall occur in the
payment when due (subject to applicable grace periods), whether by acceleration
or otherwise, of any indebtedness of the undersigned in excess of $1,000,000.00;
(d) the undersigned shall become insolvent, a receiver, trustee or custodian is
appointed for the undersigned or any part of the property of the undersigned, or
any proceeding is commenced by or against the undersigned under any bankruptcy,
reorganization, debt arrangement or insolvency law; and (e) the holder of any
lien on or security interest in any property of the undersigned constituting
Collateral shall take any action to enforce such lien or security interest.
Upon a default, and at any time after a default, a majority in interest of
the Holders at their option will have all rights and remedies of a secured party
under the Uniform Commercial Code of the State of California ("UCC"), and other
applicable laws. In addition to the foregoing rights and remedies, upon a
default, and at any time after a default, Holders of a majority in interest of
this Note shall have the right to declare all amounts due hereunder to be
payable, without further notice, demand or presentment of any kind (provided
that in the event of a default described in clause (c) of the foregoing
paragraph, all amounts due hereunder automatically shall become due and payable,
without declaration, notice, demand or presentment of any kind), and shall have
the right to take immediate and exclusive possession of any or all Collateral
and sell, assign, lease or otherwise dispose of it at public or private sale. If
notification of intended disposition of Collateral is required by law, the
requirements of reasonable notice will be met if notice of time and place of any
public sale of Collateral, or the time after which any private sale or other
intended disposition of Collateral is to be made, is mailed, postage prepaid, to
the undersigned at least ten (10) days before the sale or disposition. All
rights and remedies of the Holders after a default shall be cumulative. No
waiver by a majority in interest of the Holders of any default will waive any
other default or the same default on a different occasion.
All notices and other communications in connection with this Note shall be
sent in writing to the Holders or to the undersigned, as the case may be, at
their respective addresses set forth below (or to such other address as either
party shall notify the other party in writing), and any such notice or other
communication shall be deemed delivered one (1) business day after being sent by
nationally-recognized private courier, five (5) business days after being sent
by certified U.S. mail, or upon actual receipt when sent by any other means.
The undersigned irrevocably waives diligence in collection or protection,
presentment, protest, notice of protest, demand, dishonor, default, non-payment,
creation, and existence of any
<PAGE>
amounts due hereunder and any security or collateral for any amounts due
hereunder, and all other matters or things relating to the amounts due
hereunder, this Note, or any other agreement or instrument to which the
undersigned and the Holders are parties.
The principal amount of this Note shall be reduced by an amount equal to
(a) the costs and expenses (including legal fees) in excess of $50,000 incurred
by C/R Catalog Corp. (the "Company") in connection with the transactions
contemplated by that certain Agreement and Plan of Merger dated as of December
29, 1999 among the undersigned, the Company, ICOD Acquisition Corp and the
Holders (the "Merger"); (b) costs and expenses in excess of $50,000 incurred by
the Company to perform an audit of its financial statements for its fiscal years
ending June 27, 1998 and June 26, 1999; and (c) costs and expenses incurred by
the Holders under that certain Escrow Agreement dated as of the date hereof
among the Holders, the undersigned and Chase Manhattan Bank and Trust Company,
N.A., as escrow agent.
If any provision of this Note is prohibited by or invalid under applicable
law, that provision will be ineffective to the extent of the prohibition or
invalidity, without invalidating the rest of that provision or the remaining
provisions of this Note. This Note will be governed and construed in accordance
with the laws of the State of California applicable to agreements made and to be
performed entirely within California, without regard to the conflict of laws
principles of California. Terms used herein relating to the Collateral, unless
otherwise defined, shall have the meanings, if any, provided in the UCC. This
Note shall bind the undersigned and the undersigned's successors and assigns,
and will inure to the benefit of the Holders and their respective successors,
legal representatives and assigns. No provision of this Note may be waived,
amended, released or otherwise changed, except by a writing signed by the party
against which enforcement is sought.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Secured Promissory
Note as of the day and year written first above.
PETOPIA.COM, INC.
By: /s/ Andrea Reisman
------------------------------------------
Name: Andrea Reisman
---------------------------------------
Title: Chief Executive Officer
--------------------------------------
Address: 1200 Folsom Street
San Francisco, CA 94103
<PAGE>
EXHIBIT 3.1
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PETOPIA.COM, INC.
Petopia.com, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "General Corporation Law")
-----------------------
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on March 9,
1999 under the name of Spot & Jack, Inc., pursuant to the General Corporation
Law.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Certificate of Incorporation of this corporation,
declaring said amendment and restatement to be advisable and in the best
interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor which resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Petopia.com, Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of its
registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
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 of Delaware.
ARTICLE IV
(A) The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
------------ ---------------
number of shares which the Corporation is authorized to issue is One Hundred
Twenty Million Three Hundred Sixty Thousand (120,360,000) shares, each with a
par value of $0.0001 per share. Seventy-One Million One Hundred Eighty Thousand
(71,180,000) shares shall be Common Stock and Forty-Nine Million One Hundred
Eighty Thousand (49,180,000) shares shall be Preferred Stock.
<PAGE>
(B) Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The first
series of Preferred Stock shall be designated "Series A Preferred Stock" and
------------------------
shall consist of Eleven Million Five Hundred Fifty-Five Thousand (11,555,000)
shares. The second series of Preferred Stock shall be designated "Series B
--------
Preferred Stock" and shall consist of Eight Million (8,000,000) shares. The
- ---------------
third series of Preferred Stock shall be designated "Series C Preferred Stock"
------------------------
and shall consist of Twelve Million Nine Hundred Forty Thousand Six Hundred
Twenty (12,940,620) shares. The fourth series of Preferred Stock shall be
designated "Series D Preferred Stock" and shall consist of Fourteen Million
------------------------
(14,000,000) shares. The fifth series of Preferred Stock shall be designated
"Series E Preferred Stock" and shall consist of Two Million Three Hundred Thirty
- -------------------------
Thousand (2,330,000) shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Preferred Stock are as set forth
below in this Article IV(B).
1. Dividend Provisions. The holders of shares of Preferred Stock
-------------------
shall be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the Corporation) on the Common Stock of the
Corporation, (i) at the rate of $0.08 per share per annum (as adjusted for any
stock splits, stock dividends, recapitalizations or the like) on each
outstanding share of Series A Preferred Stock, (ii) at the rate of $0.206816 per
share per annum (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) on each outstanding share of Series B Preferred
Stock, (iii) at the rate of $0.206816 per share per annum (as adjusted for any
stock splits, stock dividends, recapitalizations or the like) on each
outstanding share of Series C Preferred Stock, (iv) at the rate of $0.448488 per
share per annum (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) on each outstanding share of Series D Preferred
Stock, and (v) at the rate of $0.448488 per share per annum (as adjusted for any
stock splits, stock dividends, recapitalizations or the like) on each
outstanding share of Series E Preferred Stock, payable when, as and if declared
by the Board of Directors. Such dividends shall not be cumulative and no right
shall accrue to the holders of Preferred Stock by reason of the fact that
dividends on such shares are not declared or paid in any prior year.
2. Liquidation.
-----------
(a) In the event of any Liquidity Event (as defined in
Section 2(c)(i), below), the holders of Preferred Stock shall be entitled to
receive in preference to any distribution of any assets of this Corporation to
the holders of Common Stock by reason of their ownership thereof, an amount
payable in cash or securities equal to (i) $1.00 per share of Series A Preferred
Stock then held (as adjusted for any stock splits, stock dividends,
recapitalizations or the like), (ii) $2.5852 per share of Series B Preferred
Stock then held (as adjusted for any stock splits, stock dividends,
recapitalizations or the like), (iii) $2.5852 per share of Series C Preferred
Stock then held (as adjusted for any stock splits, stock dividends,
recapitalizations or the like), (iv) $8.40915 per share of Series D Preferred
Stock then held (as adjusted for any stock splits, stock dividends,
recapitalizations or the like), and (v) $5.6061 per share of Series E Preferred
Stock then held (as adjusted for any stock splits, stock dividends,
recapitalizations or the
-2-
<PAGE>
like)plus declared and unpaid dividends. If upon the occurrence of a Liquidity
Event, the assets and funds thus distributed among the holders of Series A,
Series B, Series C, Series D and Series E Preferred Stock shall be insufficient
to permit the payments to such holders of the full aforesaid preferential
amounts, then the entire assets and funds of this Corporation legally available
for distribution shall be distributed ratably among the holders of Series A,
Series B, Series C, Series D and Series E Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) Upon the completion of the distribution required by Section 2(a)
above, if any, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among the holders of Common
Stock pro rata based on the number of shares of Common Stock then held by each
holder.
(c) Certain Acquisitions.
--------------------
(i) Liquidity Event. For purposes of this Amended and Restated
---------------
Certificate of Incorporation, a "Liquidity Event" shall be defined as a
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, or a sale, conveyance or other disposition of, all or substantially
all of its property or business, or a reorganization or merger or consolidation
with any other corporation (other than a wholly-owned subsidiary corporation) or
any other transaction or series of related transactions in which, in each case,
more than fifty percent (50%) of the voting power of the Corporation is disposed
of, provided that a "Liquidity Event" shall not include a merger effected solely
--------
for the purpose of changing the domicile of the Corporation.
(ii) Valuation of Consideration. In the event of a Liquidity
--------------------------
Event, if the consideration received by the Corporation is other than cash, its
value will be deemed its fair market value. Any securities shall be valued as
follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
(1) If traded on a securities exchange, or the Nasdaq
National Market or the Nasdaq Small-Cap Market, the value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
thirty-day trading period ending three (3) trading days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day trading period ending three (3) trading days
prior to the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the Corporation.
-3-
<PAGE>
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair
market value thereof, as determined in good faith by the Board of Directors of
the Corporation.
(iii) Notice of Transaction. The Corporation shall give each
---------------------
holder of record of Preferred Stock written notice of such impending transaction
described in subsection Section 2(c)(i) not later than twenty (20) days prior to
the stockholders' meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is earlier, and shall
also notify holders of Preferred Stock in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of this Section 2,
and the Corporation shall thereafter give holders of Preferred Stock prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of at least a
majority of the then outstanding shares of Preferred Stock; provided further,
however, that in no event may such periods be shortened to less than four (4)
business days.
(iv) Effect of Noncompliance. In the event the requirements
-----------------------
of this Section 2(c) are not complied with, the Corporation shall forthwith
either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Preferred Stock
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
Section 2(c)(iii) hereof.
3. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to the provisions of this Section 3,
----------------
(i) each share of Series A Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of the Series A
Preferred Stock, at the office of the Corporation or any transfer agent for the
Series A Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $1.00 by the Conversion
Price applicable to the Series A Preferred Stock, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion,
(ii) each share of Series B Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of the Series B
Preferred Stock, at the office of the Corporation or any transfer agent for the
Series B Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $2.5852 by the Conversion
Price applicable to the Series B Preferred Stock, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion,
(iii) each share of Series C Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of the Series C
Preferred
-4-
<PAGE>
Stock, at the office of the Corporation or any transfer agent for the Series C
Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $2.5852 by the Conversion Price
applicable to the Series C Preferred Stock, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion, (iv) each
share of Series D Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of the Series D Preferred
Stock, at the office of the Corporation or any transfer agent for the Series D
Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $5.6061 by the Conversion Price
applicable to the Series D Preferred Stock, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion, and (v) each
share of Series E Preferred Stock shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of the Series E Preferred
Stock, at the office of the Corporation or any transfer agent for the Series E
Preferred Stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $5.6061 by the Conversion Price
applicable to the Series E Preferred Stock, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion. The initial
Conversion Price per share of Series A Preferred Stock shall be $1.00, the
initial Conversion Price per share of Series B Preferred Stock shall be $2.5852,
the initial Conversion Price per share of Series C Preferred Stock shall be
$2.5852, the initial Conversion Price per share of Series D Preferred Stock
shall be $5.6061, and the initial Conversion Price per share of Series E
Preferred Stock shall be $5.6061. Such initial Conversion Price shall be subject
to adjustment as set forth in Section 3(d).
(b) Automatic Conversion. Each share of Series A, Series B, Series C,
--------------------
Series D and Series E Preferred Stock shall automatically be converted into
shares of Common Stock at the Conversion Price at the time in effect for such
series of the Preferred Stock immediately upon the earliest to occur of (i) the
closing of the Corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), the public offering
--------------
price of which is not less than $8.40915 per share (as adjusted for stock
splits, stock dividends, reorganization and the like) and which results in
aggregate gross proceeds to the Corporation of not less than $20,000,000 (net of
underwriting discounts and commissions) (a "Qualified IPO"); (ii) the date upon
-------------
which the Corporation obtains the written consent or the written agreement of
the holders of a majority of the then outstanding shares of Preferred Stock,
voting together as a class and a majority of the then outstanding shares of
Series D Preferred Stock, voting as a separate class; and (iii) the date upon
which a majority of the outstanding shares of Preferred Stock convert into
Common Stock.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to the Corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to the nominee or nominees of such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which such holder of Preferred Stock, or to the
nominee or nominees of such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which such holder of
Preferred
-5-
<PAGE>
Stock shall be entitled as aforesaid. 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 the Preferred Stock to be converted, and the person
or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act the conversion may, at the option of any holder tendering such
shares of Preferred Stock for conversion, be conditioned upon the closing with
the underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive Common Stock upon conversion of such
shares of Preferred Stock shall not be deemed to have converted such shares of
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain Dilutive
--------------------------------------------------------------------
Issuances, Splits and Combinations. The applicable Conversion Price of the
- ----------------------------------
Series A, Series B, Series C, Series D, and Series E Preferred Stock shall be
subject to adjustment from time to time as follows:
(i) Issuance of Additional Stock below Purchase Price. If the
-------------------------------------------------
Corporation shall issue, after the date upon which any shares of Series A,
Series B, Series C, Series D or Series E Preferred Stock, as the case may be,
were first issued (in each case, the "Purchase Date"), any Additional Stock (as
-------------
defined below) without consideration or for a consideration per share less than
the Conversion Price for any series of Preferred Stock in effect immediately
prior to the issuance of such Additional Stock, the Conversion Price for such
series of Preferred Stock in effect immediately prior to each such issuance
shall automatically be adjusted as set forth in this Section 3(d)(i), unless
otherwise provided in this Section 3(d)(i).
(A) Adjustment Formula. Whenever the Conversion Price is
------------------
adjusted pursuant to this Section (3)(d)(i), the new Conversion Price shall be
determined by multiplying the Conversion Price then in effect by a fraction, (x)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (the "Outstanding Common") plus the number of
------------------
shares of Common Stock that the aggregate consideration received by the
Corporation for such issuance would purchase at such Conversion Price; and (y)
the denominator of which shall be the number of shares of Outstanding Common
plus the number of shares of such Additional Stock so issued. For purposes of
the foregoing calculation, the term "Outstanding Common" shall include shares of
Common Stock deemed issued pursuant to Section 3(d)(i)(E) below.
(B) Definition of "Additional Stock". For purposes of this
-------------------------------
Section 3(d)(i), "Additional Stock" shall mean any shares of Common Stock issued
----------------
(or deemed to have been issued pursuant to Section 3(d)(i)(E)) by the
Corporation after the Purchase Date) other than:
(1) C ommon Stock issued pursuant to a transaction
described in Section 3(d)(ii) hereof;
-6-
<PAGE>
(2) Shares of Common Stock issuable or issued to
employees, consultants or directors of the Corporation or to employees or
directors of Petco Animal Supplies, Inc. ("PETCO"), either directly or pursuant
-----
to a stock option plan or restricted stock plan approved by the Board of
Directors of the Corporation up to an aggregate of 8,500,000 shares;
(3) Capital stock, or options or warrants to purchase
capital stock, issued to financial institutions or lessors in connection with
bona fide commercial credit arrangements, equipment financings or similar
transactions, the terms of which have been approved by the Board of Directors of
the Corporation;
(4) Shares of Common Stock or Preferred Stock issuable
upon exercise of warrants outstanding as of the date of this Amended and
Restated Certificate of Incorporation, including warrants to purchase shares of
Series A Preferred Stock, warrants to purchase shares of Common Stock issued to
Loveland Pet Products, Inc. and warrants to purchase Series C Preferred Stock
issued to PETCO Animal Supplies, Inc.;
(5) Shares of Series C Preferred Stock issuable to
PETCO Animal Supplies, Inc. pursuant to an Alliance Agreement with the Company;
(6) Capital stock or warrants or options to purchase
capital stock issued in connection with bona fide acquisitions, mergers or
similar transactions, the terms of which are approved by the Board of Directors
of the Corporation;
(7) Shares of Common Stock issued or issuable upon
conversion of the Preferred Stock; and
(8) Shares of Common Stock issued or issuable in a
public offering prior to or in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock.
(C) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for a series of Preferred Stock shall be made in an amount less
than one cent per share, provided that any adjustments which are not required to
be made by reason of this sentence shall be carried forward and shall be either
taken into account in any subsequent adjustment made prior to three years from
the date of the event giving rise to the adjustment being carried forward, or
shall be made at the end of three years from the date of the event giving rise
to the adjustment being carried forward.
(D) Determination of Consideration. In the case of the
------------------------------
issuance of Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of the Common Stock for a consideration in whole or
in part other than cash, the consideration other than cash shall be
-7-
<PAGE>
deemed to be the fair value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(E) Deemed Issuances of Common Stock. In the case of
--------------------------------
the issuance (whether before, on or after the applicable Purchase Date) of
options to purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or options to purchase
or rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 3(d)(i):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 3(d)(i)(D)), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange (assuming the
satisfaction of any conditions to convertibility or exchangeability, including,
without limitation, the passage of time, but without taking into account
potential antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to subscribe
for such convertible or exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal
to the consideration, if any, received by the Corporation for any such
securities and related options or rights (excluding any cash received on account
of accrued interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Corporation (without taking into
account potential antidilution adjustments) upon the conversion or exchange of
such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in Section
3(d)(i)(D).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of such series of Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
-8-
<PAGE>
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of such series of Preferred Stock, to the
extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed
to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued
upon the exercise of such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
3(d)(i)(E)(1) and 3(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
3(d)(i)(E)(3) or 3(d)(i)(E)(4).
(F) No Increased Conversion Price. Notwithstanding
-----------------------------
any other provisions of this Section (3)(d)(i), except to the limited extent
provided for in Sections 3(d)(i)(E)(3) and 3(d)(i)(E)(4), no adjustment of the
Conversion Price pursuant to this Section 3(d)(i) shall have the effect of
increasing the Conversion Price above the Conversion Price in effect immediately
prior to such adjustment.
(ii) Stock Splits and Dividends. In the event the
--------------------------
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
------------------------
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series of Preferred Stock shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents
with the number of shares issuable with respect to Common Stock Equivalents
determined from time to time in the manner provided for deemed issuances in
Section 3(d)(i)(E).
(iii) Reverse Stock Splits. If the number of shares of
--------------------
Common Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for each series of
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of each series of Preferred
Stock shall be decreased in proportion to such decrease in outstanding shares.
-9-
<PAGE>
(e) Other Distributions. In the event the Corporation shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 3(d)(ii), then, in each such case
for the purpose of this Section 3(e), the holders of Preferred Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the Corporation into
which their shares of Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 3 or Section 2) provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Preferred Stock the number of shares of stock or other securities or property of
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3 with respect to the rights of the holders of Preferred Stock
after the recapitalization to the end that the provisions of this Section 3
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of Preferred Stock) shall be applicable after
that event and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share (with one-half
being rounded upward). In lieu of thereof, the Corporation shall pay in cash the
fair market value of such fractional share as determined by the Board of
Directors of the Corporation. The number of shares issuable upon such conversion
shall be determined on the basis of the total number of shares of each series of
Preferred Stock the holder is at the time converting into Common Stock and the
number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of a series of Preferred Stock pursuant to this Section 3,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock, a certificate setting forth
-10-
<PAGE>
(A) the date on which a record is to be taken for the purpose of such adjustment
or readjustment, (B) the adjustment or readjustment that is to be made, and (C)
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 of Preferred
Stock a like certificate setting forth (A) such adjustment and readjustment, (B)
the Conversion Price for the Preferred Stock at the time in effect, and (C) 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 a share of the Preferred
Stock.
(i) Notices of Record Date. In the event of any taking by
----------------------
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least twenty (20) days prior to
the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, in addition to
such other remedies as shall be available to the holder of Preferred Stock, the
Corporation will take such corporate action as may, in the reasonable opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate.
(k) Notices. Any notice required by the provisions of this
-------
Section 3 to be given to the holders of shares of Preferred Stock shall be
deemed given 48 hours after being deposited in the United States mail, postage
prepaid, and addressed to each holder of record at his address appearing on the
books of the Corporation.
4. Voting Rights. The holder of each share of Preferred Stock
-------------
shall have the right to one vote for each share of Common Stock into which the
Preferred Stock could then be converted, and with respect to such vote, such
holder of Preferred Stock shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the bylaws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of
-11-
<PAGE>
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
5. Protective Provisions. So long as 1,000,000 shares of Preferred
---------------------
Stock are outstanding (as adjusted for stock splits, stock dividends,
recapitalizations and the like), the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Preferred
Stock, voting together as a single class:
(a) alter or change the rights, preferences or privileges of the
Preferred Stock;
(b) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Preferred Stock with respect to voting rights, dividends, liquidation
preferences or any other rights, preferences or privileges conferred herein;
(c) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Preferred Stock or Common Stock;
(d) any merger or consolidation of the Company with one or more
other corporations in which the stockholders of the Corporation immediately
after such merger or consolidation hold stock representing less than a majority
of the voting power of the outstanding stock of the surviving corporation and
any sale of all or substantially all of the assets of the Corporation;
(e) amend or waive any provision of the Certificate of
Incorporation or Bylaws of the Corporation in a manner that adversely affects
the rights of the Preferred Stock;
(f) declare or pay any dividends on or make any distribution with
respect to the Common Stock;
(g) redeem, repurchase or otherwise reacquire (or pay into or set
funds aside for a sinking fund for such purpose) any shares of Preferred Stock
or Common Stock; provided, however, that this restriction shall not apply to the
-------- -------
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation or any
subsidiary pursuant to agreements under which the Corporation has the option to
repurchase such shares at their original purchase price upon the occurrence of
certain events, such as the termination of employment, or through the exercise
of any right of first refusal applicable to any such person;
(h) change the authorized number of directors from its current
number of seven (7) directors;
-12-
<PAGE>
(i) except as may be approved by unanimous vote or action by
written consent of the Board of Directors, increase the number of shares of
Common Stock reserved for issuance pursuant to the Company's stock option plan
to more than 8,500,000 shares of Common Stock; or
(j) except as may be approved by unanimous vote or action by
written consent of the Board of Directors, incur over $2,000,000 in indebtedness
from any lending institution.
Additionally, so long as 500,000 shares of Series D Preferred Stock
are outstanding, the Corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series D Preferred Stock, voting as a
separate class:
(a) alter or change the rights, preferences or privileges of the
Series D Preferred Stock;
(b) authorize or issue, or obligate itself to issue any shares of
Series D Preferred Stock or any other equity security, including any other
security convertible into or exercisable for any equity security, having a
preference over, or being on a parity with, the Series D Preferred Stock with
respect to voting rights, dividends, liquidation preferences or any other
rights, preferences or privileges conferred herein; or
(c) effect a merger, consolidation or sale of all or substantially
all of the assets of the Company for less than $320,000,000 in aggregate
consideration, if as a result of such transaction the Company's stockholders
immediately prior to such transaction shall control less than 50% of the
outstanding voting securities of the surviving entity.
Additionally, so long as 200,000 shares of Series E Preferred Stock
are outstanding, the Corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series E Preferred Stock, voting as a
separate class, alter or change the rights, preferences or privileges of the
Series E Preferred Stock.
6. Redemption. The Preferred Stock is not redeemable.
----------
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 3 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation. The Certificate
of Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any
-13-
<PAGE>
assets of the Corporation legally available therefor, such dividends as may be
declared from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV.
3. Redemption. The Common Stock is not redeemable other than at
----------
cost in connection with the termination of service.
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted 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 he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article V, nor the adoption of
any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article V, shall eliminate or reduce the effect of this Article V in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article V, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
ARTICLE VI
Subject to Section 5 of Division (B) of Article IV, the Board of Directors of
the Corporation is expressly authorized to make, alter or repeal Bylaws of the
Corporation, but the stockholders may make additional Bylaws and may alter or
repeal any Bylaw whether adopted by them or otherwise.
ARTICLE VII
Elections of directors need not be by written ballot unless otherwise provided
in the Bylaws of the Corporation.
-14-
<PAGE>
ARTICLE VIII
The Corporation is to have perpetual existence.
ARTICLE IX
The number of directors which will constitute the whole Board of Directors
shall be designated in the Bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the Corporation.
* * * * * * * * * * * * * *
THIRD: The foregoing amendment was approved by the holders of the
requisite number of shares of said corporation in accordance with Section 228 of
the General Corporation Law.
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law.
We hereby further declare and certify under penalty of perjury under the
laws of the State of Delaware that the facts set forth in the foregoing
certificate are true and correct of our own knowledge and that this certificate
is our act and deed.
-15-
<PAGE>
IN WITNESS WHEREOF, this Fifth Amended and Restated Certificate of
Incorporation has been signed by the Chief Executive Officer and the Secretary
of this Corporation this 18th day of January, 2000.
/s/ Andrea C. Reisman
---------------------
Andrea C. Reisman,
Chief Executive Officer
/s/ Mark S. Albert
------------------
Mark S. Albert,
Secretary
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF THE
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PETOPIA.COM, INC.
Petopia.com, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law")
-----------------------
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on March 9, 1999
under the name of Spot & Jack, Inc., pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing to
amend the Certificate of Incorporation of this corporation, declaring said
amendment to be advisable and in the best interests of this corporation and its
stockholders, and authorizing the appropriate officers of this corporation to
solicit the consent of the stockholders therefor, which resolutions setting
forth the proposed amendments to the Certificate of Incorporation of this
corporation are as follows:
RESOLVED, that Section 3(d)(i)(B)(2) of Article IV of the Certificate of
Incorporation of this corporation be amended and restated in its entirety as
follows:
"(2) Shares of Common Stock issuable or issued to employees,
consultants or directors of the Corporation or to employees or directors of
PETCO Animal Supplies, Inc. ("PETCO"), either directly or pursuant to a stock
-----
option plan or restricted stock plan approved by the Board of Directors of the
Corporation;" and
RESOLVED FURTHER, that Section 5 of Article IV of the Certificate of
Incorporation of this corporation be amended and restated in its entirety as
follows:
"5. Protective Provisions. So long as 1,000,000 shares of Preferred
---------------------
Stock are outstanding (as adjusted for stock splits, stock dividends,
recapitalizations and the like), the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Preferred
Stock, voting together as a single class:
(a) alter or change the rights, preferences or privileges of the
Preferred Stock;
<PAGE>
(b) authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or exercisable for any
equity security, having a preference over, or being on a parity with, the
Preferred Stock with respect to voting rights, dividends, liquidation
preferences or any other rights, preferences or privileges conferred herein;
(c) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Preferred Stock or Common Stock;
(d) any merger or consolidation of the Company with one or more other
corporations in which the stockholders of the Corporation immediately after such
merger or consolidation hold stock representing less than a majority of the
voting power of the outstanding stock of the surviving corporation and any sale
of all or substantially all of the assets of the Corporation;
(e) amend or waive any provision of the Certificate of Incorporation
or Bylaws of the Corporation in a manner that adversely affects the rights of
the Preferred Stock;
(f) declare or pay any dividends on or make any distribution with
respect to the Common Stock;
(g) redeem, repurchase or otherwise reacquire (or pay into or set
funds aside for a sinking fund for such purpose) any shares of Preferred Stock
or Common Stock; provided, however, that this restriction shall not apply to the
-------- -------
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation or any
subsidiary pursuant to agreements under which the Corporation has the option to
repurchase such shares at their original purchase price upon the occurrence of
certain events, such as the termination of employment, or through the exercise
of any right of first refusal applicable to any such person;
(h) change the authorized number of directors from its current
number of nine (9) directors; or
(i) except as may be approved by unanimous vote or action by written
consent of the Board of Directors, incur over $2,000,000 in indebtedness from
any lending institution.
Additionally, so long as 500,000 shares of Series D Preferred Stock
are outstanding, the Corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series D Preferred Stock, voting as a
separate class:
(a) alter or change the rights, preferences or privileges of the
Series D Preferred Stock;
2
<PAGE>
(b) authorize or issue, or obligate itself to issue any shares of
Series D Preferred Stock or any other equity security, including any other
security convertible into or exercisable for any equity security, having a
preference over, or being on a parity with, the Series D Preferred Stock with
respect to voting rights, dividends, liquidation preferences or any other
rights, preferences or privileges conferred herein; or
(c) effect a merger, consolidation or sale of all or substantially all
of the assets of the Company for less than $320,000,000 in aggregate
consideration, if as a result of such transaction the Company's stockholders
immediately prior to such transaction shall control less than 50% of the
outstanding voting securities of the surviving entity.
Additionally, so long as 200,000 shares of Series E Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series E Preferred Stock, voting as a
separate class, alter or change the rights, preferences or privileges of the
Series E Preferred Stock."
THIRD: The foregoing amendment was approved by the holders of the
requisite number of shares of said corporation in accordance with Section 228 of
the General Corporation Law.
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law.
We hereby further declare and certify under penalty of perjury under the
laws of the State of Delaware that the facts set forth in the foregoing
certificate are true and correct of our own knowledge and that this certificate
is our act and deed.
3
<PAGE>
IN WITNESS WHEREOF, this Certificate of Amendment of the Fifth Amended
and Restated Certificate of Incorporation has been signed by the Chief Executive
Officer and the Secretary of this Corporation this 10th day of March, 2000.
--------------------------
Andrea C. Reisman,
Chief Executive Officer
--------------------------
Mark S. Albert,
Secretary
4
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PETOPIA.COM, INC.
Petopia.com, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "General Corporation Law")
-----------------------
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on March 9, 1999
under the name of Spot & Jack, Inc., pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions proposing to
amend and restate the Certificate of Incorporation of this corporation,
declaring said amendment and restatement to be advisable and in the best
interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor which resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Fifth Amended and Restated Certificate of Incorporation
of this corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is Petopia.com, Inc. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 15 East North Street, City of Dover, County of Kent. The name of its
registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
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 of
Delaware.
ARTICLE IV
A. CLASSES OF STOCK
The Corporation is authorized to issue two classes of stock, to be
designated as "Preferred Stock," $0.0001 par value, and "Common Stock," $0.0001
--------------- ------------
par value, respectively. The total number of shares that the Corporation is
authorized to issue is [_____]. The number of shares of Preferred Stock
authorized is [_____] shares, and the number of shares of Common Stock
authorized is [_____] shares.
<PAGE>
B. RIGHTS AND RESTRICTIONS OF COMMON STOCK
(a) The Common Stock is not redeemable.
(b) The holder of each share of Common Stock shall have the right to one
vote and shall be entitled to notice of any stockholders' meeting in accordance
with the Amended and Restated Bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as provided by law.
C. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series,
without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Sixth Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), to fix or alter the
--------------------
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
D. AUTHORITY OF BOARD OF DIRECTORS WITH RESPECT TO STOCK MATTERS
The authority of the Board of Directors with respect to each class or
series of stock shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the number of
shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(c) the right or obligation, if any, of the Corporation to redeem shares
of the particular class or series of Preferred Stock and, if redeemable, the
price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of any such class or series of
Preferred Stock shall be entitled to
-2-
<PAGE>
receive upon any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation;
(e) the terms and conditions, if any, upon which shares of such class or
series shall be convertible or not, or exchangeable for, shares of capital stock
of any other class or series, including the price or prices or the rate or rates
of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
(h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
(i) such other preferences, powers, qualifications, special or relative
rights and privileges thereof as the Board of Directors of the Corporation,
acting in accordance with this Restated Certificate, may deem advisable and that
are not inconsistent with law and the provisions of this Restated Certificate.
ARTICLE V
In addition to any other class vote that may be required by law so long as
any shares of Preferred Stock are outstanding, this Corporation shall not
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least a majority of the then outstanding shares of
Preferred Stock voting together as a single class:
(a) adversely alter or change the powers, preferences or special rights of
the Preferred Stock; or
(b) increase or decrease (other than by redemption or conversion) the
aggregate number of authorized shares of Preferred Stock; or
(c) create, authorize or issue any new class or series of shares having
any powers, preferences or special rights superior to or on a parity with the
Preferred Stock as to dividends, liquidation, conversion rights or voting
rights; or
(d) redeem, purchase or otherwise acquire (or pay into or set aside for a
sinking fund for such purpose) any share or shares of Preferred Stock or Common
Stock; provided, however, that this restriction shall not apply to (i) the
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for this Corporation or any
subsidiary pursuant to agreements under which this Corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as
-3-
<PAGE>
the termination of employment or (ii) the redemption of any share or shares of
Preferred Stock; or
(e) sell, convey or otherwise dispose of all or substantially all of its
property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of this Corporation is disposed of; or
(f) change the authorized number of directors of this Corporation.
ARTICLE VI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon the stockholders herein are
granted subject to this right.
ARTICLE VII
The Corporation is to have perpetual existence.
ARTICLE VIII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE IX
1. Limitation on Directors' Liability. To the fullest extent permitted
----------------------------------
by the General Corporation Law as the same exists or as may hereafter be
amended, a director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director.
2. Indemnification. The Corporation may indemnify to the fullest extent
---------------
permitted 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 or his or her testator or intestate is or
was a director, officer or employee of the Corporation, or any predecessor of
the Corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the Corporation or any predecessor to the
Corporation.
3. Amendments. Neither any amendment nor repeal of this Article IX, nor
----------
the adoption of any provision of the Corporation's Restated Certificate
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article IX, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent position.
-4-
<PAGE>
ARTICLE X
In the event any shares of Preferred Stock shall be redeemed or converted,
the shares so converted or redeemed shall not revert to the status of authorized
but unissued shares, but instead shall be canceled and shall not be re-issuable
by the Corporation.
ARTICLE XI
Holders of stock of any class or series of the Corporation shall not be
entitled to cumulate their votes for the election of directors or any other
matter submitted to a vote of the stockholders, unless such cumulative voting is
required pursuant to the General Corporation Law, in which event each such
holder shall be entitled to as many votes as shall equal the number of votes
which (except for this provision as to cumulative voting) such holder would be
entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and the holder
may cast all of such votes for a single director or may distribute them among
the number of directors to be voted for, or for any two or more of them as such
holder may see fit, so long as the name of the candidate for director shall have
been placed in nomination prior to the voting and the stockholder, or any other
holder of the same class or series of stock, has given notice at the meeting
prior to the voting of the intention to cumulate votes.
1. Number of Directors. The number of directors which constitutes the
-------------------
whole Board of Directors of the Corporation shall be designated in the Amended
and Restated Bylaws of the Corporation. The directors shall be divided into
three classes with the term of office of the first class (Class I) to expire at
the annual meeting of stockholders held in 2001; the term of office of the
second class (Class II) to expire at the annual meeting of stockholders held in
2002; the term of office of the third class (Class III) to expire at the annual
meeting of stockholders held in 2003; and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless the Amended and Restated Bylaws of the Corporation shall so
provide.
ARTICLE XII
No action shall be taken by the stockholders of the Corporation except at
an annual or special meeting of the stockholders called in accordance with the
Amended and Restated Bylaws and no action shall be taken by the stockholders by
written consent. The affirmative vote of sixty-six and two-thirds percent (66
2/3%) of the then outstanding voting securities of the Corporation, voting
together as a single class, shall be required for the amendment, repeal or
modification of the provisions of Article VIII, Article XI or Article XII of
this Restated Certificate or Sections 5 (Annual Meeting), 6 (Special Meetings),
7 (Notice of Meetings), 10 (Voting Rights), 13 (Action Without Meeting) or 15
(Number and Term of Office) of the Corporation's Amended and Restated Bylaws.
-5-
<PAGE>
ARTICLE XIII
Any meeting of stockholders may be held within or without the State of
Delaware, as the Amended and Restated Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside of 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 Amended and Restated
Bylaws of the Corporation.
* * * * * * * * * * * * * *
THIRD: The foregoing amendment was approved by the holders of the requisite
number of shares of said Corporation in accordance with Section 228 of the
General Corporation Law.
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law.
We hereby further declare and certify under penalty of perjury under the
laws of the State of Delaware that the facts set forth in the foregoing
certificate are true and correct of our own knowledge and that this certificate
is our act and deed.
-6-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed by the Chief Executive Officer and the Secretary of this
Corporation this ___ day of _________, 2000.
________________________________________
Andrea C. Reisman,
Chief Executive Officer
________________________________________
Mark S. Albert,
Secretary
<PAGE>
EXHIBIT 3.4
BYLAWS OF
PETOPIA.COM, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES..................................................... 1
ARTICLE II. MEETINGS OF STOCKHOLDERS.................................... 1
ARTICLE III. DIRECTORS................................................... 3
ARTICLE IV. NOTICES..................................................... 5
ARTICLE V. OFFICERS.................................................... 6
ARTICLE VI. CERTIFICATE OF STOCK........................................ 8
ARTICLE VII. GENERAL PROVISIONS.......................................... 10
ARTICLE VIII. AMENDMENTS.................................................. 12
ARTICLE IX. LOANS TO OFFICERS........................................... 12
</TABLE>
<PAGE>
BYLAWS
OF
PETOPIA.COM, INC.
ARTICLE I
OFFICES
1.1 The registered office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
1.2 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 or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 All meetings of the stockholders for the election of directors
shall be held at the principal executive officers of the corporation or at such
other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of stockholders for any other purpose may be held at
such time and place, within or without the State of Delaware, as shall be stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
2.2 Annual meetings of stockholders, shall be held at such date and
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote a Board of Directors, and transact such other business as may properly be
brought before the meeting.
2.3 Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not fewer than ten (10) nor more than sixty (60) days before the date of
the meeting.
2.4 The officer who has charge of the stock ledger of the 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.
<PAGE>
2.5 Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least ten
percent (10%) in amount of the entire capital stock of the corporation issued
and outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
2.6 Written notice of a special meeting stating the place, date and
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
2.7 Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
2.8 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 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, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally
notified. 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.
2.9 When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
2.10 Unless otherwise provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three years
from its date, unless the proxy provides for a longer period.
2.11 Unless otherwise provided in the certificate of incorporation,
any action required to be taken at any annual or special meeting of stockholders
of the corporation, or any action which 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, shall be 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
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<PAGE>
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.
ARTICLE III
DIRECTORS
3.1 The number of directors that shall constitute the whole Board of
Directors shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 3.2 of this Article, and each director elected shall hold office until
his successor is elected and qualified. Directors need not be stockholders.
3.2 Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled 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 shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board of Directors (as
constituted immediately prior to any such increase), the Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten
percent (10%) 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.
3.3 The business of the corporation shall be managed by or under the
direction of its 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 bylaws directed or required to be
exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------
3.4 The Board of Directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
3.5 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.
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<PAGE>
3.6 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 of Directors.
3.7 Special meetings of the Board of Directors may be called by the
president on two (2) days' notice to each director by mail or forty-eight (48)
hours notice to each director either personally or by telegram; 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 of Directors
consists of only one 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.
3.8 At all meetings of the Board of Directors a majority of the
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 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, until a quorum shall be present.
3.9 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 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.
3.10 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.
COMMITTEES OF DIRECTORS
-----------------------
3.11 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 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, she 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, 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
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<PAGE>
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the General Corporation Law of Delaware
to be submitted to stockholders for approval or (ii) adopting, amending or
repealing any provision of these bylaws.
3.12 Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
-------------------------
3.13 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. 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. 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.
REMOVAL OF DIRECTORS
--------------------
3.14 Unless otherwise restricted by the certificate of incorporation
or these bylaws, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
NOTICES
4.1 Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his 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.
Notice to directors may also be given by telegram.
4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these bylaws, 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.
ARTICLE V
OFFICERS
5.1 The officers of the corporation shall be chosen by the Board of
Directors and shall be a president, Treasurer and a secretary. The Board of
Directors may elect from among its members a Chairman of the Board and a Vice
Chairman of the Board. The Board of
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<PAGE>
Directors may also choose one or more vice-presidents, assistant secretaries and
assistant Treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these bylaws otherwise provide.
5.2 The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a president, a Treasurer, and a secretary
and may choose vice-presidents.
5.3 The Board of Directors may appoint such other officers and
agents as it shall deem necessary 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.
5.4 The salaries of all officers and agents of the corporation shall
be fixed by the Board of Directors.
5.5 The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
-------------------------
5.6 The Chairman of the Board, if any, shall preside at all meetings
of the Board of Directors and of the stockholders at which he or she shall be
present. He or she shall have and may exercise such powers as are, from time to
time, assigned to him or her by the Board of Directors and as may be provided by
law.
5.7 In the absence of the Chairman of the Board, the Vice Chairman
of the Board, if any, shall preside at all meetings of the Board of Directors
and of the stockholders at which he or she shall be present. He or she shall
have and may exercise such powers as are, from time to time, assigned to him or
her by the Board of Directors and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
---------------------------------
5.8 The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he or she shall preside at all meetings of the stockholders and the Board of
Directors; he or she shall have general and active management of the business of
the corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
5.9 He or she shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
5.10 In the absence of the president or in the event of his inability
or refusal to act, the vice-president, if any, (or in the event there be more
than one vice-president, the
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<PAGE>
vice-presidents in the order designated by the directors, or in the absence of
any designation, then in the order of their election) 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. The vice-presidents shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
-------------------------------------
5.11 The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He or she 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
or president, under whose supervision he or she shall be. He or she shall have
custody of the corporate seal of the corporation and he or she, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
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 the
affixing by his signature.
5.12 The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the 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 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 may from
time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
--------------------------------------
5.13 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.
5.14 He 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 his
transactions as Treasurer and of the financial condition of the corporation.
5.15 If required by the Board of Directors, he or she shall give the
corporation a bond (which shall be renewed every six years) 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 his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
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<PAGE>
5.16 The assistant Treasurer, or if there shall be more than one, the
assistant Treasurers in the order determined by the 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 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 may from
time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
6.1 Every holder of stock in the corporation 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 a vice-
president and the Treasurer or an assistant Treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him or her in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, 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 which the corporation shall
issue to represent such class or series of stock, provided 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 which 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, designations, preferences and
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.
6.2 Any of or all the signatures on the certificate may be
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 he or she
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
-----------------
6.3 The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
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 or certificates, the Board of Directors may, in its
discretion and as a condition
8
<PAGE>
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation a
bond in such sum as it may 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.
TRANSFER OF STOCK
-----------------
6.4 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 upon its books.
FIXING RECORD DATE
------------------
6.5 In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate 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.
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.
REGISTERED STOCKHOLDERS
-----------------------
6.6 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 provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
---------
7.1 Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
7.2 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
directors from time to time, in
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their absolute discretion, think 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 such other purposes as the directors shall
think conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
CHECKS
------
7.3 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.
FISCAL YEAR
-----------
7.4 The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
----
7.5 The Board of Directors may adopt a corporate seal having
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.
INDEMNIFICATION
---------------
7.6 The corporation shall, to the fullest extent authorized under the
laws of the State of Delaware, as those laws may be amended and supplemented
from time to time, indemnify any director made, or threatened to be made, a
party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation; provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 7.6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 7.6 shall be offset to the extent of any
other source of indemnification or any otherwise applicable insurance coverage
under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he or
she is or was a director of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) 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 to
repay such
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amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized by relevant sections of the General
Corporation Law of Delaware. Notwithstanding the foregoing, the corporation
shall not be required to advance such expenses to an agent who is a party to an
action, suit or proceeding brought by the corporation and approved by a majority
of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 7.6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 7.6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 7.6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
8.1 These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or by the Board of Directors, when such power
is conferred upon the Board of Directors by the certificate of incorporation at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors if notice of
such alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws
is conferred upon the Board of Directors by the certificate or incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
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ARTICLE IX
LOANS TO OFFICERS
9.1 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 subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee 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 these bylaws shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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CERTIFICATE OF SECRETARY OF
SPOT & JACK, INC.
The undersigned, Debra B. Rosler, hereby certifies that she is the
duly elected and acting Secretary of Spot & Jack, Inc., a Delaware corporation
(the "Corporation"), and that the Bylaws attached hereto constitute the Bylaws
of said Corporation as duly adopted by Action by Written Consent in Lieu of
Organizational Meeting by the Directors on March 17, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed her name
this 17th day of March, 1999.
/s/ Debra B. Rosler
-----------------------------------
Debra B. Rosler, Secretary
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED BYLAWS
OF
PETOPIA.COM, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle,
State of Delaware.
Section 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and 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 or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The Board of Directors may adopt a corporate
seal having 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 III
STOCKHOLDERS' MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
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Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the 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 address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business, and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in
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accordance with the provisions of this paragraph (b), and, if he should so
determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act (including without limitation such person's written
consent to being named in the proxy statement, if any, as a nominee and to
serving as a director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this Section 5. At the request of the Board of Directors, any person nominated
by a stockholder for election as a director shall furnish to the Secretary of
the corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the
meeting shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
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Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than ten percent (10%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than as specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given 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, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
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. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of
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stock entitled to vote shall constitute a quorum for the transaction of
business. In the absence of a quorum, any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the vote cast, excluding abstentions, at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
provided, however, that directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Where a separate vote by a class
or classes or series is required, except where otherwise provided by the statute
or by the Certificate of Incorporation or these Bylaws, a majority of the
outstanding shares of such class or classes or series, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and, except where otherwise provided by the
statute or by the Certificate of Incorporation or these Bylaws, the affirmative
vote of the majority (plurality, in the case of the election of directors) of
the votes cast, including abstentions, by the holders of shares of such class or
classes or series shall be the act of such class or classes or series.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, 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 which 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.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
Section 11. Joint Owners of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety or otherwise, or if
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two (2) or more persons have the same fiduciary relationship respecting the same
shares, unless the Secretary is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect: (a) if only one (1) votes, his act binds all; (b) if
more than one (1) votes, the act of the majority so voting binds all; (c) if
more than one (1) votes, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or may apply to
the Delaware Court of Chancery for relief as provided in the General Corporation
Law of Delaware, Section 217(b). If the instrument filed with the Secretary
shows that any such tenancy is held in unequal interests, a majority or even-
split for the purpose of subsection (c) shall be a majority or even-split in
interest.
Section 12. List of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, 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
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the 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, shall be 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.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
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(c) 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 the State 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.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting 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 necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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ARTICLE IV
DIRECTORS
Section 15. Number and Term of Office. The number of directors that shall
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors or by the stockholders at the annual meeting of the
stockholders, and each director elected shall hold office until his successor is
elected and qualified. Directors need not be stockholders.
Section 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Classes of Directors. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the closing of the Initial Public
Offering, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 18. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
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accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
Section 19. Resignation. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, 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 vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office for the unexpired
portion of the term of the director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 20. Removal. Subject to the rights of the holders of any series
of Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock").
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
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 of
Directors. Unless otherwise restricted by the Certificate of Incorporation,
regular meetings of the Board of Directors may also be held at any place within
or without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board of Directors, the President or any two (2)
of the directors.
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(d) Telephone Meetings. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of 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
by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director 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.
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 22. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time by the Board of Directors in accordance with
Section 15 hereof, a quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time by the Board
of Directors in accordance with; provided, however, at any meeting whether a
quorum be present or otherwise, a majority of the directors present may adjourn
from time to time until the time fixed for the next regular meeting of the Board
of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without 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
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meeting, if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and such writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
Section 24. Fees and Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors 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, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending 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 fix the designations and 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 or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation.
(b) Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws.
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(c) Term. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Section 25 may at any time increase or decrease
the number of members of a committee or terminate the existence of a committee.
The membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. 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 the committee, and, in addition, in the absence or
disqualification of any 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.
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special 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. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
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ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall be
a Chief Executive Officer, a President, a Secretary, and a Chief Financial
Officer. The corporation may also have, at the discretion of the Board of
Directors, one or more Vice Presidents, one or more Assistant Secretaries, one
or more Assistant Treasurers, and any such officers as it shall deem necessary.
Any number of offices may be held by the same person.
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) Chief Executive Officer. Subject to such provisionary powers,
if any, as may be given by the Board of Directors to the Chairman of the Board
of Directors, if any, the Chief Executive Officer of the corporation 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
or she shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a Chairman of the Board of Directors, at all meetings of the
Board of Directors and shall have the general powers and duties of management
usually vested in the office of Chief Executive Officer of a corporation and
shall have such powers and duties as may be prescribed by the Board of Directors
or these Bylaws.
(c) President. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board of Directors, if
any, or the Chief Executive Officer, the President shall have general
supervision, direction, and control of the business and other officers of the
corporation. He or she shall have the general powers and duties of management
usually vested in the office of President of a corporation and such other powers
and duties as we may be prescribed by the Board of Directors or these Bylaws.
(d) Vice Presidents. In the absence or disability of the Chief
Executive Officer and 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 form time to time may be prescribed for
them respectively by the Board of Directors, these Bylaws, the President or the
Chairman of these Board of Directors.
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(e) Secretary. The Secretary shall keep or cause to be kept, at
the 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 stockholders. The minutes shall show the
time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof. 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 stockholders 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 stockholders and of the Board of
Directors required to be given by law or by these Bylaws. He or she 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.
(f) Chief Financial Officer. The Chief Financial Officer 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
Chief Financial Officer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the Board of Directors. He or she shall disburse the funds of the corporation
as may be ordered by the Board of Directors, shall render to the President, the
Chief Executive Officer, or the directors, upon request, an account of all his
or her transactions as Chief Financial Officer and of the financial condition of
the corporation, and shall have other powers and perform such other duties as
may be prescribed by the Board of Directors or these Bylaws.
Section 29. Delegation of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
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Section 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chief
Executive Officer, or the President or any Vice President, and by the Secretary
or Treasurer or any Assistant Secretary or Assistant Treasurer. All other
instruments and documents requiring the corporate signature, but not requiring
the corporate seal, may be executed as aforesaid or in such other manner as may
be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless 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.
Section 33. Voting of Securities Owned by the Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation 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 Chief Executive Officer, or the President or any Vice President and by the
Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary,
certifying the number of shares owned by him in the corporation. Any or all of
the signatures on the certificate may be facsimiles. 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 with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue. Each certificate shall state upon the face or back thereof, in full or
in summary, all of the powers, designations, preferences and rights, and the
limitations or restrictions of the shares authorized to be issued or shall,
except as otherwise required by law, set forth on the face or back a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and 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. Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to this section or otherwise required by law or with
respect to this section a statement that the corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and 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. Except as otherwise expressly provided by law,
the rights and obligations of the holders of certificates representing stock of
the same class and series shall be identical.
Section 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates 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. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may 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.
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Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares 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.
Section 37. Fixing Record Dates.
(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, in advance, 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 (60) nor less than ten (10) 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; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, 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 date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent
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of the corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(c) 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, in advance, 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 (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 38. 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, 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 provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman or Vice Chairman of the
Board of Directors, or the Chief Executive Officer, or the President or any Vice
President, or such other person as may be authorized by the Board of Directors,
and the corporate seal impressed thereon or a facsimile of such seal imprinted
thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Chief Financial Officer or Treasurer or an Assistant
Treasurer; provided, however, that where any such bond, debenture or other
corporate security shall be authenticated by the manual signature, or where
permissible facsimile signature, of a trustee under an indenture pursuant to
which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an
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Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 41. Dividend Reserve. 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 their absolute
discretion, think 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 such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
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ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification of Directors, Executive Officers, Other
Officers, Employees and Other Agents.
(a) Directors and Executive Officers. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, executive officers shall have the meaning defined in Rule 3b-7 promulgated
under the Exchange Act) and officers to the fullest extent not prohibited by the
Delaware General Corporation Law; provided, however, that the corporation may
modify the extent of such indemnification by individual contracts with its
directors and executive officers and officers; and, provided, further, that the
corporation shall not be required to indemnify any director or executive officer
or officer in connection with any proceeding (or part thereof) initiated by such
person unless (i) such indemnification is expressly required to be made by law,
(ii) the proceeding was authorized by the Board of Directors of the corporation,
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the Delaware
General Corporation Law or (iv) such indemnification is required to be made
under subsection (d).
(b) Others. The corporation shall have power to indemnify its
other officers, employees and other agents as set forth in the Delaware General
Corporation Law.
(c) Expenses. The corporation shall advance to 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, by reason of the fact that he is or was a director or executive
officer or officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer or officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal
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counsel in a written opinion, that the facts known to the decision-making party
at the time such determination is made demonstrate clearly and convincingly that
such person acted in bad faith or in a manner that such person did not believe
to be in or not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers and officers under this Section 43 shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer or officer. Any
right to indemnification or advances granted by this Section 43 to a director or
executive officer or officer shall be enforceable by or on behalf of the person
holding such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an executive officer of the
corporation (except in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such executive
officer is or was a director of the corporation) for advances, the corporation
shall be entitled to raise a defense as to any such action clear and convincing
evidence that such person acted in bad faith or in a manner that such person did
not believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted without
reasonable cause to believe that his conduct was lawful. Neither the failure of
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
executive officer to enforce a right to indemnification or to an advancement of
expenses hereunder, the burden of proving that the director or executive officer
is not entitled to be indemnified, or to such advancement of expenses, under
this Section 43 or otherwise shall be on the corporation.
(e) Non-Exclusivity of Rights. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
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specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(f) Survival of Rights. The rights conferred on any person by this
Section 43 shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 43.
(h) Amendments. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Section 43
in effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Section 43 or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 43 that
shall not have been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Section 43, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(iii) The term 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, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
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corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 43 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(iv) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(v) References to "other enterprises" shall include
employee benefit plans; 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, officer, employee or agent with respect
to an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he 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 Section 43.
ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with
23
<PAGE>
respect to the class of stock affected, specifying the name and address or the
names and addresses of the stockholder or stockholders, or director or
directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall in the absence of fraud, be prima facie
evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) Failure to Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) Notice to Person with Whom Communication Is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) Notice to Person with Undeliverable Address. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two (2) consecutive annual meetings, or (ii) all, and at
least two (2), payments (if sent by first class mail) of dividends or interest
on securities during a twelve-(12) month period, have been mailed addressed to
such person at his address as shown on the records of the corporation and have
been returned undeliverable, the giving
24
<PAGE>
of such notice to such person shall not be required. Any action or meeting which
shall be taken or held without notice to such person shall have the same force
and effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate need not state that notice was not given to
persons to whom notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENT
Section 45. Amendments. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
Section 46. 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 subsidiaries, including any officer or employee who
is a director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee 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 these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
ARTICLE XV
MISCELLANEOUS
Section 47. Annual Report.
(a) Subject to the provisions of paragraph (b) of this Section 47,
the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such
25
<PAGE>
report shall include a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year, accompanied by any report thereon of independent accounts or, if there is
no such report, the certificate of an authorized officer of the corporation that
such statements were prepared without audit from the books and records of the
corporation. When there are more than one hundred (100) stockholders of record
of the corporation's shares, as determined by Section 605 of the California
Corporations Code, additional information as required by Section 1501(b) of the
California Corporations Code shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the Exchange Act, that Act shall take precedence. Such report shall be sent to
stockholders at least fifteen (15) days prior to the next annual meeting of
stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than one hundred (100)
holders of record of the corporation's shares, the requirement of sending of an
annual report to the stockholders of the corporation is hereby expressly waived.
26
<PAGE>
Exhibit 4.2
PETOPIA.COM, INC.
May 3, 1999
To the Purchasers of the
Series A Preferred Stock
of Petopia.com, Inc.
Re: Right to Participate in Initial Public Offering
Ladies and Gentlemen
This letter will confirm our agreement that, subject to and in consideration of
the purchase of shares of Series A Convertible Preferred Stock of Petopia.com,
Inc. (the "Company") by TCV III (GP), TCV III, L.P., TCV III (Q), L.P., TCV III
Strategic Partners, L.P. (the "IPO Holders"), in connection with the Company's
firm commitment underwritten initial public offering (the "IPO"), the Company
shall use its best efforts to cause the managing underwriter or underwriters of
such IPO to offer to each IPO Holder the right to purchase at least that number
of shares of capital stock of the Company determined by multiplying (a) their
Pro-Rata Share by (b) the number of IPO Shares. If an IPO Holder wishes to
purchase IPO Shares, it shall promptly respond to such offer within the time
frame reasonably requested by the managing underwriter(s). The term "Pro- Rata
Share" shall mean that fraction, the numerator of which is equal to the number
of shares of Series A Convertible Preferred Stock (determined on an as-converted
basis) held by such IPO Holder and the denominator of which is the total number
of shares of Series A Convertible Preferred Stock (determined on an as-converted
basis) held by all IPO Holders.
The term "IPO Shares" shall mean that number of shares equal to the quotient
obtained by dividing $3,000,000 by the gross price per share negotiated by the
Company with the managing underwriter or underwriters as reflected on the final
prospectus.
To the extent that one or more of the IPO Holders does not offer to purchase its
full Pro-Rata Share of the IPO Shares, the Company shall use its best efforts to
cause the managing underwriter or underwriters to offer any remaining IPO Shares
to the participating IPO Holders based on such holder's Pro-Rata Share. The IPO
Holders shall have the right to apportion its participation in the IPO pursuant
to this Letter Agreement among any of its partners, members or affiliates.
<PAGE>
To the Purchasers of the May 3, 1999
Series A Preferred Stock of Petopia, Inc. Page 2
Notwithstanding the foregoing, all action taken pursuant to this Letter
Agreement shall be made in accordance with all federal and state securities
laws, including, without limitation, Rule 134 of the Securities Act of 1933, as
amended, and all applicable rules and regulations promulgated by the National
Association of Securities Dealers, Inc. and other such self-regulating
organizations.
Very truly yours,
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
------------------------------
Name: Andrea C. Reisman
Title: Chief Executive Officer
<PAGE>
ACKNOWLEDGED AND AGREED:
TCV III (GP)
a Delaware General Partnership
By: Technology Crossover Management III L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III(Q), L.P.
a Delaware limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
SIGNATURE PAGE TO IPO ALLOCATION LETTER
<PAGE>
Mailing Address:
Technology Crossover Ventures
56 Main Street, Suite 210 Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 943 01
Attention. Jay C. Hoag
Phone: (650) 614-8210
Fax: (650) 614-8222
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
-------------------------
THIS AGREEMENT (the "Agreement") is made and entered into as of
____________________ between Petopia.com, Inc., a Delaware corporation ("the
Company"), and ______________________ (the "Indemnitee").
WITNESSETH THAT:
WHEREAS, the individual signatory hereto performs a valuable service for
the Company; and
WHEREAS, the Board of Directors of the Company has adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers and directors of the
Company to the maximum extent authorized by Section 145 of the Delaware General
Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature, permit
contracts between the Company and the officers or directors of the Company with
respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by the Law, the
Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers or directors in the performance of their
obligations to the Company; and
WHEREAS, in recognition of past services and in order to induce the
individual signatory hereto to continue to serve as an officer or director of
the Company, the Company has determined and agreed to enter into this contract
with such individual;
NOW, THEREFORE, in consideration of such individual's service as an officer
or director after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless
-----------------------
and indemnify Indemnitee (as defined in Section 13(e) below) to the full extent
authorized or permitted by the provisions of the Law, as such may be amended
from time to time, and Article VII, Section 7.6 of the Bylaws, as such may be
amended. In furtherance of the foregoing indemnification, and without limiting
the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the
------------------------------------------------------------
Company. Indemnitee shall be entitled to the rights of indemnification provided
- -------
in this Section l(a) if, by reason of his Corporate Status (as defined in
Section 13(a) below), he is, or is threatened to be made, a party to or
participant in any Proceeding (as defined in Section 13(g) below) other than a
Proceeding by or in the right of the Company. Pursuant to this Section 1(a),
Indemnitee shall be indemnified against all Expenses (as defined in
Section 13(d) below), judgments, penalties, fines and amounts paid in settlement
actually
<PAGE>
and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee shall
---------------------------------------------
be entitled to the rights of indemnification provided in this Section 1(b) if,
by reason of his Corporate Status, he is, or is threatened to be made, a party
to or participant in any Proceeding brought by or in the right of the Company.
Pursuant to this Section 1(b), Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with such Proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; provided,
however, that, if applicable law so provides, no indemnification against such
Expenses shall be made in respect of any claim, issue or matter in such
Proceeding as to which Indemnitee shall have been adjudged to be liable to the
Company unless and to the extent that the Court of Chancery of the State of
Delaware shall determine that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly
---------------------------------------------------------------
Successful. Notwithstanding any other provision of this Agreement, to the extent
- ----------
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any
--------------------
limitations on, the indemnification provided for in Section 1, the Company shall
and hereby does indemnify and hold harmless Indemnitee against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf if, by reason of his Corporate
Status, he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful to be made to the individual signatory
hereto under Delaware law.
3. Contribution in the Event of Joint Liability.
--------------------------------------------
-2-
<PAGE>
(a) Whether or not the indemnification provided in Sections 1 and 2
hereof is available, in respect of any threatened, pending or completed action,
suit or proceeding in which Company is jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding), Company shall pay, in the
first instance, the entire amount of any judgment or settlement of such action,
suit or proceeding without requiring Indemnitee to contribute to such payment
and Company hereby waives and relinquishes any right of contribution it may have
against Indemnitee. Company shall not enter into any settlement of any action,
suit or proceeding in which Company is jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding) unless such settlement provides
for a full and final release of all claims asserted against Indemnitee.
(b) Without diminishing or impairing the obligations of the Company
set forth in the preceding subparagraph, if, for any reason, Indemnitee shall
elect or be required to pay all or any portion of any judgment or settlement in
any threatened, pending or completed action, suit or proceeding in which Company
is jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), Company shall contribute to the amount of expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in proportion to the
relative benefits received by the Company and all officers, directors or
employees of the Company other than Indemnitee who are jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), on the
one hand, and Indemnitee, on the other hand, from the transaction from which
such action, suit or proceeding arose; provided, however, that the proportion
determined on the basis of relative benefit may, to the extent necessary to
conform to law, be further adjusted by reference to the relative fault of
Company and all officers, directors or employees of the Company other than
Indemnitee who are jointly liable with Indemnitee (or would be if joined in such
action, suit or proceeding), on the one hand, and Indemnitee, on the other hand,
in connection with the events that resulted in such expenses, judgments, fines
or settlement amounts, as well as any other equitable considerations which the
law may require to be considered. The relative fault of Company and all
officers, directors or employees of the Company other than Indemnitee who are
jointly liable with Indemnitee (or would be if joined in such action, suit or
proceeding), on the one hand, and Indemnitee, on the other hand, shall be
determined by reference to, among other things, the degree to which their
actions were motivated by intent to gain personal profit or advantage, the
degree to which their liability is primary or secondary, and the degree to which
their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and hold Indemnitee
harmless from any claims of contribution which may be brought by officers,
directors or employees of the Company other than Indemnitee who may be jointly
liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding any other
-----------------------------------------
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate
-3-
<PAGE>
Status, a witness in any Proceeding to which Indemnitee is not a party, he shall
be indemnified against all Expenses actually and reasonably incurred by him or
on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of this
-----------------------
Agreement, the Company shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding by reason of Indemnitee's Corporate
Status within ten (10) days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses. Any advances and undertakings to repay pursuant to this Section 5
shall be unsecured and interest free. Notwithstanding the foregoing, the
obligation of the Company to advance Expenses pursuant to this Section 5 shall
be subject to the condition that, if, when and to the extent that the Company
determines that Indemnitee would not be permitted to be indemnified under
applicable law, the Company shall be entitled to be reimbursed, within thirty
(30) days of such determination, 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 Company 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 advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
6. Procedures and Presumptions for Determination of Entitlement to
---------------------------------------------------------------
Indemnification. It is the intent of this Agreement to secure for Indemnitee
- ---------------
rights of indemnity that are as favorable as may be permitted under the law and
public policy of the State of Delaware. Accordingly, the parties agree that the
following procedures and presumptions shall apply in the event of any question
as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
-4-
<PAGE>
(b) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 6(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case by one of the following three methods, which shall be at
the election of Indemnitee: (1) by a majority vote of the disinterested
directors, even though less than a quorum, or (2) by independent legal counsel
in a written opinion, or (3) by the stockholders.
(c) If the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). The Independent
Counsel shall be selected by Indemnitee (unless Indemnitee shall request that
such selection be made by the Board of Directors). Indemnitee or the Company, as
the case may be, may, within 10 days after such written notice of selection
shall have been given, deliver to the Company or to Indemnitee, as the case may
be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 13 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a written
objection is made and substantiated, the Independent Counsel selected may not
serve as Independent Counsel unless and until such objection is withdrawn or a
court has determined that such objection is without merit. If, within 20 days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 6(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the court or by such other person as
the court shall designate, and the person with respect to whom all objections
are so resolved or the person so appointed shall act as Independent Counsel
under Section 6(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 6(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
6(c), regardless of the manner in which such Independent Counsel was selected or
appointed.
(d) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement. Anyone seeking to overcome this
presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in good faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the
-5-
<PAGE>
Enterprise or on information or records given or reports made to the Enterprise
by an independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Enterprise. In addition, the knowledge
and/or actions, or failure to act, of any director, officer, agent or employee
of the Enterprise shall not be imputed to Indemnitee for purposes of determining
the right to indemnification under this Agreement. Whether or not the foregoing
provisions of this Section 6(e) are satisfied, it shall in any event be presumed
that Indemnitee has at all times acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
If the person, persons or entity empowered or selected under Section 6 to
determine whether Indemnitee is entitled to indemnification shall not have made
a determination within thirty (30) days after receipt by the Company of the
request therefor, the requisite determination of entitlement to indemnification
shall be deemed to have been made and Indemnitee shall be entitled to such
indemnification, absent (i) a misstatement by Indemnitee of a material fact, or
an omission of a material fact necessary to make Indemnitee's statement not
materially misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under applicable law; provided,
however, that such 30 day period may be extended for a reasonable time, not to
exceed an additional fifteen (15) days, if the person, persons or entity making
the determination with respect to entitlement to indemnification in good faith
requires such additional time for the obtaining or evaluating documentation
and/or information relating thereto; and provided, further, that the foregoing
provisions of this Section 6(g) shall not apply if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt
by the Company of the request for such determination the Board of Directors or
the Disinterested Directors, if appropriate, resolve to submit such
determination to the stockholders for their consideration at an annual meeting
thereof to be held within seventy five (75) days after such receipt and such
determination is made thereat, or (B) a special meeting of stockholders is
called within fifteen (15) days after such receipt for the purpose of making
such determination, such meeting is held for such purpose within sixty (60) days
after having been so called and such determination is made thereat.
(f) Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
-6-
<PAGE>
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(g) The Company acknowledges that a settlement or other disposition
short of final judgment may be successful if it permits a party to avoid
expense, delay, distraction, disruption and uncertainty. In the event that any
action, claim or proceeding to which Indemnitee is a party is resolved in any
manner other than by adverse judgment against Indemnitee (including, without
limitation, settlement of such action, claim or proceeding with or without
payment of money or other consideration) it shall be presumed that Indemnitee
has been successful on the merits or otherwise in such action, suit or
proceeding. Anyone seeking to overcome this presumption shall have the burden of
proof and the burden of persuasion, by clear and convincing evidence.
7. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to this Agreement within
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 of this
Agreement, Indemnitee shall be entitled to an adjudication in an appropriate
court of the State of Delaware, or in any other court of competent jurisdiction,
of his entitlement to such indemnification. Indemnitee shall commence such
proceeding seeking an adjudication within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 7(a). The Company shall not oppose Indemnitee's right to seek any such
adjudication.
(b) In the event that a determination shall have been made pursuant
to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding commenced pursuant to this Section 7
shall be conducted in all respects as a de novo trial, on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination under
Section 6(b).
(c) If a determination shall have been made pursuant to Section 6(b)
of this Agreement that Indemnitee is entitled to indemnification, the Company
shall be bound by such determination in any judicial proceeding commenced
pursuant to this Section 7, absent a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7, seeks a
judicial adjudication of his rights under, or to recover damages for breach of,
this Agreement, or to recover under any directors' and officers' liability
insurance policies
-7-
<PAGE>
maintained by the Company the Company shall pay on his behalf, in advance, any
and all expenses (of the types described in the definition of Expenses in
Section 13 of this Agreement) actually and reasonably incurred by him in such
judicial adjudication, regardless of whether Indemnitee ultimately is determined
to be entitled to such indemnification, advancement of expenses or insurance
recovery.
(e) The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 7 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company is bound by all the provisions of
this Agreement.
8. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
-----------------------------------------------------------
(a) The rights of indemnification as provided by this Agreement shall
not be deemed exclusive of any other rights to which Indemnitee may at any time
be entitled under applicable law, the certificate of incorporation of the
Company, the Bylaws, any agreement, a vote of stockholders or a resolution of
directors, or otherwise. No amendment, alteration or repeal of this Agreement or
of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the
extent that a change in the Law, whether by statute or judicial decision,
permits greater indemnification than would be afforded currently under the
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, 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 such director, officer, employee or agent
under such policy or policies.
(c) In the event of any 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 take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
-8-
<PAGE>
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any other
-------------------------------------
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors of the Company or (b)
such Proceeding is being brought by the Indemnitee to assert, interpret or
enforce his rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of the Company
---------------------
contained herein shall continue during the period Indemnitee is an officer or
director of the Company (or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any Proceeding (or any proceeding commenced under
Section 7 hereof) by reason of his Corporate Status, whether or not he is acting
or serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other Enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and approved by
--------
the Board of Directors of the Company, the Company may at any time and from time
to time provide security to the Indemnitee for the Company's obligations
hereunder through an irrevocable bank line of credit, funded trust or other
collateral. Any such security, once provided to the Indemnitee, may not be
revoked or released without the prior written consent of the Indemnitee.
12. Enforcement.
-----------
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer or director of the Company, and the
Company acknowledges that Indemnitee is relying upon this Agreement in serving
as an officer or director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
-9-
<PAGE>
13. Definitions. For purposes of this Agreement:
-----------
(a) "Corporate Status" describes the status of a person who is or was
----------------
a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(b) "Disinterested Director" means a director of the Company who is
----------------------
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any other corporation,
----------
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the express written request of the Company
as a director, officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable attorneys' fees,
--------
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(e) "Indemnitee" includes the individual signatory hereto, each
----------
corporation, partnership, limited liability company, entity or other
organization on whose behalf such individual renders service by serving in the
capacity he serves on the Company's behalf (an "Affiliate Organization"), each
director, officer, general and limited partner, managing and limited member,
employee, or other affiliate of such Affiliate Organization, and each lineal
ancestor and descendant of such individual.
(f) "Independent Counsel" means a law firm, or a member of a law
-------------------
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
-10-
<PAGE>
(g) "Proceeding" includes any threatened, pending or completed
----------
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was a director of the Company, by reason of any
action taken by him or of any inaction on his part while acting as an officer or
director of the Company, or by reason of the fact that he is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other Enterprise; in each case
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement; including one pending on or before the date of this Agreement;
and excluding one initiated by an Indemnitee pursuant to Section 7 of this
Agreement to enforce his rights under this Agreement.
14. Severability. If any provision or provisions of this Agreement shall
------------
be held by a court of competent jurisdiction to be invalid, void, illegal or
otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
15. Modification and Waiver. No supplement, modification, termination 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.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company
--------------------
in writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any Proceeding or matter
which may be subject to indemnification covered hereunder. The failure to so
notify the Company shall not relieve the Company of any obligation which it may
have to the Indemnitee under this Agreement or otherwise unless and only to the
extent that such failure or delay materially prejudices the Company.
17. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
-11-
<PAGE>
(a) If to Indemnitee, to the address set forth below Indemnitee's
signature hereto.
(b) If to the Company, to:
1200 Folsom Street
San Francisco, CA 94103
Attention: President
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in one or more
----------------------
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
19. Headings. The headings of the paragraphs of this Agreement are
--------
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
20. Governing Law. The parties agree that this Agreement shall be governed
-------------
by, and construed and enforced in accordance with, the laws of the State of
Delaware without application of the conflict of laws principles thereof.
21. Gender. Use of the masculine pronoun shall be deemed to include usage
------
of the feminine pronoun where appropriate.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
PETOPIA.COM, INC.
By: ___________________________
Name:
Title:
INDEMNITEE
_______________________________
Name:
Address:
______________________________
______________________________
______________________________
<PAGE>
EXHIBIT 10.2
Petopia.Com, Inc.
1999 Stock Plan
(As Amended on March 10, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE............................................................................. 1
SECTION 2. ADMINISTRATION........................................................................................ 1
(a) Committees of the Board of Directors...................................................................... 1
(b) Authority of the Board of Directors....................................................................... 1
SECTION 3. ELIGIBILITY........................................................................................... 1
(a) General Rule.............................................................................................. 1
(b) Ten-Percent Stockholders.................................................................................. 1
SECTION 4. STOCK SUBJECT TO PLAN................................................................................. 2
(a) Basic Limitation.......................................................................................... 2
(b) Additional Shares......................................................................................... 2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES............................................................... 2
(a) Stock Purchase Agreement.................................................................................. 2
(b) Duration of Offers and Nontransferability of Rights....................................................... 2
(c) Purchase Price............................................................................................ 2
(d) Withholding Taxes......................................................................................... 3
(e) Restrictions on Transfer of Shares and Minimum Vesting.................................................... 3
(f) Accelerated Vesting....................................................................................... 3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS....................................................................... 3
(a) Stock Option Agreement.................................................................................... 3
(b) Number of Shares.......................................................................................... 3
(c) Exercise Price............................................................................................ 3
(d) Withholding Taxes......................................................................................... 4
(e) Exercisability............................................................................................ 4
(f) Accelerated Exercisability................................................................................ 4
(g) Basic Term................................................................................................ 4
(h) Nontransferability........................................................................................ 4
(i) Termination of Service (Except by Death).................................................................. 4
(j) Leaves of Absence......................................................................................... 5
(k) Death of Optionee......................................................................................... 5
(l) No Rights as a Stockholder................................................................................ 5
(m) Modification, Extension and Assumption of Options......................................................... 6
(n) Restrictions on Transfer of Shares and Minimum Vesting.................................................... 6
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SECTION 7. PAYMENT FOR SHARES.................................................................................... 6
(a) General Rule.............................................................................................. 6
(b) Surrender of Stock........................................................................................ 6
(c) Services Rendered......................................................................................... 7
(d) Promissory Note........................................................................................... 7
(e) Exercise/Sale............................................................................................. 7
(f) Exercise/Pledge........................................................................................... 7
SECTION 8. ADJUSTMENT OF SHARES.................................................................................. 7
(a) General................................................................................................... 7
(b) Mergers and Consolidations................................................................................ 8
(c) Reservation of Rights..................................................................................... 8
SECTION 9. SECURITIES LAWS REQUIREMENTS.......................................................................... 8
(a) General................................................................................................... 8
(b) Financial Reports......................................................................................... 8
SECTION 10. NO RETENTION RIGHTS.................................................................................. 9
SECTION 11. DURATION AND AMENDMENTS.............................................................................. 9
(a) Term of the Plan.......................................................................................... 9
(b) Right to Amend or Terminate the Plan...................................................................... 9
(c) Effect of Amendment or Termination........................................................................ 9
SECTION 12. DEFINITIONS.......................................................................................... 9
</TABLE>
ii
<PAGE>
Petopia.com, Inc. 1999 Stock Plan
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) Committees of the Board of Directors. The Plan may be administered by
one or more Committees. Each Committee shall consist of one or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Any reference to the Board
of Directors in the Plan shall be construed as a reference to the Committee (if
any) to whom the Board of Directors has assigned a particular function.
(b) Authority of the Board of Directors. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Board of Directors shall
be final and binding on all Purchasers, all Optionees and all persons deriving
their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) General Rule. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Options or the direct award or sale of Shares. Only
Employees shall be eligible for the grant of ISOs.
(b) Ten-Percent Stockholders. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for designation as
an Optionee or Purchaser unless (i) the Exercise Price is at least 110% of the
Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if
any) is at least 100% of the Fair Market Value of a Share and (iii) in the case
of an ISO, such ISO by its terms is not exercisable after the expiration of five
years from the date of grant. For purposes of this Subsection (b), in
determining stock ownership, the attribution rules of Section 424(d) of the Code
shall be applied.
<PAGE>
SECTION 4. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan may be authorized but
unissued Shares or treasury Shares. The aggregate number of Shares that may be
issued under the Plan (upon exercise of Options or other rights to acquire
Shares) shall not exceed 11,500,000 Shares, subject to adjustment pursuant to
Section 8. The number of Shares that are subject to Options or other rights
outstanding at any time under the Plan shall not exceed the number of Shares
that then remain available for issuance under the Plan. The Company, during the
term of the Plan, shall at all times reserve and keep available sufficient
Shares to satisfy the requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan, except that the aggregate number of
Shares which may be issued upon the exercise of ISOs shall in no event exceed
7,500,000 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Purchase Agreement. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Purchaser and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right
was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
(c) Purchase Price. The Purchase Price of Shares to be offered under the
Plan shall not be less than 85% of the Fair Market Value of such Shares, and a
higher percentage may be required by Section 3(b). Subject to the preceding
sentence, the Purchase Price shall be determined by the Board of Directors at
its sole discretion. The Purchase Price shall be payable in a form described in
Section 7.
(d) Withholding Taxes. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
2
<PAGE>
(e) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Purchase Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally. In the case
of a Purchaser who is not an officer of the Company, an Outside Director or a
Consultant, any right to repurchase the Purchaser's Shares at the original
Purchase Price (if any) upon termination of the Purchaser's Service shall lapse
at least as rapidly as 20% per year over the five-year period commencing on the
date of the award or sale of the Shares. Any such right may be exercised only
within 90 days after the termination of the Purchaser's Service for cash or for
cancellation of indebtedness incurred in purchasing the Shares.
(f) Accelerated Vesting. Unless the applicable Stock Purchase Agreement
provides otherwise, in the event of a termination without Cause of a Purchaser
within twelve (12) months following a Change of Control, the Right of Repurchase
with respect to any Shares held by such Purchaser shall lapse with respect to
that number of Shares which would cease to be subject to the Right of Repurchase
over the following twelve (12) month period.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Board of Directors deems appropriate for inclusion
in a Stock Option Agreement. The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than 100% of the Fair
Market Value of a Share on the date of grant, and a higher percentage may be
required by Section 3(b). The Exercise Price of a Nonstatutory Option shall not
be less than 85% of the Fair Market Value of a Share on the date of grant, and a
higher percentage may be required by Section 3(b). Subject to the preceding two
sentences, the Exercise Price under any Option shall be determined by the Board
of Directors at its sole discretion. The Exercise Price shall be payable in a
form described in Section 7.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
3
<PAGE>
(e) Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. In the case
of an Optionee who is not an officer of the Company, an Outside Director or a
Consultant, an Option shall become exercisable at least as rapidly as 20% per
year over the five-year period commencing on the date of grant. Subject to the
preceding sentence, the exercisability provisions of any Stock Option Agreement
shall be determined by the Board of Directors at its sole discretion.
(f) Accelerated Exercisability. Unless the applicable Stock Option
Agreement provides otherwise, in the event of a termination without Cause of an
Optionee within twelve (12) months following a Change of Control, the vesting of
the Shares subject to the Option will accelerate and become immediately vested
and exercisable with respect to the number of Shares which would have vested
over a twelve (12) month period.
(g) Basic Term. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and a shorter
term may be required by Section 3(b). Subject to the preceding sentence, the
Board of Directors at its sole discretion shall determine when an Option is to
expire.
(h) Nontransferability. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) Termination of Service (Except by Death). If an Optionee's Service
terminates for any reason other than the Optionee's death, then the Optionee's
Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (g) above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Disability, or such later date as the
Board of Directors may determine; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability, or such later date as the Board of
Directors may determine.
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
4
<PAGE>
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(j) Leaves of Absence. For purposes of Subsection (i) above, Service shall
be deemed to continue while the Optionee is on a bona fide leave of absence, if
such leave was approved by the Company in writing and if continued crediting of
Service for this purpose is expressly required by the terms of such leave or by
applicable law (as determined by the Company).
(k) Death of Optionee. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (g) above;
or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(l) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(m) Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(n) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Option Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally. In the case
of an Optionee who is not an officer of the Company, an Outside Director or a
Consultant:
(i) Any right to repurchase the Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse at
least as
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<PAGE>
rapidly as 20% per year over the five-year period commencing on the date of
the option grant;
(ii) Any such right may be exercised only for cash or for
cancellation of indebtedness incurred in purchasing the Shares; and
(iii) Any such right may be exercised only within 90 days after the
later of (A) the termination of the Optionee's Service or (B) the date of
the option exercise.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
provides, all or any part of the Exercise Price may be paid by surrendering, or
attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be surrendered to the Company in good form for transfer and
shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
(c) Services Rendered. At the discretion of the Board of Directors, Shares
may be awarded under the Plan in consideration of services rendered to the
Company, a Parent or a Subsidiary prior to the award. At the discretion of the
Board of Directors, Shares may also be awarded under the Plan in consideration
of services to be rendered to the Company, a Parent or a Subsidiary after the
award, except that the par value of such Shares, if newly issued, shall be paid
in cash or cash equivalents.
(d) Promissory Note. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note. However, the par value of the Shares, if
newly issued, shall be paid in cash or cash equivalents. The Shares shall be
pledged as security for payment of the principal amount of the promissory note
and interest thereon. The interest rate payable under the terms of the
promissory note shall not be less than the minimum rate (if any) required to
avoid the imputation of additional interest under the Code. Subject to the
foregoing, the Board of Directors (at its sole discretion) shall specify the
term, interest rate, amortization requirements (if any) and other provisions of
such note.
(e) Exercise/Sale. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the
6
<PAGE>
Company to sell Shares and to deliver all or part of the sales proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
(f) Exercise/Pledge. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization,
a spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) Mergers and Consolidations. In the event that the Company is a party
to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
(i) The continuation of such outstanding Options by the Company (if
the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of such outstanding Options without payment of
any consideration.
(c) Reservation of Rights. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
7
<PAGE>
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) General. Shares shall not be issued under the Plan unless the issuance
and delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.
(b) Financial Reports. The Company each year shall furnish to Optionees,
Purchasers and stockholders who have received Stock under the Plan its balance
sheet and income statement, unless such Optionees, Purchasers or stockholders
are key Employees whose duties with the Company assure them access to equivalent
information. Such balance sheet and income statement need not be audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan shall
confer upon the Purchaser or Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company (or any Parent or Subsidiary employing or retaining
the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are
hereby expressly reserved by each, to terminate his or her Service at any time
and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's stockholders. In the event that the stockholders fail
to approve the Plan within 12 months after its adoption by the Board of
Directors, any grants of Options or sales or awards of Shares that have already
occurred shall be rescinded, and no additional grants, sales or awards shall be
made thereafter under the Plan. The Plan shall terminate automatically 10 years
after its adoption by the Board of Directors and may be terminated on any
earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8), or
which materially changes the class of persons who are eligible for the grant of
ISOs, shall be subject to the approval of the Company's stockholders.
Stockholder approval shall not be required for any other amendment of the Plan.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.
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<PAGE>
SECTION 12. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "Cause" For purposes of this Agreement, "Cause" for the termination of
-----
Purchaser's employment with the Company or its successor will exist at any time
after the happening of one or more of the following events: (1) Purchaser's
willful misconduct or material failure in the performance of the duties of his
position with the Company or its successor, including Purchaser's failure to
comply in any material respect with the legal directives of the Company's Chief
Executive Officer or the Board of Directors so long as such directives are not
unreasonably inconsistent with the Purchaser's position and duties, and such
refusal to comply is not remedied within 10 days after receiving written notice
from the Company or its successor, which written notice shall state that failure
to remedy such conduct may result in termination for Cause; or (2) conduct that
materially adversely affects the Company or its successor or is materially
detrimental to the reputation of the Founder or of the Company or its successor,
including but not limited to conviction of a felony involving moral turpitude.
(c) "Change of Control" shall mean:
(i) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if persons
who were not shareholders of the Company immediately prior to such merger,
consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (A) the continuing or surviving
entity and (B) any direct or indirect parent corporation of such continuing
or surviving entity; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets.
A transaction shall not constitute a Change of Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(f) "Company" shall mean Petopia.com, Inc., a Delaware corporation.
(g) "Consultant" shall mean a person who performs bona fide services for
the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
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<PAGE>
(h) "Disability" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(i) "Employee" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(j) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(k) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(l) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(m) "Nonstatutory Option" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(n) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(o) "Optionee" shall mean an individual who holds an Option.
(p) "Outside Director" shall mean a member of the Board of Directors who
is not an Employee.
(q) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company 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. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(r) "Plan" shall mean this Petopia.com, Inc. 1999 Stock Plan.
(s) "Purchase Price" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors.
(t) "Purchaser" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).
(u) "Service" shall mean service as an Employee, Outside Director or
Consultant.
(v) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
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<PAGE>
(w) "Stock" shall mean the Common Stock of the Company.
(x) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(y) "Stock Purchase Agreement" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(z) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if 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. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
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<PAGE>
Petopia.com, Inc. 1999 Stock Plan
Notice of Stock Grant
(Petco Consultant)
By your signature and the signature of the Company's representative below, you
and the Company agree that you are purchasing shares subject to the terms and
conditions of the 1999 Stock Plan and the Stock Purchase Agreement, both of
which are attached to and made a part of this document.
Name of Purchaser: ((M_1))
Total Number of Shares: ((M_2))
Purchase Price Per Share: $________ and other consideration
previously provided.
Total Cash Purchase Price: $((M_3))
Right of Repurchase The Right of Repurchase shall be
exercisable by the Company only during
the 60-day period following the date
when the Purchaser's Service to Petco
Animal Supplies, Inc. ("Petco")
terminates for any reason.
Date of Purchase: December 6, 1999
Expiration Date: December 6, 2004
The Purchase Price must be paid on or before the date of purchase set forth
above. If you fail to pay on time, this offer automatically terminates.
Purchaser: Petopia.com, Inc.
_______________________________ By:____________________________________
((M_1))
Title:_________________________________
<PAGE>
CONSENT OF SPOUSE
-----------------
I, ____________________________, spouse of ((M_1)), have read and hereby approve
the Notice of Stock Grant and related Stock Purchase Agreement (the
"Agreement"). In consideration of the Company's granting my spouse the right to
purchase the Shares as set forth in the Agreement, I hereby agree to be
irrevocably bound by the Agreement and further agree that any community property
or other such interest shall be similarly bound by the Agreement. I hereby
appoint my spouse as attorney-in-fact with respect to any amendment or exercise
of any rights under the Agreement.
________________________________________
Spouse of ((M_1))
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<PAGE>
Petopia.com, Inc. 1999 Stock Plan
Stock Purchase Agreement
SECTION 1. ACQUISITION OF SHARES.
(a) Issuance and Sale. On the terms and conditions set forth in the Notice
of Stock Purchase and this Agreement, the Company agrees to transfer to the
Purchaser the number of Shares set forth in the Notice of Stock Purchase. The
transfer shall occur at the offices of the Company on the date of purchase set
forth in the Notice of Stock Purchase or at such other place and time as the
parties may agree.
(b) Consideration. The Purchaser agrees to pay the Purchase Price set
forth in the Notice of Stock Purchase for each Share.
(c) Stock Plan and Defined Terms. The transfer of the Shares is subject
to the Plan, a copy of which the Purchaser acknowledges having received. The
provisions of the Plan are incorporated into this Agreement by this reference.
Capitalized terms are defined in Section 12 of this Agreement.
(d) Transferability. In addition to any other limitation on transfer
created by applicable securities laws, all Shares initially shall be Restricted
Shares and shall be subject to a right (but not an obligation) of repurchase by
the Company and a Company right of first refusal and Purchaser shall not
transfer, assign, encumber or otherwise dispose of any Shares except pursuant to
Sections 2 and 11 hereof. If the Purchaser transfers any Restricted Shares,
then Sections 2 and 11 shall apply to the Transferee to the same extent as to
the Purchaser.
SECTION 2. RIGHT OF REPURCHASE.
(a) Scope of Repurchase Right. All Shares initially shall be subject to a
right (but not an obligation) of repurchase by the Company, and Purchaser shall
not transfer, assign, encumber or otherwise dispose of any Restricted Shares
except pursuant to this Section 2 hereof.
(b) Condition Precedent to Exercise. The Right of Repurchase shall be
exercisable during the 60-day period following the date when the Purchaser's
Service to Petco terminates for any reason.
(c) Repurchase Price. If the Company exercises the Right of Repurchase,
it shall pay the Purchaser an amount equal to the Fair Market Value for each of
the Restricted Shares being repurchased. The Company's rights under this
Section 2 shall be freely assignable, in whole or in part.
(d) Exercise of Repurchase Right. The Right of Repurchase shall be
exercisable only by written notice delivered to the Purchaser 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
<PAGE>
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 Purchaser the
purchase price determined according to Subsection (c) above. Payment shall be
made in cash or cash equivalents or by canceling indebtedness to the Company
incurred by the Purchaser in the purchase of the Restricted Shares. The Right of
Repurchase shall terminate with respect to any Restricted Shares for which it
has not been timely exercised pursuant to this Subsection (d).
(e) Additional Shares or 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 affecting the
Company's 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 Right of
Repurchase. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the
Restricted Shares.
(f) 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 2, 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.
(g) Termination of Repurchase Option. The Repurchase Option shall
terminate upon the earliest to occur of: (i) the closing of a firm commitment
underwritten public offering of the Company's Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"); (ii) a Change of Control; and (iii) five (5) years from
--------------
the date hereof.
SECTION 3. OTHER RESTRICTIONS ON TRANSFER.
(a) Purchaser Representations. In connection with the issuance and
acquisition of Shares under this Agreement, the Purchaser hereby represents and
warrants to the Company as follows:
(i) The Purchaser is acquiring and will hold the Shares for
investment for his or her account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the meaning of
the Securities Act.
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<PAGE>
(ii) The Purchaser understands that the Shares have not been
registered under the Securities Act by reason of a specific exemption
therefrom and that the Shares must be held indefinitely, unless they are
subsequently registered under the Securities Act or the Purchaser obtains
an opinion of counsel, in form and substance satisfactory to the Company
and its counsel, that such registration is not required. The Purchaser
further acknowledges and understands that the Company is under no
obligation to register the Shares.
(iii) The Purchaser is aware of the adoption of Rule 144 by the
Securities and Exchange Commission under the Securities Act, which permits
limited public resales of securities acquired in a non-public offering,
subject to the satisfaction of certain conditions, including (without
limitation) the availability of certain current public information about
the issuer, the resale occurring only after the holding period required by
Rule 144 has been satisfied, the sale occurring through an unsolicited
"broker's transaction," and the amount of securities being sold during any
three-month period not exceeding specified limitations. The Purchaser
acknowledges and understands that the conditions for resale set forth in
Rule 144 have not been satisfied and that the Company has no plans to
satisfy these conditions in the foreseeable future.
(iv) The Purchaser will not sell, transfer or otherwise dispose of
the Shares in violation of the Securities Act, the Securities Exchange Act
of 1934, or the rules promulgated thereunder, including Rule 144 under the
Securities Act. The Purchaser agrees that he or she will not dispose of the
Shares unless and until he or she has complied with all requirements of
this Agreement applicable to the disposition of Shares and he or she has
provided the Company with written assurances, in substance and form
satisfactory to the Company, that (A) the proposed disposition does not
require registration of the Shares under the Securities Act or all
appropriate action necessary for compliance with the registration
requirements of the Securities Act or with any exemption from registration
available under the Securities Act (including Rule 144) has been taken and
(B) the proposed disposition will not result in the contravention of any
transfer restrictions applicable to the Shares under the Rules of the
California Corporations Commissioner.
(v) The Purchaser has been furnished with, and has had access to,
such information as he or she considers necessary or appropriate for
deciding whether to invest in the Shares, and the Purchaser has had an
opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the issuance of the Shares.
(vi) The Purchaser is aware that his or her investment in the
Company is a speculative investment which has limited liquidity and is
subject to the risk of complete loss. The Purchaser is able, without
impairing his or her financial condition, to hold the Shares for an
indefinite period and to suffer a complete loss of his or her investment in
the Shares.
(b) Securities Law Restrictions. Regardless of whether the offering and
sale of Shares under the Plan have been registered under the Securities Act or
have been registered or
3
<PAGE>
qualified under the securities laws of any state, the Company at its discretion
may impose restrictions upon the sale, pledge or other transfer of the Shares
(including the placement of appropriate legends on stock certificates or the
imposition of stop-transfer instructions) if, in the judgment of the Company,
such restrictions are necessary or desirable in order to achieve compliance with
the Securities Act, the securities laws of any state or any other law.
(c) Market Standoff Agreement. In connection with the initial public
offering of the Company's securities, Purchaser agrees not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any Shares (other than those included in the registration) without the prior
written consent of the Company or underwriters managing any underwritten
offering of the Company's securities, as the case may be, for such period of
time (not to exceed one hundred eighty (180) days) from the effective date of
such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the public offering.
(d) Rights of the Company. The Company shall not be required to (i)
transfer on its books any Shares that have been sold or transferred in
contravention of this Agreement or (ii) treat as the owner of Shares, or
otherwise to accord voting, dividend or liquidation rights to, any transferee to
whom Shares have been transferred in contravention of this Agreement.
(e) Escrow. For purposes of facilitating the enforcement of the
provisions hereof, Purchaser agrees, immediately upon receipt of the
certificate(s) for the Shares subject to the Repurchase Option and Right of
First Refusal, to deliver such certificate(s), together with an Assignment
Separate from Certificate in the form attached to this Agreement as Exhibit A
---------
executed by Purchaser and by Purchaser's spouse (if required for transfer), in
blank, to the Secretary of the Company, or the Secretary's designee, to hold
such certificate(s) and Assignment Separate from Certificate in escrow and to
take all such actions and to effectuate all such transfers and/or releases as
are in accordance with the terms of this Agreement. Any new, substituted or
additional securities or other property described in Subsections 2(e) or 11(c)
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 or remain subject to the
Right of First Refusal. All regular cash dividends on Restricted Shares (or
other securities at the time held in escrow) shall be paid directly to the
Purchaser 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
Right of Repurchase or Right of First Refusal, (ii) released to the Purchaser
upon the Purchaser's request to the extent the Shares are no longer Restricted
Shares or no longer subject to the Right of First Refusal. In any event, all
Shares shall be released within 60 days after the Purchaser's cessation of
Service if not repurchased by the Company.
SECTION 4. SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided to the contrary, the provisions
of this Agreement shall inure to the benefit of, and be binding upon, the
Company and its successors and assigns and be binding upon the Purchaser and the
Purchaser's legal representatives, heirs, legatees, distributees, assigns and
transferees by operation of law, whether or not any such
4
<PAGE>
person has become a party to this Agreement or has agreed in writing to join
herein and to be bound by the terms, conditions and restrictions hereof.
SECTION 5. NO RETENTION RIGHTS.
Nothing in this Agreement or in the Plan shall confer upon the
Purchaser any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Company (or
any Parent or Subsidiary employing or retaining the Purchaser) or of the
Purchaser, which rights are hereby expressly reserved by each, to terminate his
or her Service at any time and for any reason, with or without Cause.
SECTION 6. LEGENDS.
All certificates evidencing Shares shall bear the following legends:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO
THE COMPANY CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE
WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL UPON WRITTEN
REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF
WITHOUT CHARGE."
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
If required by the authorities of any state in connection with the issuance of
the Shares, the legend or legends required by such state authorities shall also
be endorsed on all such certificates.
SECTION 7. NOTICE.
Any notice required by the terms of this Agreement shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit
with the United States Postal Service, by registered or certified mail, with
postage and fees prepaid. Notice shall be addressed to the Company at its
principal executive office and to the Purchaser at the address that he or she
most recently provided to the Company.
5
<PAGE>
SECTION 8. ENTIRE AGREEMENT.
The Notice of Stock Purchase, this Agreement and the Plan constitute
the entire contract between the parties hereto with regard to the subject matter
hereof. They supersede any other agreements, representations or understandings
(whether oral or written and whether express or implied) which relate to the
subject matter hereof.
SECTION 9. CHOICE OF LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California, as such laws are applied to contracts
entered into and performed in such State.
SECTION 10. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. In the event that the Purchaser proposes to
sell, pledge or otherwise transfer to a third party any Shares acquired under
this Agreement, the Company shall have the Right of First Refusal with respect
to all (and not less than all) of such Shares. If the Purchaser desires to
transfer Shares acquired under this Agreement, the Purchaser shall give a
written Transfer Notice to the Company describing fully the proposed transfer,
including the number of Shares proposed to be transferred, the proposed transfer
price, the name and address of the proposed Transferee and proof satisfactory to
the Company that the proposed sale or transfer will not violate any applicable
federal or state securities laws. The Transfer Notice shall be signed both by
the Purchaser and by the proposed transferee ("Transferee") and must constitute
a binding commitment of both parties to the transfer of the Shares. The Company
shall have the right to purchase all, and not less than all, of the Shares at
the Fair Market Value of such Shares (subject, however, to any change in such
terms permitted under Subsection (b) below) by delivery of a notice of exercise
of the Right of First Refusal within 30 days after the date when the Transfer
Notice was received by the Company. The Company's rights under this Subsection
(a) shall be freely assignable, in whole or in part.
(b) Transfer of Shares. If the Company fails to exercise its Right of
First Refusal within 30 days after the date when it received the Transfer
Notice, the Purchaser may, not later than 90 days following receipt of the
Transfer Notice by the Company, conclude a transfer of the Shares subject to the
Transfer Notice on the terms and conditions described in the Transfer Notice,
provided that any such sale is made in compliance with applicable federal and
state securities laws and not in violation of any other contractual restrictions
to which the Purchaser is bound. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the Purchaser, shall again be subject to the Right of First
Refusal and shall require compliance with the procedure described in Subsection
(a) above. If the Company exercises its Right of First Refusal, the parties
shall consummate the sale of the Shares on the terms set forth in the Transfer
Notice within 60 days after the date when the Company received the Transfer
Notice (or within such longer period as may have been specified in the Transfer
Notice).
(c) Additional Shares or Substituted Securities. In the event of the
declaration of a stock dividend, the declaration of an extraordinary dividend
payable in a form other than
6
<PAGE>
stock, a spin-off, a stock split, an adjustment in conversion ratio, a
recapitalization or a similar transaction affecting the Company's 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 Shares subject to this Section 11 or into which such Shares thereby
become convertible shall immediately be subject to this Section 11 Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number and/or class of the Shares subject to this Section 11.
(d) Termination of Right of First Refusal. Any other provision of this
Section 11 notwithstanding, in the event that the Right to Repurchase has
terminated or the Stock is readily tradable on an established securities market
when the Purchaser desires to transfer Shares, the Company shall have no Right
of First Refusal, and the Purchaser shall have no obligation to comply with the
procedures prescribed by Subsections (a) and (b) above.
(e) Permitted Transfers. This Section 11 shall not apply to (i) a
transfer by beneficiary designation, will or intestate succession or (ii) a
transfer to the Purchaser's spouse, children or grandchildren or to a trust
established by the Purchaser for the benefit of the Purchaser or the Purchaser's
spouse, children or grandchildren, provided in either case that (i) Purchaser
provides ten (10) business days prior written notice to the Company of his or
her intent to so transfer the Shares and the Company provides written approval
of such transfer to Purchaser, and (ii) the Transferee agrees in writing on a
form prescribed by the Company to be bound by all provisions of this Agreement.
If the Purchaser transfers any Shares acquired under this Agreement, either
under this Subsection (e) or after the Company has failed to exercise the Right
of First Refusal, then this Section 11 shall apply to the Transferee to the same
extent as to the Purchaser.
(f) 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 Shares to be purchased in accordance with this Section 11,
then after such time the person from whom such Shares are to be purchased shall
no longer have any rights as a holder of such Shares (other than the right to
receive payment of such consideration in accordance with this Agreement). Such
Shares shall be deemed to have been purchased in accordance with the applicable
provisions hereof, whether or not the certificate(s) therefor have been
delivered as required by this Agreement.
SECTION 11. DEFINITIONS.
(a) "Agreement" shall mean this Stock Purchase Agreement.
(b) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time or, if a Committee has been appointed, such
Committee.
(c) "Change of Control" shall mean a sale of all or substantially all of
the assets of the Company or the merger or consolidation of the Company with or
into any other corporation or entity, other than a wholly-owned subsidiary of
the Company, or a sale of the outstanding stock of the Company, as a result of
which the stockholders of the Company
7
<PAGE>
immediately prior to such transaction hold less that fifty percent (50%) of the
voting power of the surviving corporation
A transaction shall not constitute a Change of Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean a committee of the Board of Directors, as
described in Section 2 of the Plan.
(f) "Company" shall mean Petopia.com, Inc., a Delaware corporation.
(g) "Consultant" shall mean a person who performs bona fide services for
the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(h) "Disability" shall mean that the Purchaser is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(i) "Fair Market Value" shall mean the greatest of (A) the most recent
valuation completed for the Company by an independent third party valuation
firm, (B) the last sale by the Company of its Common Stock to an independent
third party, and (C) the fair market value of the Common Stock as most recently
determined by the Company's Board of Directors.
(j) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company 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.
(k) "Plan" shall mean the Petopia.com, Inc. 1999 Stock Plan, as amended.
(l) "Shares" shall mean the Shares purchased by the Purchaser pursuant to
this Agreement.
(m) "Purchase Price" shall mean the amount for which one Share may be
purchased pursuant to this Agreement, as specified in the Notice of Stock
Purchase.
(n) "Purchaser" shall mean the individual named in the Notice of Stock
Purchase.
(o) "Restricted Share" shall mean a Purchased Share that is subject to the
Right of Repurchase.
8
<PAGE>
(p) "Right of First Refusal" shall mean the Company's right of first
refusal described in Section 11.
(q) "Right of Repurchase" shall mean the Company's right of repurchase
described in Section 2.
(r) "Securities Act" shall mean the Securities Act of 1933, as amended.
(s) "Service" shall mean service as an employee or consultant.
(t) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 7 of the Plan (if applicable).
(u) "Stock" shall mean the Common Stock of the Company.
(v) "Subsidiary" shall mean any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if 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.
(w) "Notice of Stock Grant" shall mean the document so entitled to which
this Agreement is attached.
(x) "Transferee" shall mean any person to whom the Purchaser has
transferred any Purchased Share.
9
<PAGE>
Petopia.com, Inc. 1999 Stock Plan
Notice of Stock Grant
By your signature and the signature of the Company's representative below, you
and the Company agree that you are receiving shares subject to the terms and
conditions of the 1999 Stock Plan and the Stock Grant Agreement, both of which
are attached to and made a part of this document.
Name of Grantee: ((Grantee))
Total Number of Granted Shares: ((SharesGranted))
Fair Market Value Per Share: $((ValuePerShare))
Date of Grant: ((GrantDate))
Vesting Schedule: The Shares hereunder shall not be
subject to vesting.
Grantee: Petopia.com, Inc.
_____________________________ By:_______________________________
_____________________________ Title:____________________________
Print Name
<PAGE>
Petopia.com, Inc. 1999 Stock Plan
Stock Grant Agreement
SECTION 1. ACQUISITION OF SHARES.
(a) Transfer. On the terms and conditions set forth in the Notice of
Stock Grant and this Agreement, the Company agrees to transfer to the Grantee
the number of Shares set forth in the Notice of Stock Grant. The transfer shall
occur at the offices of the Company on the date of purchase set forth in the
Notice of Stock Grant or at such other place and time as the parties may agree.
(b) Consideration. The Grantee has been granted the number of shares
set forth in the Notice of Stock Grant in consideration of services previously
rendered to the Company.
(c) Stock Plan and Defined Terms. The transfer of the Granted Shares
is subject to the Plan, a copy of which the Grantee acknowledges having
received. The provisions of the Plan are incorporated into this Agreement by
this reference. Capitalized terms are defined in Section 11 of this Agreement.
SECTION 2. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. In the event that the Grantee proposes
to sell, pledge or otherwise transfer to a third party any Granted Shares, or
any interest in such Granted Shares, the Company shall have the Right of First
Refusal with respect to all (and not less than all) of such Granted Shares. If
the Grantee desires to transfer Granted Shares, the Grantee shall give a written
Transfer Notice to the Company describing fully the proposed transfer, including
the number of Granted Shares proposed to be transferred, the proposed transfer
price, the name and address of the proposed Transferee and proof satisfactory to
the Company that the proposed sale or transfer will not violate any applicable
federal or state securities laws. The Transfer Notice shall be signed both by
the Grantee and by the proposed Transferee and must constitute a binding
commitment of both parties to the transfer of the Granted Shares. The Company
shall have the right to purchase all, and not less than all, of the Granted
Shares on the terms of the proposal described in the Transfer Notice (subject,
however, to any change in such terms permitted under Subsection (b) below) by
delivery of a notice of exercise of the Right of First Refusal within 30 days
after the date when the Transfer Notice was received by the Company. The
Company's rights under this Subsection (a) shall be freely assignable, in whole
or in part.
(b) Transfer of Shares. If the Company fails to exercise its Right
of First Refusal within 30 days after the date when it received the Transfer
Notice, the Grantee may, not later than 90 days following receipt of the
Transfer Notice by the Company, conclude a transfer of the Granted Shares
subject to the Transfer Notice on the terms and conditions described in the
Transfer Notice, provided that any such sale is made in compliance with
applicable federal and state securities laws and not in violation of any other
contractual restrictions to which the
<PAGE>
Grantee is bound. Any proposed transfer on terms and conditions different from
those described in the Transfer Notice, as well as any subsequent proposed
transfer by the Grantee, shall again be subject to the Right of First Refusal
and shall require compliance with the procedure described in Subsection (a)
above. If the Company exercises its Right of First Refusal, the parties shall
consummate the sale of the Granted Shares on the terms set forth in the Transfer
Notice within 60 days after the date when the Company received the Transfer
Notice (or within such longer period as may have been specified in the Transfer
Notice); provided, however, that in the event the Transfer Notice provided that
payment for the Granted Shares was to be made in a form other than cash or cash
equivalents paid at the time of transfer, the Company shall have the option of
paying for the Granted Shares with cash or cash equivalents equal to the present
value of the consideration described in the Transfer Notice.
(c) Additional Shares or 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 affecting the
Company's 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 Granted Shares subject to this Section 2 or into
which such Granted Shares thereby become convertible shall immediately be
subject to this Section 2. Appropriate adjustments to reflect the distribution
of such securities or property shall be made to the number and/or class of
Granted Shares subject to this Section 2.
(d) Termination of Right of First Refusal. Any other provision of
this Section 2 notwithstanding, in the event that the Stock is readily tradable
on an established securities market when the Grantee desires to transfer Granted
Shares, the Company shall have no Right of First Refusal, and the Grantee shall
have no obligation to comply with the procedures prescribed by Subsections (a)
and (b) above.
(e) Permitted Transfers. This Section 2 shall not apply to (i) a
transfer by beneficiary designation, will or intestate succession or (ii) a
transfer to the Grantee's spouse, children or grandchildren or to a trust
established by the Grantee for the benefit of the Grantee or the Grantee's
spouse, children or grandchildren, provided in either case that the Transferee
agrees in writing on a form prescribed by the Company to be bound by all
provisions of this Agreement. If the Grantee transfers any Granted Shares,
either under this Subsection (e) or after the Company has failed to exercise the
Right of First Refusal, then this Section 2 shall apply to the Transferee to the
same extent as to the Grantee.
(f) 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 Granted Shares to be purchased in
accordance with this Section 2, then after such time the person from whom such
Granted Shares are to be purchased shall no longer have any rights as a holder
of such Granted Shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such Granted Shares shall be
deemed to have been purchased in accordance with the applicable provisions
hereof, whether or not the certificate(s) therefor have been delivered as
required by this Agreement.
2
<PAGE>
SECTION 3. OTHER RESTRICTIONS ON TRANSFER.
(a) Grantee Representations. In connection with the issuance and
acquisition of Shares under this Agreement, the Grantee hereby represents and
warrants to the Company as follows:
(i) The Grantee is acquiring and will hold the Granted Shares
for investment for his or her account only and not with a view to, or for
resale in connection with, any "distribution" thereof within the meaning of
the Securities Act.
(ii) The Grantee understands that the Granted Shares have not
been registered under the Securities Act by reason of a specific exemption
therefrom and that the Granted Shares must be held indefinitely, unless
they are subsequently registered under the Securities Act or the Grantee
obtains an opinion of counsel, in form and substance satisfactory to the
Company and its counsel, that such registration is not required. The
Grantee further acknowledges and understands that the Company is under no
obligation to register the Granted Shares.
(iii) The Grantee is aware of the adoption of Rule 144 by the
Securities and Exchange Commission under the Securities Act, which permits
limited public resales of securities acquired in a non-public offering,
subject to the satisfaction of certain conditions, including (without
limitation) the availability of certain current public information about
the issuer, the resale occurring only after the holding period required by
Rule 144 has been satisfied, the sale occurring through an unsolicited
"broker's transaction," and the amount of securities being sold during any
three-month period not exceeding specified limitations. The Grantee
acknowledges and understands that the conditions for resale set forth in
Rule 144 have not been satisfied and that the Company has no plans to
satisfy these conditions in the foreseeable future.
(iv) The Grantee will not sell, transfer or otherwise dispose of
the Granted Shares in violation of the Securities Act, the Securities
Exchange Act of 1934, or the rules promulgated thereunder, including Rule
144 under the Securities Act. The Grantee agrees that he or she will not
dispose of the Granted Shares unless and until he or she has complied with
all requirements of this Agreement applicable to the disposition of Granted
Shares and he or she has provided the Company with written assurances, in
substance and form satisfactory to the Company, that (A) the proposed
disposition does not require registration of the Granted Shares under the
Securities Act or all appropriate action necessary for compliance with the
registration requirements of the Securities Act or with any exemption from
registration available under the Securities Act (including Rule 144) has
been taken and (B) the proposed disposition will not result in the
contravention of any transfer restrictions applicable to the Granted Shares
under the Rules of the California Corporations Commissioner.
(v) The Grantee has been furnished with, and has had access to,
such information as he or she considers necessary or appropriate for
deciding whether to invest in the Granted Shares, and the Grantee has had
an opportunity to ask questions and
3
<PAGE>
receive answers from the Company regarding the terms and conditions of the
issuance of the Granted Shares.
(vi) The Grantee is aware that his or her investment in the
Company is a speculative investment which has limited liquidity and is
subject to the risk of complete loss. The Grantee is able, without
impairing his or her financial condition, to hold the Granted Shares for an
indefinite period and to suffer a complete loss of his or her investment in
the Granted Shares.
(b) Securities Law Restrictions. Regardless of whether the offering
and sale of Shares under the Plan have been registered under the Securities Act
or have been registered or qualified under the securities laws of any state, the
Company at its discretion may impose restrictions upon the sale, pledge or other
transfer of the Granted Shares (including the placement of appropriate legends
on stock certificates or the imposition of stop-transfer instructions) if, in
the judgment of the Company, such restrictions are necessary or desirable in
order to achieve compliance with the Securities Act, the securities laws of any
state or any other law.
(c) Market Stand-Off. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act, including the Company's
initial public offering, the Grantee shall not directly or indirectly sell, make
any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or
other contract for the purchase of, purchase any option or other contract for
the sale of, or otherwise dispose of or transfer, or agree to engage in any of
the foregoing transactions with respect to, any Granted Shares without the prior
written consent of the Company or its underwriters. Such restriction (the
"Market Stand-Off") shall be in effect for such period of time following the
date of the final prospectus for the offering as may be requested by the Company
or such underwriters. In no event, however, shall such period exceed 180 days.
The Market Stand-Off shall in any event terminate two years after the date of
the Company's initial public offering. In the event of the declaration of a
stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a
recapitalization or a similar transaction affecting the Company's outstanding
securities without receipt of consideration, any new, substituted or additional
securities which are by reason of such transaction distributed with respect to
any Shares subject to the Market Stand-Off, or into which such Shares thereby
become convertible, shall immediately be subject to the Market Stand-Off. In
order to enforce the Market Stand-Off, the Company may impose stop-transfer
instructions with respect to the Granted Shares until the end of the applicable
stand-off period. The Company's underwriters shall be beneficiaries of the
agreement set forth in this Subsection (c). This Subsection (c) shall not apply
to Shares registered in the public offering under the Securities Act, and the
Grantee shall be subject to this Subsection (c) only if the directors and
officers of the Company are subject to similar arrangements.
(d) Rights of the Company. The Company shall not be required to (i)
transfer on its books any Granted Shares that have been sold or transferred in
contravention of this Agreement or (ii) treat as the owner of Granted Shares, or
otherwise to accord voting, dividend or liquidation rights to, any transferee to
whom Granted Shares have been transferred in contravention of this Agreement.
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<PAGE>
SECTION 4. SUCCESSORS AND ASSIGNS.
Except as otherwise expressly provided to the contrary, the
provisions of this Agreement shall inure to the benefit of, and be binding upon,
the Company and its successors and assigns and be binding upon the Grantee and
the Grantee's legal representatives, heirs, legatees, distributees, assigns and
transferees by operation of law, whether or not any such person has become a
party to this Agreement or has agreed in writing to join herein and to be bound
by the terms, conditions and restrictions hereof.
SECTION 5. NO RETENTION RIGHTS.
Nothing in this Agreement or in the Plan shall confer upon the
Grantee any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Company (or
any Parent or Subsidiary employing or retaining the Grantee) or of the Grantee,
which rights are hereby expressly reserved by each, to terminate his or her
Service at any time and for any reason, with or without Cause.
SECTION 6. LEGENDS.
All certificates evidencing Granted Shares shall bear the following
legends:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE
TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER
OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH
AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN
ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON
TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL
UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF
WITHOUT CHARGE."
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
If required by the authorities of any state in connection with the issuance of
the Granted Shares, the legend or legends required by such state authorities
shall also be endorsed on all such certificates.
5
<PAGE>
SECTION 7. NOTICE.
Any notice required by the terms of this Agreement shall be given in
writing and shall be deemed effective upon personal delivery or upon deposit
with the United States Postal Service, by registered or certified mail, with
postage and fees prepaid. Notice shall be addressed to the Company at its
principal executive office and to the Grantee at the address that he or she most
recently provided to the Company.
SECTION 8. ENTIRE AGREEMENT.
The Notice of Stock Grant, this Agreement and the Plan constitute
the entire contract between the parties hereto with regard to the subject matter
hereof. They supersede any other agreements, representations or understandings
(whether oral or written and whether express or implied) which relate to the
subject matter hereof.
SECTION 9. CHOICE OF LAW.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California, as such laws are applied to contracts
entered into and performed in such State.
SECTION 10. DEFINITIONS.
(a) "Agreement" shall mean this Stock Purchase Agreement.
(b) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time or, if a Committee has been appointed,
such Committee.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Company" shall mean Petopia.com, Inc., a Delaware corporation.
(e) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(f) "Granted Shares" shall mean the Shares granted to the Grantee
pursuant to this Agreement.
(g) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company 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.
(h) "Plan" shall mean the Petopia.com, Inc. 1999 Stock Plan, as amended.
(i) "Grantee" shall mean the individual named in the Notice of Stock
Grant.
6
<PAGE>
(j) "Right of First Refusal" shall mean the Company's right of first
refusal described in Section 2.
(k) "Securities Act" shall mean the Securities Act of 1933, as amended.
(l) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 8 of the Plan (if applicable).
(m) "Stock" shall mean the Common Stock of the Company.
(n) "Subsidiary" shall mean any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if 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.
(o) "Notice of Stock Grant" shall mean the document so entitled to which
this Agreement is attached.
(p) "Transferee" shall mean any person to whom the Grantee has directly
or indirectly transferred any Purchased Share.
(q) "Transfer Notice" shall mean the notice of a proposed transfer of
Granted Shares described in Section 2(a).
7
<PAGE>
Petopia.com, Inc. 1999 Stock Plan
Notice of Stock Option Grant
You have been granted the following option to purchase Common Stock of
Petopia.com, Inc. (the "Company"):
Name of Optionee: ((Name))
Total Number of Shares Granted: ((TotalShares))
Type of Option: Incentive Stock Option ("ISO")
Exercise Price Per Share: $((PricePerShare))
Date of Grant: ((DateGrant))
Date Exercisable: This option may be exercised, in
whole or in part, for the number of
options that have vested after the
Date of Grant.
Vesting Commencement Date: ((VestComDate))
Vesting Schedule: 25% of the options granted hereunder
shall vest when the Optionee
completes 12 months of continuous
Service after the Vesting
Commencement Date. So long as the
Optionee continues to provide Service
to the Company, an additional 1/48th
of the shares subject to this option
shall vest each month thereafter
until all shares subject to the
option are vested.
Unless the applicable Stock Option
Agreement provides otherwise, in the
event of a termination without Cause
following a Change of Control, (a)
whether or not such event occurs
prior to the completion of twelve
(12) months of continuous Service
after the Vesting Commencement Date,
1/48 times the number of months of
Service completed after the Vesting
Commencement Date shall be deemed
vested; and (b) an additional twelve
(12) months of options shall be
deemed vested, provided that no more
than forty eight (48) months shall
ever be deemed vested.
Expiration Date: ((ExpDate))
<PAGE>
By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Stock Plan and the Stock Option Agreement, both
of which are attached to and made a part of this document.
Optionee: Petopia.com, Inc.
__________________________________ By:_________________________________
__________________________________ Title:______________________________
Print Name
2
<PAGE>
THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
Petopia.com, Inc. 1999 Stock Plan:
Stock Option Agreement
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions set forth in the Notice of
Stock Option Grant and this Agreement, the Company grants to the Optionee on the
Date of Grant the option to purchase at the Exercise Price the number of Shares
set forth in the Notice of Stock Option Grant. The Exercise Price is agreed to
be at least 100% of the Fair Market Value per Share on the Date of Grant (110%
of Fair Market Value if Section 3 of the Plan applies). This option is intended
to be an ISO or a Nonstatutory Option, as provided in the Notice of Stock Option
Grant.
(b) Stock Plan and Defined Terms. This option is granted pursuant to
the Plan, a copy of which the Optionee acknowledges having received. The
provisions of the Plan are incorporated into this Agreement by this reference.
Capitalized terms are defined in Section 14 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
(a) Exercisability. Subject to Subsections (b) and (c) below and the
other conditions set forth in this Agreement, all or part of this option may be
exercised prior to its expiration at the time or times set forth in the Notice
of Stock Option Grant. Shares purchased by exercising this option may be
subject to the Right of Repurchase under Section 7.
(b) $100,000 Limitation. If this option is designated as an ISO in the
Notice of Stock Option Grant, then the Optionee's right to exercise this option
shall be deferred to the extent (and only to the extent) that this option
otherwise would not be treated as an ISO by reason of the $ 100,000 annual
limitation under Section 422(d) of the Code, except that:
(i) The Optionee's right to exercise this option shall in any
event become exercisable at least as rapidly as 20% per year over the five-
year period commencing on the Date of Grant, unless the Optionee is an
officer of the Company, an Outside Director or a Consultant; and
(ii) The Optionee's right to exercise this option shall no longer
be deferred if (A) the Company is subject to a Change in Control before the
Optionee's Service terminates, (B) this option does not remain outstanding,
(C) this option is not assumed by the surviving corporation or its parent
and (D) the surviving corporation or its parent does not substitute an
option with substantially the same terms for this option.
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(c) Stockholder Approval. Any other provision of this Agreement
notwithstanding, no portion of this option shall be exercisable at any time
prior to the approval of the Plan by the Company's stockholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the
rights and privileges conferred hereby shall not be sold, pledged or otherwise
transferred (whether by operation of law or otherwise) and shall not be subject
to sale under execution, attachment, levy or similar process.
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Optionee or the Optionee's representative may
exercise this option by giving written notice to the Company pursuant to Section
13(C). The notice shall specify the election to exercise this option, the
number of Shares for which it is being exercised and the form of payment. The
notice shall be signed by the person exercising this option. In the event that
this option is being exercised by the representative of the Optionee, the notice
shall be accompanied by proof (satisfactory to the Company) of the
representative's right to exercise this option. The Optionee or the Optionee's
representative shall deliver to the Company, at the time of giving the notice,
payment in a form permissible under Section 5 for the full amount of the
Purchase Price.
(b) Issuance of Shares. After receiving a proper notice of exercise, the
Company shall cause to be issued a certificate or certificates for the Shares as
to which this option has been exercised, registered in the name of the person
exercising this option (or in the names of such person and his or her spouse as
community property or as joint tenants with right of survivorship). The Company
shall cause such certificate or certificates to be deposited in escrow or
delivered to or upon the order of the person exercising this option.
(c) Withholding Taxes. In the event that the Company determines that it
is required to withhold any tax as a result of the exercise of this option, the
Optionee, as a condition to the exercise of this option, shall make arrangements
satisfactory to the Company to enable it to satisfy all withholding
requirements. The Optionee shall also make arrangements satisfactory to the
Company to enable it to satisfy any withholding requirements that may arise in
connection with the vesting or disposition of Shares purchased by exercising
this option.
SECTION 5. PAYMENT FOR STOCK
(a) Cash. All or part of the Purchase Price may be paid in cash or cash
equivalents.
(b) Surrender of Stock. All or any part of the Purchase Price may be paid
by surrendering, or attesting to the ownership of, Shares that are already owned
by the Optionee. Such Shares shall be surrendered to the Company in good form
for transfer and shall be valued at their Fair Market Value on the date when
this option is exercised. The Optionee shall not surrender, or attest to the
ownership of, Shares in payment of the Purchase Price if such action would cause
the Company to recognize compensation expense (or additional compensation
expense) with respect to this option for financial reporting purposes.
(c) Exercise/Sale. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company)
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<PAGE>
of an irrevocable direction to a securities broker approved by the Company to
sell Shares and to deliver all or part of the sales proceeds to the Company.
(d) Exercise/Pledge. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to pledge Shares to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
SECTION 6. TERM AND EXPIRATION.
(a) Basic Term. This option shall in any event expire on the expiration
date set forth in the Notice of Stock Option Grant, which date is 10 years after
the Date of Grant (five years after the Date of Grant if this option is
designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the
Plan applies).
(b) Termination of Service (Except by Death). If the Optionee's Service
terminates for any reason other than death, then this option shall expire on the
earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a) above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability.
The Optionee may exercise all or part of this option at any time before its
expiration under the preceding sentence, but only to the extent that this option
had become exercisable before the Optionee's Service terminated. When the
Optionee's Service terminates, this option shall expire immediately with respect
to the number of Shares for which this option is not yet exercisable and with
respect to any Restricted Shares. In the event that the Optionee dies after
termination of Service but before the expiration of this option, all or part of
this option may be exercised (prior to expiration) by the executors or
administrators of the Optionee's estate or by any person who has acquired this
option directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that this option had become exercisable
before the Optionee's Service terminated.
(c) Death of the Optionee. If the Optionee dies while in Service, then
this option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a) above;
or
(ii) The date 12 months after the Optionee's death.
All or part of this option may be exercised at any time before its expiration
under the preceding sentence by the executors or administrators of the
Optionee's estate or by any person who has acquired this option directly from
the Optionee by beneficiary designation, bequest or inheritance, but only to the
extent that this option had become exercisable before the Optionee's death.
When the Optionee dies, this option shall expire immediately with respect to the
number of Shares for which this option is not yet exercisable and with respect
to any Restricted Shares.
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<PAGE>
(d) Leaves of Absence. For any purpose under this Agreement, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for such purpose is expressly required by the terms of such
leave or by applicable law (as determined by the Company).
(e) Notice Concerning ISO Treatment. If this option is designated as
an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable
tax treatment as an ISO to the extent it is exercised (i) more than three months
after the date the Optionee ceases to be an Employee for any reason other than
death or permanent and total disability (as defined in Section 22(e)(3) of the
Code), (ii) more than 12 months after the date the Optionee ceases to be an
Employee by reason of such permanent and total disability or (iii) after the
Optionee has been on a leave of absence for more than 90 days, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
SECTION 7. RIGHT OF REPURCHASE.
(a) Scope of Repurchase Right. Unless they have become vested in
accordance with the Notice of Stock Option Grant and Subsection (c) below, the
Shares acquired under this Agreement initially shall be Restricted Shares and
shall be subject to a right (but not an obligation) of repurchase by the
Company. The Optionee shall not transfer, assign, encumber or otherwise dispose
of any Restricted Shares, except as provided in the following sentence. The
Optionee may transfer Restricted Shares (i) by beneficiary designation, will or
intestate succession or (ii) to the Optionee's spouse, children or grandchildren
or to a trust established by the Optionee for the benefit of the Optionee or the
Optionee's spouse, children or grandchildren, provided in either case that the
Transferee agrees in writing on a form prescribed by the Company to be bound by
all provisions of this Agreement. If the Optionee transfers any Restricted
Shares, then this Section 7 shall apply to the Transferee to the same extent as
to the Optionee.
(b) Condition Precedent to Exercise. The Right of Repurchase shall be
exercisable with respect to any Restricted Shares only during the 60-day period
next following the later of:
(i) The date when the Optionee's Service terminates for any
reason, with or without Cause, including (without limitation) death or
disability; or
(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.
(c) Lapse of Repurchase Right. The Right of Repurchase shall lapse
with respect to the Shares subject to this option in accordance with the vesting
schedule set forth in the Notice of Stock Option Grant. In addition, the Right
of Repurchase shall lapse and all of the remaining Restricted Shares shall
become vested if (i) the Company is subject to a Change in Control before the
Optionee's Service terminates and (ii) the Right of Repurchase is not assigned
to the entity that employs the Optionee immediately after the Change in Control
or to its parent or subsidiary.
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(d) Repurchase Cost. If the Company exercises the Right of Repurchase,
it shall pay the Optionee an amount equal to the Exercise Price for each of the
Restricted Shares being repurchased.
(e) Exercise of Repurchase Right. The Right of Repurchase 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. 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. The Right of Repurchase shall
terminate with respect to any Restricted Shares for which it has not been timely
exercised pursuant to this Subsection (e).
(f) Additional Shares or 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 affecting the
Company's 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 Right of
Repurchase. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the
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
Right of Repurchase 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 7, 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, 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
Right of Repurchase or Right of First Refusal or (ii) released to the Optionee
upon the Optionee's request to the extent the Shares are no longer Restricted
Shares (but not more frequently than once every six months). In any event, all
Shares
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<PAGE>
which have vested (and any other vested assets and securities attributable
thereto) shall be released within 60 days after the earlier of (i) the
Optionee's cessation of Service or (ii) the lapse of the Right of First Refusal.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. In the event that the Optionee proposes to
sell, pledge or otherwise transfer to a third party any Shares acquired under
this Agreement, or any interest in such Shares, the Company shall have the Right
of First Refusal with respect to all (and not less than all) of such Shares. If
the Optionee desires to transfer Shares acquired under this Agreement, the
Optionee shall give a written Transfer Notice to the Company describing fully
the proposed transfer, including the number of Shares proposed to be
transferred, the proposed transfer price, the name and address of the proposed
Transferee and proof satisfactory to the Company that the proposed sale or
transfer will not violate any applicable federal or state securities laws. The
Transfer Notice shall be signed both by the Optionee and by the proposed
Transferee and must constitute a binding commitment of both parties to the
transfer of the Shares. The Company shall have the right to purchase all, and
not less than all, of the Shares on the terms of the proposal described in the
Transfer Notice (subject, however, to any change in such terms permitted under
Subsection (b) below) by delivery of a notice of exercise of the Right of First
Refusal within 30 days after the date when the Transfer Notice was received by
the Company. The Company's tights under this Subsection (a) shall be freely
assignable, in whole or in part.
(b) Transfer of Shares. If the Company fails to exercise its Right of
First Refusal within 30 days after the date when it received the Transfer
Notice, the Optionee may, not later than 90 days following receipt of the
Transfer Notice by the Company, conclude a transfer of the Shares subject to the
Transfer Notice on the terms and conditions described in the Transfer Notice,
provided that any such sale is made in compliance with applicable federal and
state securities laws and not in violation of any other contractual restrictions
to which the Optionee is bound. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the Optionee, shall again be subject to the Right of First
Refusal and shall require compliance with the procedure described in Subsection
(a) above. If the Company exercises its Right of First Refusal, the parties
shall consummate the sale of the Shares on the terms set forth in the Transfer
Notice within 60 days after the date when the Company received the Transfer
Notice (or within such longer period as may have been specified in the Transfer
Notice); provided, however, that in the event the Transfer Notice provided that
payment for the Shares was to be made in a form other than cash or cash
equivalents paid at the time of transfer, the Company shall have the option of
paying for the Shares with cash or cash equivalents equal to the present value
of the consideration described in the Transfer Notice.
(c) Additional Shares or 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 affecting the
Company's 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 Shares subject to this Section 8 or into which
----
such Shares thereby become convertible shall immediately be subject to this
Section 8. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the Shares
subject to this Section 8.
8
<PAGE>
(d) Termination of Right of First Refusal. Any other provision of this
Section 8 notwithstanding, in the event that the Stock is readily tradable on an
established securities market when the Optionee desires to transfer Shares, the
Company shall have no Right of First Refusal, and the Optionee shall have no
obligation to comply with the procedures prescribed by Subsections (a) and (b)
above.
(e) Permitted Transfers. This Section 8 shall not apply to (i) a
transfer by beneficiary designation, will or intestate succession or (ii) a
transfer to the Optionee's spouse, children or grandchildren or to a trust
established by the Optionee for the benefit of the Optionee or the Optionee's
spouse, children or grandchildren, provided in either case that the Transferee
agrees in writing on a form prescribed by the Company to be bound by all
provisions of this Agreement. If the Optionee transfers any Shares acquired
under this Agreement, either under this Subsection (e) or after the Company has
failed to exercise the Right of First Refusal, then this Section 8 shall apply
to the Transferee to the same extent as to the Optionee.
(f) 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 Shares to be purchased in accordance with
this Section 8, then after such time the person from whom such Shares are to be
purchased shall no longer have any rights as a holder of such Shares (other than
the right to receive payment of such consideration in accordance with this
Agreement). Such Shares shall be deemed to have been purchased in accordance
with the applicable provisions hereof, whether or not the certificate(s)
therefor have been delivered as required by this Agreement.
SECTION 9. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and
until the Company has determined that:
(a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration
requirements thereof,
(b) Any applicable listing requirement of any stock exchange or other
securities market on which Stock is listed has been satisfied; and
(c) Any other applicable provision of state or federal law has been
satisfied.
SECTION 10. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify
the sale of Shares under the Securities Act or any other applicable law. The
Company shall not be obligated to take any affirmative action in order to cause
the sale of Shares under this Agreement to comply with any law.
SECTION 11. RESTRICTIONS ON TRANSFER.
(a) Securities Law Restrictions. Regardless of whether the offering and
sale of Shares under the Plan have been registered under the Securities Act or
have been registered or qualified under the securities laws of any state, the
Company at its discretion may impose restrictions upon the sale, pledge or other
transfer of such Shares (including the placement of appropriate legends on stock
certificates or the imposition of stop-transfer instructions) if, in the
judgment of the Company, such restrictions are necessary or desirable in order
to achieve compliance with the Securities Act, the securities laws of any state
or any other law.
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<PAGE>
(b) Market Stand-Off. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act, including the Company's
initial public offering, the Optionee shall not directly or indirectly sell,
make any short sale of, loan, hypothecate, pledge, offer, grant or sell any
option or other contract for the purchase of, purchase any option or other
contract for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any Shares acquired
under this Agreement without the prior written consent of the Company or its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect for
such period of time following the date of the final prospectus for the offering
as may be requested by the Company or such underwriters. In no event, however,
shall such period exceed 180 days. The Market Stand-Off shall in any event
terminate two years after the date of the Company's initial public offering. In
the event of the declaration of a stock dividend, a spin-off, a stock split, an
adjustment in conversion ratio, a recapitalization or a similar transaction
affecting the Company's outstanding securities without receipt of consideration,
any new, substituted or additional securities which are by reason of such
transaction distributed with respect to any Shares subject to the Market Stand-
Off, or into which such Shares thereby become convertible, shall immediately be
subject to the Market Stand-Off. In order to enforce the Market Stand-Off, the
Company may impose stop-transfer instructions with respect to the Shares
acquired under this Agreement until the end of the applicable stand-off period.
The Company's underwriters shall be beneficiaries of the agreement set forth in
this Subsection (b). This Subsection (b) shall not apply to Shares registered in
the public offering under the Securities Act, and the Optionee shall be subject
to this Subsection (b) only if the directors and officers of the Company are
subject to similar arrangements.
(c) Investment Intent at Grant. The Optionee represents and agrees
that the Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.
(d) Investment Intent at Exercise. In the event that the sale of
Shares under the Plan is not registered under the Securities Act but an
exemption is available which requires an investment representation or other
representation, the Optionee shall represent and agree at the time of exercise
that the Shares being acquired upon exercising this option are being acquired
for investment, and not with a view to the sale or distribution thereof, and
shall make such other representations as are deemed necessary or appropriate by
the Company and its counsel.
(e) Legends. All certificates evidencing Shares purchased under this
Agreement shall bear the following legend:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO
THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED
TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON
TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE
COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH
AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
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<PAGE>
All certificates evidencing Shares purchased under this Agreement in an
unregistered transaction shall bear the following legend (and such other
restrictive legends as are required or deemed advisable under the provisions of
any applicable law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED,
OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED."
(f) Removal of Legends. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
this Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but without such legend.
(g) Administration. Any determination by the Company and its
counsel in connection with any of the matters set forth in this
Section II shall be conclusive and binding on the Optionee and all
other persons.
SECTION 12. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 8(a) of the Plan,
the terms of this option (including, without limitation, the number and kind of
Shares subject to this option and the Exercise Price) shall be adjusted as set
forth in Section 8(a) of the Plan. In the event that the Company is a party to
a merger or consolidation, this option shall be subject to the agreement of
merger or consolidation, as provided in Section 8(b) of the Plan.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Shares
subject to this option until the Optionee or the Optionee's representative
becomes entitled to receive such Shares by filing a notice of exercise and
paying the Purchase Price pursuant to Sections 4 and 5.
(b) No Retention Rights. Nothing in this option or in the Plan shall
confer upon the Optionee any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any Parent or Subsidiary employing or retaining the Optionee)
or of the Optionee, which rights are hereby expressly reserved by each, to
terminate his or her Service at any time and for any reason, with or without
Cause.
(c) Notice. Any notice required by the terms of this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or upon
deposit with the United States Postal Service, by registered or certified mail,
with postage and fees prepaid. Notice shall be addressed to the Company at its
principal executive office and to the Optionee at the address that he or she
most recently provided to the Company.
(d) Entire Agreement. The Notice of Stock Option Grant, this Agreement
and the Plan constitute the entire contract between the parties hereto with
regard to the subject matter hereof. They supersede any other agreements,
representations or understandings (whether oral or written and whether express
or implied) which relate to the subject matter hereof.
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(e) Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State.
SECTION 14. DEFINITIONS.
(a) "Agreement" shall mean this Stock Option Agreement.
(b) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time or, if a Committee has been appointed, such
Committee.
(c) "Cause" For purposes of this Agreement, "Cause" for the termination of
Purchaser's employment with the Company or its successor will exist at any time
after the happening of one or more of the following events: (1) Purchaser's
willful misconduct or material failure in the performance of the duties of his
position with the Company or its successor, including Purchaser's failure to
comply in any material respect with the legal directives of the Company's Chief
Executive Officer or the Board of Directors so long as such directives are not
unreasonably inconsistent with the Purchaser's position and duties, and such
refusal to comply is not remedied within 10 days after receiving written notice
from the Company or its successor, which written notice shall state that failure
to remedy such conduct may result in termination for Cause; or (2) conduct that
materially adversely affects the Company or its successor or is materially
detrimental to the reputation of the Founder or of the Company or its successor,
including but not limited to conviction of a felony involving moral turpitude.
(d) "Change of Control" shall mean:
(i) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if persons
who were not shareholders of the Company immediately prior to such merger,
consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (A) the continuing or surviving
entity and (B) any direct or indirect parent corporation of such continuing
or surviving entity; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets.
A transaction shall not constitute a Change of Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean a committee of the Board of Directors, as
described in Section 2 of the Plan.
(g) "Company" shall mean Petopia.com, Inc., a Delaware corporation.
(h) "Consultant" shall mean a person who performs bona fide services for
the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
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<PAGE>
(i) "Date of Grant" shall mean the date specified in the Notice of Stock
Option Grant, which date shall be the later of (i) the date on which the Board
of Directors resolved to grant this option or (ii) the first day of the
Optionee's Service.
(j) "Disability" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(k) "Employee" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(l) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of this option, as specified in the Notice of Stock
Option Grant.
(m) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(n) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(o) "Nonstatutory Option" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(p) "Notice of Stock Option Grant" shall mean the document so entitled to
which this Agreement is attached.
(q) "Optionee" shall mean the individual named in the Notice of Stock
Option Grant.
(r) "Outside Director" shall mean a member of the Board of Directors who
is not an Employee.
(s) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company 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.
(t) "Plan" shall mean the Petopia.com, Inc. 1999 Stock Plan, as in effect
on the Date of Grant.
(u) "Purchase Price" shall mean the Exercise Price multiplied by the
number of Shares with respect to which this option is being exercised.
(v) "Restricted Share" shall mean a Share that is subject to the Right of
Repurchase.
(w) "Right of First Refusal" shall mean the Company's right of first
refusal described in Section 8.
(x) "Right of Repurchase" shall mean the Company's right of repurchase
described in Section 7.
(y) "Securities Act" shall mean the Securities Act of 1933, as amended.
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<PAGE>
(z) "Service" shall mean service as an Employee, Outside Director or
Consultant.
(aa) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 of the Plan (if applicable).
(bb) "Stock" shall mean the Common Stock of the Company.
(cc) "Subsidiary" shall mean any corporation (other than the Company) in
an: unbroken chain of corporations beginning with the Company, if 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.
(dd) "Transferee" shall mean any person to whom the Optionee has directly
or indirectly transferred any Share acquired under this Agreement.
(ee) "Transfer Notice" shall mean the notice of a proposed transfer of
Shares described in Section 8.
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Petopia.com, Inc., 1999 Stock Option Plan
Notice of Stock Option Exercise
Optionee Information:
Name: _______________________ Social Security Number:___-___-____
Address: ____________________ Employee Number: __________________
____________________
Option Information:
Date of , 1999 Type of Option: Nonstatutory (NSO) or
Grant: ______ __ __
Incentive (ISO)
Exercise Price per Share:
$ __________________
Total number shares of shares of Common
Stock of Petopia.com, Inc., (the
"Company") covered by option: shares
_______________
Exercise Information:
Number of shares of Common Stock of the Company for which option is being
exercised now:
------------
(These shares are referred to below as the "Purchased Shares.")
Total Exercise Price for the Purchased Shares: $
------------
Form of payment enclosed [check all that apply]:
[_] Check for $___________, [_] Certificate(s) for ______ shares of
made payable to the Common Stock of the Company that
"Petopia.com, Inc." I have owned for at least six
months. (These shares will be valued
as of the date when this notice is
received by the Company.)
[_] Promissory Note for $ [_] Attestation Form covering ______
payable to payable to shares of the Common Stock of the
Petopia.com, Inc. Company. (These shares will be
valued as of the date when this
notice is received by the Company.)
Names in which the Purchased Shares should be registered [you must check one]:
[_] In my name only
[_] In the names of my spouse and myself My spouse's name (if applicable):
as community property
[_] In the names of my spouse and myself as
joint tenants with the right of
survivorship
_________________________________
The certificate for the ____________________________________
Shares should be sent to the ____________________________________
following address: ____________________________________
You must sign this Notice on the second page before submitting it to the
Company.
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<PAGE>
Representations and Acknowledgments of the Optionee:
SECTION 15. I REPRESENT AND WARRANT TO THE COMPANY THAT I AM ACQUIRING AND WILL
HOLD THE PURCHASED SHARES FOR INVESTMENT FOR MY ACCOUNT ONLY, AND NOT WITH A
VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY "DISTRIBUTION" OF THE PURCHASED
SHARES WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT").
SECTION 16. I UNDERSTAND THAT THE PURCHASED SHARES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT BY REASON OF A SPECIFIC EXEMPTION THEREFROM AND THAT
THE PURCHASED SHARES MUST BE HELD INDEFINITELY, UNLESS THEY ARE SUBSEQUENTLY
REGISTERED UNDER THE SECURITIES ACT OR I OBTAIN AN OPINION OF COUNSEL (IN FORM
AND SUBSTANCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL) THAT REGISTRATION IS
NOT REQUIRED.
SECTION 17. I ACKNOWLEDGE THAT THE COMPANY IS UNDER NO OBLIGATION TO REGISTER
THE PURCHASED SHARES.
SECTION 18. I AM AWARE OF THE ADOPTION OF RULE 144 BY THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT, WHICH PERMITS LIMITED PUBLIC
RESALES OF SECURITIES ACQUIRED IN A NON-PUBLIC OFFERING, SUBJECT TO THE
SATISFACTION OF CERTAIN CONDITIONS. THESE CONDITIONS INCLUDE (WITHOUT
LIMITATION) THAT CERTAIN CURRENT PUBLIC INFORMATION ABOUT THE ISSUER IS
AVAILABLE, THAT THE RESALE OCCURS ONLY AFTER THE HOLDING PERIOD REQUIRED BY RULE
144 HAS BEEN SATISFIED, THAT THE SALE OCCURS THROUGH AN UNSOLICITED "BROKER'S
TRANSACTION" AND THAT THE AMOUNT OF SECURITIES BEING SOLD DURING ANY THREE-MONTH
PERIOD DOES NOT EXCEED SPECIFIED LIMITATIONS. I UNDERSTAND THAT THE CONDITIONS
FOR RESALE SET FORTH IN RULE 144 HAVE NOT BEEN SATISFIED AND THAT THE COMPANY
HAS NO PLANS TO SATISFY THESE CONDITIONS IN THE FORESEEABLE FUTURE.
SECTION 19. I WILL NOT SELL, TRANSFER OR OTHERWISE DISPOSE OF THE PURCHASED
SHARES IN VIOLATION OF THE SECURITIES ACT, THE SECURITIES EXCHANGE ACT OF 1934,
OR THE RULES PROMULGATED THEREUNDER, INCLUDING RULE 144 UNDER THE SECURITIES
ACT.
SECTION 20. I ACKNOWLEDGE THAT I HAVE RECEIVED AND HAD ACCESS TO SUCH
INFORMATION AS I CONSIDER NECESSARY OR APPROPRIATE FOR DECIDING WHETHER TO
INVEST IN THE PURCHASED SHARES AND THAT I HAD AN OPPORTUNITY TO ASK QUESTIONS
AND RECEIVE ANSWERS FROM THE COMPANY REGARDING THE TERMS AND CONDITIONS OF THE
ISSUANCE OF THE PURCHASED SHARES.
SECTION 21. I AM AWARE THAT MY INVESTMENT IN THE COMPANY IS A SPECULATIVE
INVESTMENT WHICH HAS LIMITED LIQUIDITY AND IS SUBJECT TO THE RISK OF COMPLETE
LOSS. I AM ABLE, WITHOUT IMPAIRING MY FINANCIAL CONDITION, TO HOLD THE
PURCHASED SHARES FOR AN INDEFINITE PERIOD AND TO SUFFER A COMPLETE LOSS OF MY
INVESTMENT IN THE PURCHASED SHARES.
SECTION 22. I ACKNOWLEDGE THAT THE PURCHASED SHARES REMAIN SUBJECT TO THE
COMPANY'S RIGHT OF FIRST REFUSAL AND MAY REMAIN SUBJECT TO THE COMPANY'S RIGHT
OF REPURCHASE AT THE EXERCISE PRICE, ALL IN ACCORDANCE WITH THE APPLICABLE
NOTICE OF STOCK OPTION GRANT AND STOCK OPTION AGREEMENT.
SECTION 23. I ACKNOWLEDGE THAT I AM ACQUIRING THE PURCHASED SHARES SUBJECT TO
ALL OTHER TERMS OF THE NOTICE OF STOCK OPTION GRANT AND STOCK OPTION AGREEMENT.
SECTION 24. I ACKNOWLEDGE THAT I HAVE RECEIVED A COPY OF THE COMPANY'S
MEMORANDUM REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF AN
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<PAGE>
OPTION EXERCISE AND THE TAX ELECTION UNDER SECTION 83(B) OF THE INTERNAL REVENUE
CODE. IN THE EVENT THAT I CHOOSE TO MAKE A SECTION 83(B) ELECTION, I ACKNOWLEDGE
THAT IT IS MY RESPONSIBILITY--AND NOT THE COMPANY'S RESPONSIBILITY--TO FILE THE
ELECTION IN A TIMELY MANNER, EVEN IF I ASK THE COMPANY OR ITS AGENTS TO MAKE THE
FILING ON MY BEHALF. I ACKNOWLEDGE THAT THE COMPANY HAS ENCOURAGED ME TO CONSULT
MY OWN ADVISER TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AT THIS TIME.
SECTION 25. I AGREE TO SEEK THE CONSENT OF MY SPOUSE TO THE EXTENT REQUIRED BY
THE COMPANY TO ENFORCE THE FOREGOING.
Signature: , 19___
__________________________________ _________________ _____
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<PAGE>
Exhibit 10.5
Petopia.com, Inc. 1999 Stock Plan
Notice of Stock Option Grant
You have been granted the following option to purchase Common Stock of
Petopia.com, Inc. (the "Company"):
Name of Optionee: Prem Urali
Total Number of Shares Granted: 474,894
Type of Option: Incentive Stock Option
Exercise Price Per Share: $0.75
Date of Grant: September 1, 1999
Date Exercisable: This option may be exercised,
in whole or in part, for 100%
of the Shares subject to this
option at any time after the
Date of Grant.
Vesting Commencement Date: August 2, 1999
Vesting Schedule: Subject to Optionee's
continued Service to the
Company:
31,945 shares shall be
released from the Right of
Repurchase on August 10,
1999;
12,348 shares shall be
released from the Right of
Repurchase on the tenth (10)
day of each month commencing
on September 10, 1999 and
continuing each month through
and including March 10, 2000;
9,133 shares shall be
released from the Right of
Repurchase on the tenth (10)
day of each month commencing
on April 10, 2000 and
continuing each month through
and including May 10, 2003;
and the remaining 9,459
shares shall be released from
the Right of Repurchase on
June 10, 2003.
If the Company elects to
terminate Optionee's Service,
the above described vesting
schedule shall be accelerated
by one month.
Expiration Date: August 31, 2009
By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Stock Plan and the Stock Option Agreement, both
of which are attached to and made a part of this document.
Optionee: Petopia.com, Inc.
/s/ Prem Urali By: /s/ David Fraze
------------------------------- ------------------------
Prem Urali Title: David Fraze - Chief Financial Officer
------------------------------- --------------------------------------
Print Name
<PAGE>
THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
Petopia.com, Inc. 1999 Stock Plan:
Stock Option Agreement
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions set forth in the Notice of
Stock Option Grant and this Agreement, the Company grants to the Optionee on the
Date of Grant the option (the "Option") to purchase at the Exercise Price the
number of Shares set forth in the Notice of Stock Option Grant. The Exercise
Price is agreed to be at least 100% of the Fair Market Value per Share on the
Date of Grant (110% of Fair Market Value if Section 3(b) of the Plan applies).
This option is intended to be an ISO or a Nonstatutory Option, as provided in
the Notice of Stock Option Grant.
(b) Stock Plan and Defined Terms. This option is granted pursuant to
the Plan, a copy of which the Optionee acknowledges having received. The
provisions of the Plan are incorporated into this Agreement by this reference.
Capitalized terms are defined in Section 14 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
(a) Exercisability. Subject to Subsections (b) and (c) below and the
other conditions set forth in this Agreement, all or part of this option may be
exercised prior to its expiration at the time or times set forth in the Notice
of Stock Option Grant. Shares purchased by exercising this option may be
subject to the Right of Repurchase under Section 7.
(b) $100,000 Limitation. If this option is designated as an ISO in the
Notice of Stock Option Grant, then the Optionee's right to exercise this option
shall be deferred to the extent (and only to the extent) that this option
otherwise would not be treated as an ISO by reason of the $100,000 annual
limitation under Section 422(d) of the Code, except that:
(i) The Optionee's right to exercise this option shall in any
event become exercisable at least as rapidly as 20% per year over the five-
year period commencing on the Date of Grant, unless the Optionee is an
officer of the Company, an Outside Director or a Consultant; and
<PAGE>
(ii) The Optionee's right to exercise this option shall no longer
be deferred if (A) the Company is subject to a Change in Control before the
Optionee's Service terminates, (B) this option does not remain outstanding,
(C) this option is not assumed by the surviving corporation or its parent
and (D) the surviving corporation or its parent does not substitute an
option with substantially the same terms for this option .
(c) Stockholder Approval. Any other provision of this Agreement
notwithstanding, no portion of this option shall be exercisable at any time
prior to the approval of the Plan by the Company's stockholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the
rights and privileges conferred hereby shall not be sold, pledged or otherwise
transferred (whether by operation of law or otherwise) and shall not be subject
to sale under execution, attachment, levy or similar process.
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Optionee or the Optionee's representative
may exercise this option by giving written notice to the Company pursuant to
Section 13(c). The notice shall specify the election to exercise this option,
the number of Shares for which it is being exercised and the form of payment.
The notice shall be signed by the person exercising this option. In the event
that this option is being exercised by the representative of the Optionee, the
notice shall be accompanied by proof (satisfactory to the Company) of the
representative's right to exercise this option. The Optionee or the Optionee's
representative shall deliver to the Company, at the time of giving the notice,
payment in a form permissible under Section 5 for the full amount of the
Purchase Price.
(b) Issuance of Shares. After receiving a proper notice of exercise,
the Company shall cause to be issued a certificate or certificates for the
Shares as to which this option has been exercised, registered in the name of the
person exercising this option (or in the names of such person and his or her
spouse as community property or as joint tenants with right of survivorship).
The Company shall cause such certificate or certificates to be deposited in
escrow or delivered to or upon the order of the person exercising this option.
(c) Withholding Taxes. In the event that the Company determines that
it is required to withhold any tax as a result of the exercise of this option,
the Optionee, as a condition to the exercise of this option, shall make
arrangements satisfactory to the Company to enable it to satisfy all withholding
requirements. The Optionee shall also make arrangements satisfactory to the
Company to enable it to satisfy any withholding requirements that may arise in
connection with the vesting or disposition of Shares purchased by exercising
this option.
SECTION 5. PAYMENT FOR STOCK.
(a) Cash. All or part of the Purchase Price may be paid in cash or
cash equivalents.
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<PAGE>
(b) Surrender of Stock. All or any part of the Purchase Price may be
paid by surrendering, or attesting to the ownership of, Shares that are already
owned by the Optionee. Such Shares shall be surrendered to the Company in good
form for transfer and shall be valued at their Fair Market Value on the date
when this option is exercised. The Optionee shall not surrender, or attest to
the ownership of, Shares in payment of the Purchase Price if such action would
cause the Company to recognize compensation expense (or additional compensation
expense) with respect to this option for financial reporting purposes.
(c) Exercise/Sale. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Shares and to deliver all or part of the sales
proceeds to the Company.
(d) Exercise/Pledge. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to pledge Shares to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
SECTION 6. TERM AND EXPIRATION.
(a) Basic Term. This option shall in any event expire on the
expiration date set forth in the Notice of Stock Option Grant, which date is 10
years after the Date of Grant (five years after the Date of Grant if this option
is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of
the Plan applies).
(b) Termination of Service (Except by Death). If the Optionee's
Service terminates for any reason other than death, then this option shall
expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a)
above;
(ii) The date three months after the termination of the
Optionee's Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability.
The Optionee may exercise all or part of this option at any time before its
expiration under the preceding sentence, but only to the extent that this option
had become exercisable before the Optionee's Service terminated. When the
Optionee's Service terminates, this option shall expire immediately with respect
to the number of Shares for which this option is not yet exercisable and with
respect to any Restricted Shares. In the event that the Optionee dies after
termination of Service but before the expiration of this option, all or part of
this option may be exercised (prior to expiration) by the executors or
administrators of the Optionee's estate or by any person who has acquired this
option directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that this option had become exercisable
before the Optionee's Service terminated.
3
<PAGE>
(c) Death of the Optionee. If the Optionee dies while in Service, then
this option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a)
above; or
(ii) The date 12 months after the Optionee's death.
All or part of this option may be exercised at any time before its expiration
under the preceding sentence by the executors or administrators of the
Optionee's estate or by any person who has acquired this option directly from
the Optionee by beneficiary designation, bequest or inheritance, but only to the
extent that this option had become exercisable before the Optionee's death. When
the Optionee dies, this option shall expire immediately with respect to the
number of Shares for which this option is not yet exercisable and with respect
to any Restricted Shares.
(d) Leaves of Absence. For any purpose under this Agreement, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for such purpose is expressly required by the terms of such
leave or by applicable law (as determined by the Company).
(e) Notice Concerning ISO Treatment. If this option is designated as
an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable
tax treatment as an ISO to the extent it is exercised (i) more than three months
after the date the Optionee ceases to be an Employee for any reason other than
death or permanent and total disability (as defined in Section 22(e)(3) of the
Code), (ii) more than 12 months after the date the Optionee ceases to be an
Employee by reason of such permanent and total disability or (iii) after the
Optionee has been on a leave of absence for more than 90 days, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
SECTION 7. RIGHT OF REPURCHASE.
(a) Scope of Repurchase Right. Unless they have become vested in
accordance with the Notice of Stock Option Grant and Subsection (c) below, the
Shares acquired under this Agreement initially shall be Restricted Shares and
shall be subject to a right (but not an obligation) of repurchase by the
Company. The Optionee shall not transfer, assign, encumber or otherwise dispose
of any Restricted Shares, except as provided in the following sentence. The
Optionee may transfer Restricted Shares (i) by beneficiary designation, will or
intestate succession or (ii) to the Optionee's spouse, children or grandchildren
or to a trust established by the Optionee for the benefit of the Optionee or the
Optionee's spouse, children or grandchildren, provided in either case that the
Transferee agrees in writing on a form prescribed by the Company to be bound by
all provisions of this Agreement. If the Optionee transfers any Restricted
Shares, then this Section 7 shall apply to the Transferee to the same extent as
to the Optionee.
(b) Condition Precedent to Exercise. The Right of Repurchase shall be
exercisable with respect to any Restricted Shares only during the 60-day period
next following the later of:
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<PAGE>
(i) The date when the Optionee's Service terminates for any
reason, with or without Cause, including (without limitation) death or
disability; or
(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.
(c) Lapse of Repurchase Right. The Right of Repurchase shall lapse
with respect to the Shares subject to this option in accordance with the vesting
schedule set forth in the Notice of Stock Option Grant. In addition, the Right
of Repurchase shall lapse and all of the remaining Restricted Shares shall
become vested if (i) the Company is subject to a Change in Control before the
Optionee's Service terminates and (ii) the Right of Repurchase is not assigned
to the entity that employs the Optionee immediately after the Change in Control
or to its parent or subsidiary.
(d) Repurchase Cost. If the Company exercises the Right of Repurchase,
it shall pay the Optionee an amount equal to the Exercise Price for each of the
Restricted Shares being repurchased.
(e) Exercise of Repurchase Right. The Right of Repurchase 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. 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. The Right of Repurchase
shall terminate with respect to any Restricted Shares for which it has not been
timely exercised pursuant to this Subsection (e).
(f) Additional Shares or 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 affecting the
Company's 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 Right of
Repurchase. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the
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
Right of Repurchase in order to reflect any change in the Company's outstanding
securities effected without receipt of consideration
5
<PAGE>
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 7, 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, 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
Right of Repurchase or Right of First Refusal or (ii) released to the Optionee
upon the Optionee's request to the extent the Shares are no longer Restricted
Shares (but not more frequently than once every six months). In any event, all
Shares which have vested (and any other vested assets and securities
attributable thereto) shall be released within 60 days after the earlier of (i)
the Optionee's cessation of Service or (ii) the lapse of the Right of First
Refusal.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. In the event that the Optionee proposes to
sell, pledge or otherwise transfer to a third party any Shares acquired under
this Agreement, or any interest in such Shares, the Company shall have the Right
of First Refusal with respect to all (and not less than all) of such Shares. If
the Optionee desires to transfer Shares acquired under this Agreement, the
Optionee shall give a written Transfer Notice to the Company describing fully
the proposed transfer, including the number of Shares proposed to be
transferred, the proposed transfer price, the name and address of the proposed
Transferee and proof satisfactory to the Company that the proposed sale or
transfer will not violate any applicable federal or state securities laws. The
Transfer Notice shall be signed both by the Optionee and by the proposed
Transferee and must constitute a binding commitment of both parties to the
transfer of the Shares. The Company shall have the right to purchase all, and
not less than all, of the Shares on the terms of the proposal described in the
Transfer Notice (subject, however, to any change in such terms permitted under
Subsection (b) below) by delivery of a notice of exercise of the Right of First
Refusal within 30 days after the date when the Transfer Notice was received by
the Company. The Company's rights under this Subsection (a) shall be freely
assignable, in whole or in part.
(b) Transfer of Shares. If the Company fails to exercise its Right of
First Refusal within 30 days after the date when it received the Transfer
Notice, the Optionee may, not
6
<PAGE>
later than 90 days following receipt of the Transfer Notice by the Company,
conclude a transfer of the Shares subject to the Transfer Notice on the terms
and conditions described in the Transfer Notice, provided that any such sale is
made in compliance with applicable federal and state securities laws and not in
violation of any other contractual restrictions to which the Optionee is bound.
Any proposed transfer on terms and conditions different from those described in
the Transfer Notice, as well as any subsequent proposed transfer by the
Optionee, shall again be subject to the Right of First Refusal and shall require
compliance with the procedure described in Subsection (a) above. If the Company
exercises its Right of First Refusal, the parties shall consummate the sale of
the Shares on the terms set forth in the Transfer Notice within 60 days after
the date when the Company received the Transfer Notice (or within such longer
period as may have been specified in the Transfer Notice); provided, however,
that in the event the Transfer Notice provided that payment for the Shares was
to be made in a form other than cash or cash equivalents paid at the time of
transfer, the Company shall have the option of paying for the Shares with cash
or cash equivalents equal to the present value of the consideration described in
the Transfer Notice.
(c) Additional Shares or 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 affecting the
Company's 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 Shares subject to this Section 8 or into which
such Shares thereby become convertible shall immediately be subject to this
Section 8. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the Shares
subject to this Section 8.
(d) Termination of Right of First Refusal. Any other provision of this
Section 8 notwithstanding, in the event that the Stock is readily tradable on an
established securities market when the Optionee desires to transfer Shares, the
Company shall have no Right of First Refusal, and the Optionee shall have no
obligation to comply with the procedures prescribed by Subsections (a) and (b)
above.
(e) Permitted Transfers. This Section 8 shall not apply to (i) a
transfer by beneficiary designation, will or intestate succession or (ii) a
transfer to the Optionee's spouse, children or grandchildren or to a trust
established by the Optionee for the benefit of the Optionee or the Optionee's
spouse, children or grandchildren, provided in either case that the Transferee
agrees in writing on a form prescribed by the Company to be bound by all
provisions of this Agreement. If the Optionee transfers any Shares acquired
under this Agreement, either under this Subsection (e) or after the Company has
failed to exercise the Right of First Refusal, then this Section 8 shall apply
to the Transferee to the same extent as to the Optionee.
(f) 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 Shares to be purchased in accordance with
this Section 8, then after such time the person from whom such Shares are to be
purchased shall no longer have any rights as a holder of such Shares (other than
the right to receive payment of such consideration in accordance with this
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Agreement). Such Shares shall be deemed to have been purchased in accordance
with the applicable provisions hereof, whether or not the certificate(s)
therefor have been delivered as required by this Agreement.
SECTION 9. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and
until the Company has determined that:
(a) It and the Optionee have taken any actions required to register the
Shares under the Securities Act or to perfect an exemption from the registration
requirements thereof;
(b) Any applicable listing requirement of any stock exchange or other
securities market on which Stock is listed has been satisfied; and
(c) Any other applicable provision of state or federal law has been
satisfied.
SECTION 10. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify
the sale of Shares under the Securities Act or any other applicable law. The
Company shall not be obligated to take any affirmative action in order to cause
the sale of Shares under this Agreement to comply with any law.
SECTION 11. RESTRICTIONS ON TRANSFER.
(a) Securities Law Restrictions. Regardless of whether the offering and
sale of Shares under the Plan have been registered under the Securities Act or
have been registered or qualified under the securities laws of any state, the
Company at its discretion may impose restrictions upon the sale, pledge or other
transfer of such Shares (including the placement of appropriate legends on stock
certificates or the imposition of stop-transfer instructions) if, in the
judgment of the Company, such restrictions are necessary or desirable in order
to achieve compliance with the Securities Act, the securities laws of any state
or any other law.
(b) Market Stand-Off. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial public
offering, the Optionee shall not directly or indirectly sell, make any short
sale of, loan, hypothecate, pledge, offer, grant or sell any option or other
contract for the purchase of, purchase any option or other contract for the sale
of, or otherwise dispose of or transfer, or agree to engage in any of the
foregoing transactions with respect to, any Shares acquired under this Agreement
without the prior written consent of the Company or its underwriters. Such
restriction (the "Market Stand-Off") shall be in effect for such period of time
following the date of the final prospectus for the offering as may be requested
by the Company or such underwriters. In no event, however, shall such period
exceed 180 days. The Market Stand-Off shall in any event terminate two years
after the date of the Company's initial public offering. In the event of the
declaration of a stock dividend, a spin-off, a stock split, an adjustment in
conversion ratio, a recapitalization or a similar transaction affecting the
Company's outstanding securities without receipt of consideration, any new,
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<PAGE>
substituted or additional securities which are by reason of such transaction
distributed with respect to any Shares subject to the Market Stand-Off, or into
which such Shares thereby become convertible, shall immediately be subject to
the Market Stand-Off. In order to enforce the Market Stand-Off, the Company may
impose stop-transfer instructions with respect to the Shares acquired under this
Agreement until the end of the applicable stand-off period. The Company's
underwriters shall be beneficiaries of the agreement set forth in this
Subsection (b). This Subsection (b) shall not apply to Shares registered in the
public offering under the Securities Act, and the Optionee shall be subject to
this Subsection (b) only if the directors and officers of the Company are
subject to similar arrangements.
(c) Investment Intent at Grant. The Optionee represents and agrees
that the Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.
(d) Investment Intent at Exercise. In the event that the sale of
Shares under the Plan is not registered under the Securities Act but an
exemption is available which requires an investment representation or other
representation, the Optionee shall represent and agree at the time of exercise
that the Shares being acquired upon exercising this option are being acquired
for investment, and not with a view to the sale or distribution thereof, and
shall make such other representations as are deemed necessary or appropriate by
the Company and its counsel.
(e) Legends. All certificates evidencing Shares purchased under this
Agreement shall bear the following legend:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE
TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER
OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES). SUCH
AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN
ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON
TERMINATION OF SERVICE WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL
UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF
WITHOUT CHARGE."
All certificates evidencing Shares purchased under this Agreement in an
unregistered transaction shall bear the following legend (and such other
restrictive legends as are required or deemed advisable under the provisions of
any applicable law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
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<PAGE>
(f) Removal of Legends. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
this Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but without such legend.
(g) Administration. Any determination by the Company and its
counsel in connection with any of the matters set forth in this
Section 11 shall be conclusive and binding on the Optionee and all
other persons.
SECTION 12. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 8(a) of the Plan,
the terms of this option (including, without limitation, the number and kind of
Shares subject to this option and the Exercise Price) shall be adjusted as set
forth in Section 8(a) of the Plan. In the event that the Company is a party to
a merger or consolidation, this option shall be subject to the agreement of
merger or consolidation, as provided in Section 8(b) of the Plan.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Shares
subject to this option until the Optionee or the Optionee's representative
becomes entitled to receive such Shares by filing a notice of exercise and
paying the Purchase Price pursuant to Sections 4 and 5.
(b) No Retention Rights. Nothing in this option or in the Plan shall
confer upon the Optionee any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any Parent or Subsidiary employing or retaining the Optionee)
or of the Optionee, which rights are hereby expressly reserved by each, to
terminate his or her Service at any time and for any reason, with or without
Cause.
(c) Notice. Any notice required by the terms of this Agreement shall
be given in writing and shall be deemed effective upon personal delivery or upon
deposit with the United States Postal Service, by registered or certified mail,
with postage and fees prepaid. Notice shall be addressed to the Company at its
principal executive office and to the Optionee at the address that he or she
most recently provided to the Company.
(d) Entire Agreement. The Notice of Stock Option Grant, this Agreement
and the Plan constitute the entire contract between the parties hereto with
regard to the subject matter hereof. They supersede any other agreements,
representations or understandings (whether oral or written and whether express
or implied) which relate to the subject matter hereof.
(e) Choice of Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State.
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<PAGE>
SECTION 14. DEFINITIONS.
(a) "Agreement" shall mean this Stock Option Agreement.
(b) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time or, if a Committee has been appointed,
such Committee.
(c) "Cause" For purposes of this Agreement, "Cause" shall mean (i) a
-----
material failure by Optionee to perform his duties or a failure to follow or
carry out an express direction of the Chief Executive Officer of the Company,
other than a failure resulting from Optionee's complete or partial incapacity
due to a physical or mental illness or impairment, after first being given
written notice of such failure and thirty (30) days to cure such failure; (ii)
willful misconduct or fraud; or (iii) conviction of, or a plea of "guilty" or
"no contest" to, a felony.
(d) "Change of Control" shall mean:
(i) a merger or consolidation of the Company in which securities
possessing more than fifty percent (50%) of the total combined voting power
of the Company's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change of Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean a committee of the Board of Directors, as
described in Section 2 of the Plan.
(g) "Company" shall mean Petopia.com, Inc., a Delaware corporation.
(h) "Consultant" shall mean a person who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(i) "Date of Grant" shall mean the date specified in the Notice of
Stock Option Grant, which date shall be the later of (i) the date on which the
Board of Directors resolved to grant this option or (ii) the first day of the
Optionee's Service.
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(j) "Disability" shall mean that the Optionee has failed to perform
his duties for a period of not less than three (3) consecutive months as a
result of his incapacity due to physical or mental illness.
(k) "Employee" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.
(l) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of this option, as specified in the Notice of Stock
Option Grant.
(m) "Fair Market Value" shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination shall
be conclusive and binding on all persons.
(n) "Good Reason" shall mean (i) any failure by the Company to comply
with any material provision of the Employment Agreement dated as of June 1, 1999
between Optionee and the Company, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Optionee; (ii) an
adverse change in Optionee's position or operating responsibilities with the
Company or its successor causing such position to be of materially reduced
stature or responsibility (it being understood that Optionee's operating
responsibilities, title and reporting relationships may be changed in connection
with integration of the Company's operations with those of an acquiror in a
Change of Control); or (iii) Company's requiring Optionee to be based at any
office or location outside the San Francisco Bay Area.
(o) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(p) "Nonstatutory Option" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(q) "Notice of Stock Option Grant" shall mean the document so entitled
to which this Agreement is attached.
(r) "Optionee" shall mean the individual named in the Notice of Stock
Option Grant.
(s) "Outside Director" shall mean a member of the Board of Directors
who is not an Employee.
(t) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company 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.
(u) "Plan" shall mean the Petopia.com, Inc. 1999 Stock Plan, as in
effect on the Date of Grant.
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<PAGE>
(v) "Purchase Price" shall mean the Exercise Price multiplied by the
number of Shares with respect to which this option is being exercised.
(w) "Qualifying Termination" shall mean any termination of Optionee's
employment by Optionee or by the Company other than: (i) by the Company for
Cause; (ii) by reason of death or Disability; or (iii) by the Optionee without
Good Reason.
(x) "Restricted Share" shall mean a Share that is subject to the
Right of Repurchase.
(y) "Right of First Refusal" shall mean the Company's right of first
refusal described in Section 8.
(z) "Right of Repurchase" shall mean the Company's right of
repurchase described in Section 7.
(aa) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(bb) "Service" shall mean service as an Employee, Outside Director or
Consultant.
(cc) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 8 of the Plan (if applicable).
(dd) "Stock" shall mean the Common Stock of the Company.
(ee) "Subsidiary" shall mean any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if 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.
(ff) "Transferee" shall mean any person to whom the Optionee has
directly or indirectly transferred any Share acquired under this Agreement.
(gg) "Transfer Notice" shall mean the notice of a proposed transfer of
Shares described in Section 8.
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<PAGE>
Exhibit 10.6
Petopia.com, Inc. 1999 Stock Plan
Notice of Stock Option Grant
You have been granted the following option to purchase Common Stock of
Petopia.com, Inc. (the "Company"):
Name of Optionee: Scott Vertrees
Total Number of Shares Granted: 25,000
Type of Option: Nonstatutory Stock Option ("NSO")
Exercise Price Per Share: $1.25
Date of Grant: February 1, 2000
Date Exercisable: This option may be exercised, in
whole or in part, for the number
of options that have vested after
the Date of Grant.
Vesting Commencement Date: January 19, 2000
Vesting Schedule: 1/3rd of the shares subject to
this option shall vest when the
Optionee completes 1 year of
continuous Service after the
Vesting Commencement Date. An
additional 1/3rd of the shares
subject to this option shall vest
when the Optionee completes his
second year of continuous Service
after the Vesting Commencement
Date. The remaining 1/3rd of the
shares subject to this option
shall vest when the Optionee
completes his third year of
continuous Service after the
Vesting Commencement Date.
During the first year of Service,
an aggregate of 1/3rd of the
options shall be deemed vested
upon the earliest of (a) the date
on which the Company terminates
your employment for any reason
other than Cause, or (b) the date
on which you terminate your
employment for good reason. After
the first year from the Vesting
Commencement Date, in the event
of a termination without Cause
following a Change of Control, an
additional 1/3rd of the options
shall be deemed vested, provided
that no more than an aggregate of
[Total Number of Shares Granted]
shall ever be deemed vested.
Expiration Date: January 19, 2010
<PAGE>
By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Stock Plan and the Stock Option Agreement, both
of which are attached to and made a part of this document.
Optionee: Petopia.com, Inc.
______________________________________ By:_______________________________
______________________________________ Title:____________________________
Print Name
<PAGE>
Petopia.com, Inc. 1999 Stock Plan
Notice of Stock Option Grant
You have been granted the following option to purchase Common Stock of
Petopia.com, Inc. (the "Company"):
Name of Optionee: Scott Vertrees
Total Number of Shares Granted: 80,000
Type of Option: Incentive Stock Option ("ISO")
Exercise Price Per Share: $1.25
Date of Grant: February 1, 2000
Date Exercisable: This option may be exercised, in
whole or in part, for the number
of options that have vested after
the Date of Grant.
Vesting Commencement Date: January 18, 2000
Vesting Schedule: 1/3rd of the shares subject to
this option shall vest when the
Optionee completes 1 year of
continuous Service after the
Vesting Commencement Date. An
additional 1/3rd of the shares
subject to this option shall vest
when the Optionee completes his
second year of continuous Service
after the Vesting Commencement
Date. The remaining 1/3rd of the
shares subject to this option
shall vest when the Optionee
completes his third year of
continuous Service after the
Vesting Commencement Date.
During the first year of Service,
an aggregate of 1/3rd of the
options shall be deemed vested
upon the earliest of (a) the date
on which the Company terminates
your employment for any reason
other than Cause, or (b) the date
on which you terminate your
employment for good reason. After
the first year from the Vesting
Commencement Date, in the event of
a termination without Cause
following a Change of Control, an
additional 1/3rd of the options
shall be deemed vested, provided
that no more than an aggregate of
[Total Number of Shares Granted]
shall ever be deemed vested.
Expiration Date: January 19, 2010
<PAGE>
By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Stock Plan and the Stock Option Agreement, both
of which are attached to and made a part of this document.
Optionee: Petopia.com, Inc.
________________________________________ By:_______________________________
________________________________________ Title:____________________________
Print Name
<PAGE>
THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
Petopia.com, Inc. 1999 Stock Plan:
Stock Option Agreement
SECTION 1. GRANT OF OPTION.
(a) Option. On the terms and conditions set forth in the Notice of Stock
Option Grant and this Agreement, the Company grants to the Optionee on the Date
of Grant the option to purchase at the Exercise Price the number of Shares set
forth in the Notice of Stock Option Grant. The Exercise Price is agreed to be at
least 100% of the Fair Market Value per Share on the Date of Grant (110% of Fair
Market Value if Section 3) of the Plan applies). This option is intended to be
an ISO or a Nonstatutory Option, as provided in the Notice of Stock Option
Grant.
(b) Stock Plan and Defined Terms. This option is granted pursuant to the
Plan, a copy of which the Optionee acknowledges having received. The provisions
of the Plan are incorporated into this Agreement by this reference. Capitalized
terms are defined in Section 14 of this Agreement.
SECTION 2. RIGHT TO EXERCISE.
(a) Exercisability. Subject to Subsections (b) and (c) below and the
other conditions set forth in this Agreement, all or part of this option may be
exercised prior to its expiration at the time or times set forth in the Notice
of Stock Option Grant. Shares purchased by exercising this option may be subject
to the Right of Repurchase under Section 7.
(b) $100,000 Limitation. If this option is designated as an ISO in the
Notice of Stock Option Grant, then the Optionee's right to exercise this option
shall be deferred to the extent (and only to the extent) that this option
otherwise would not be treated as an ISO by reason of the $ 100,000 annual
limitation under Section 422(d) of the Code, except that:
(i) The Optionee's right to exercise this option shall in any event
become exercisable at least as rapidly as 20% per year over the five-year
period commencing on the Date of Grant, unless the Optionee is an officer
of the Company, an Outside Director or a Consultant; and
(ii) The Optionee's right to exercise this option shall no longer be
deferred if (A) the Company is subject to a Change in Control before the
<PAGE>
Optionee's Service terminates, (B) this option does not remain outstanding,
(C) this option is not assumed by the surviving corporation or its parent
and (D) the surviving corporation or its parent does not substitute an
option with substantially the same terms for this option.
(c) Stockholder Approval. Any other provision of this Agreement
notwithstanding, no portion of this option shall be exercisable at any time
prior to the approval of the Plan by the Company's stockholders.
SECTION 3. NO TRANSFER OR ASSIGNMENT OF OPTION.
Except as otherwise provided in this Agreement, this option and the
rights and privileges conferred hereby shall not be sold, pledged or otherwise
transferred (whether by operation of law or otherwise) and shall not be subject
to sale under execution, attachment, levy or similar process.
SECTION 4. EXERCISE PROCEDURES.
(a) Notice of Exercise. The Optionee or the Optionee's representative may
exercise this option by giving written notice to the Company pursuant to Section
13(C). The notice shall specify the election to exercise this option, the number
of Shares for which it is being exercised and the form of payment. The notice
shall be signed by the person exercising this option. In the event that this
option is being exercised by the representative of the Optionee, the notice
shall be accompanied by proof (satisfactory to the Company) of the
representative's right to exercise this option. The Optionee or the Optionee's
representative shall deliver to the Company, at the time of giving the notice,
payment in a form permissible under Section 5 for the full amount of the
Purchase Price.
(b) Issuance of Shares. After receiving a proper notice of exercise, the
Company shall cause to be issued a certificate or certificates for the Shares as
to which this option has been exercised, registered in the name of the person
exercising this option (or in the names of such person and his or her spouse as
community property or as joint tenants with right of survivorship). The Company
shall cause such certificate or certificates to be deposited in escrow or
delivered to or upon the order of the person exercising this option.
(c) Withholding Taxes. In the event that the Company determines that it
is required to withhold any tax as a result of the exercise of this option, the
Optionee, as a condition to the exercise of this option, shall make arrangements
satisfactory to the Company to enable it to satisfy all withholding
requirements. The Optionee shall also make arrangements satisfactory to the
Company to enable it to satisfy any withholding requirements that may arise in
connection with the vesting or disposition of Shares purchased by exercising
this option.
SECTION 5. PAYMENT FOR STOCK
(a) Cash. All or part of the Purchase Price may be paid in cash or cash
equivalents.
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<PAGE>
(b) Surrender of Stock. All or any part of the Purchase Price may be paid
by surrendering, or attesting to the ownership of, Shares that are already owned
by the Optionee. Such Shares shall be surrendered to the Company in good form
for transfer and shall be valued at their Fair Market Value on the date when
this option is exercised. The Optionee shall not surrender, or attest to the
ownership of, Shares in payment of the Purchase Price if such action would cause
the Company to recognize compensation expense (or additional compensation
expense) with respect to this option for financial reporting purposes.
(c) Exercise/Sale. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Shares and to deliver all or part of the sales
proceeds to the Company.
(d) Exercise/Pledge. If Stock is publicly traded, all or part of the
Purchase Price and any withholding taxes may be paid by the delivery (on a form
prescribed by the Company) of an irrevocable direction to pledge Shares to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
SECTION 6. TERM AND EXPIRATION.
(a) Basic Term. This option shall in any event expire on the expiration
date set forth in the Notice of Stock Option Grant, which date is 10 years after
the Date of Grant (five* years after the Date of Grant if this option is
designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the
Plan applies).
(b) Termination of Service (Except by Death). If the Optionee's Service
terminates for any reason other than death, then this option shall expire on the
earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (a) above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Disability; or
(iii) The date six months after the termination of the Optionee's
Service by reason of Disability.
The Optionee may exercise all or part of this option at any time before its
expiration under the preceding sentence, but only to the extent that this option
had become exercisable before the Optionee's Service terminated. When the
Optionee's Service terminates, this option shall expire immediately with respect
to the number of Shares for which this option is not yet exercisable and with
respect to any Restricted Shares. In the event that the Optionee dies after
termination of Service but before the expiration of this option, all or part of
this option may be exercised (prior to expiration) by the executors or
administrators of the Optionee's estate or by any person who has acquired this
option directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that this option had become exercisable
before the Optionee's Service terminated.
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<PAGE>
(c) Death of the Optionee. If the Optionee dies while in Service, then
this option shall expire on the earlier of the following dates:
(i) The expiration date determined pursuant to Subsection (a) above;
or
(ii) The date 12 months after the Optionee's death.
All or part of this option may be exercised at any time before its expiration
under the preceding sentence by the executors or administrators of the
Optionee's estate or by any person who has acquired this option directly from
the Optionee by beneficiary designation, bequest or inheritance, but only to the
extent that this option had become exercisable before the Optionee's death. When
the Optionee dies, this option shall expire immediately with respect to the
number of Shares for which this option is not yet exercisable and with respect
to any Restricted Shares.
(d) Leaves of Absence. For any purpose under this Agreement, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for such purpose is expressly required by the terms of such
leave or by applicable law (as determined by the Company).
(e) Notice Concerning ISO Treatment. If this option is designated as an
ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax
treatment as an ISO to the extent it is exercised (i) more than three months
after the date the Optionee ceases to be an Employee for any reason other than
death or permanent and total disability (as defined in Section 22(e)(3) of the
Code), (ii) more than 12 months after the date the Optionee ceases to be an
Employee by reason of such permanent and total disability or (iii) after the
Optionee has been on a leave of absence for more than 90 days, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
SECTION 7. RIGHT OF REPURCHASE.
(a) Scope of Repurchase Right. Unless they have become vested in
accordance with the Notice of Stock Option Grant and Subsection (c) below, the
Shares acquired under this Agreement initially shall be Restricted Shares and
shall be subject to a right (but not an obligation) of repurchase by the
Company. The Optionee shall not transfer, assign, encumber or otherwise dispose
of any Restricted Shares, except as provided in the following sentence. The
Optionee may transfer Restricted Shares (i) by beneficiary designation, will or
intestate succession or (ii) to the Optionee's spouse, children or grandchildren
or to a trust established by the Optionee for the benefit of the Optionee or the
Optionee's spouse, children or grandchildren, provided in either case that the
Transferee agrees in writing on a form prescribed by the Company to be bound by
all provisions of this Agreement. If the Optionee transfers any Restricted
Shares, then this Section 7 shall apply to the Transferee to the same extent as
to the Optionee.
(b) Condition Precedent to Exercise. The Right of Repurchase shall be
exercisable with respect to any Restricted Shares only during the 60-day period
next following the later of:
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<PAGE>
(i) The date when the Optionee's Service terminates for any reason,
with or without Cause, including (without limitation) death or disability;
or
(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.
(c) Lapse of Repurchase Right. The Right of Repurchase shall lapse with
respect to the Shares subject to this option in accordance with the vesting
schedule set forth in the Notice of Stock Option Grant. In addition, the Right
of Repurchase shall lapse and all of the remaining Restricted Shares shall
become vested if (i) the Company is subject to a Change in Control before the
Optionee's Service terminates and (ii) the Right of Repurchase is not assigned
to the entity that employs the Optionee immediately after the Change in Control
or to its parent or subsidiary.
(d) Repurchase Cost. If the Company exercises the Right of Repurchase, it
shall pay the Optionee an amount equal to the Exercise Price for each of the
Restricted Shares being repurchased.
(e) Exercise of Repurchase Right. The Right of Repurchase 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. 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. The Right of Repurchase shall
terminate with respect to any Restricted Shares for which it has not been timely
exercised pursuant to this Subsection (e).
(f) Additional Shares or 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 affecting the
Company's 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 Right of
Repurchase. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the
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
Right of Repurchase in order to reflect any change in the Company's outstanding
securities effected without receipt of consideration
5
<PAGE>
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 7, 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, 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
Right of Repurchase or Right of First Refusal or (ii) released to the Optionee
upon the Optionee's request to the extent the Shares are no longer Restricted
Shares (but not more frequently than once every six months). In any event, all
Shares which have vested (and any other vested assets and securities
attributable thereto) shall be released within 60 days after the earlier of (i)
the Optionee's cessation of Service or (ii) the lapse of the Right of First
Refusal.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) Right of First Refusal. In the event that the Optionee proposes to
sell, pledge or otherwise transfer to a third party any Shares acquired under
this Agreement, or any interest in such Shares, the Company shall have the Right
of First Refusal with respect to all (and not less than all) of such Shares. If
the Optionee desires to transfer Shares acquired under this Agreement, the
Optionee shall give a written Transfer Notice to the Company describing fully
the proposed transfer, including the number of Shares proposed to be
transferred, the proposed transfer price, the name and address of the proposed
Transferee and proof satisfactory to the Company that the proposed sale or
transfer will not violate any applicable federal or state securities laws. The
Transfer Notice shall be signed both by the Optionee and by the proposed
Transferee and must constitute a binding commitment of both parties to the
transfer of the Shares. The Company shall have the right to purchase all, and
not less than all, of the Shares on the terms of the proposal described in the
Transfer Notice (subject, however, to any change in such terms permitted under
Subsection (b) below) by delivery of a notice of exercise of the Right of First
Refusal within 30 days after the date when the Transfer Notice was received by
the Company. The Company's tights under this Subsection (a) shall be freely
assignable, in whole or in part.
6
<PAGE>
(b) Transfer of Shares. If the Company fails to exercise its Right of
First Refusal within 30 days after the date when it received the Transfer
Notice, the Optionee may, not later than 90 days following receipt of the
Transfer Notice by the Company, conclude a transfer of the Shares subject to the
Transfer Notice on the terms and conditions described in the Transfer Notice,
provided that any such sale is made in compliance with applicable federal and
state securities laws and not in violation of any other contractual restrictions
to which the Optionee is bound. Any proposed transfer on terms and conditions
different from those described in the Transfer Notice, as well as any subsequent
proposed transfer by the Optionee, shall again be subject to the Right of First
Refusal and shall require compliance with the procedure described in Subsection
(a) above. If the Company exercises its Right of First Refusal, the parties
shall consummate the sale of the Shares on the terms set forth in the Transfer
Notice within 60 days after the date when the Company received the Transfer
Notice (or within such longer period as may have been specified in the Transfer
Notice); provided, however, that in the event the Transfer Notice provided that
payment for the Shares was to be made in a form other than cash or cash
equivalents paid at the time of transfer, the Company shall have the option of
paying for the Shares with cash or cash equivalents equal to the present value
of the consideration described in the Transfer Notice.
(c) Additional Shares or 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 affecting the
Company's 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 Shares subject to this Section 8 or into which
---
such Shares thereby become convertible shall immediately be subject to this
Section 8. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the Shares
subject to this Section 8.
(d) Termination of Right of First Refusal. Any other provision of this
Section 8 notwithstanding, in the event that the Stock is readily tradable on an
established securities market when the Optionee desires to transfer Shares, the
Company shall have no Right of First Refusal, and the Optionee shall have no
obligation to comply with the procedures prescribed by Subsections (a) and (b)
above.
(e) Permitted Transfers. This Section 8 shall not apply to (i) a transfer
by beneficiary designation, will or intestate succession or (ii) a transfer to
the Optionee's spouse, children or grandchildren or to a trust established by
the Optionee for the benefit of the Optionee or the Optionee's spouse, children
or grandchildren, provided in either case that the Transferee agrees in writing
on a form prescribed by the Company to be bound by all provisions of this
Agreement. If the Optionee transfers any Shares acquired under this Agreement,
either under this Subsection (e) or after the Company has failed to exercise the
Right of First Refusal, then this Section 8 shall apply to the Transferee to the
same extent as to the Optionee.
(f) 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 Shares to be purchased in accordance with this Section 8,
then after such time the person
7
<PAGE>
from whom such Shares are to be purchased shall no longer have any rights as a
holder of such Shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such Shares shall be deemed to
have been purchased in accordance with the applicable provisions hereof, whether
or not the certificate(s) therefor have been delivered as required by this
Agreement.
SECTION 9. LEGALITY OF INITIAL ISSUANCE.
No Shares shall be issued upon the exercise of this option unless and
until the Company has determined that:
(a) It and the Optionee have taken any actions required to register
the Shares under the Securities Act or to perfect an exemption from the
registration requirements thereof,
(b) Any applicable listing requirement of any stock exchange or other
securities market on which Stock is listed has been satisfied; and
(c) Any other applicable provision of state or federal law has been
satisfied.
SECTION 10. NO REGISTRATION RIGHTS.
The Company may, but shall not be obligated to, register or qualify
the sale of Shares under the Securities Act or any other applicable law. The
Company shall not be obligated to take any affirmative action in order to cause
the sale of Shares under this Agreement to comply with any law.
SECTION 11. RESTRICTIONS ON TRANSFER.
(a) Securities Law Restrictions. Regardless of whether the offering
and sale of Shares under the Plan have been registered under the Securities Act
or have been registered or qualified under the securities laws of any state, the
Company at its discretion may impose restrictions upon the sale, pledge or other
transfer of such Shares (including the placement of appropriate legends on stock
certificates or the imposition of stop-transfer instructions) if, in the
judgment of the Company, such restrictions are necessary or desirable in order
to achieve compliance with the Securities Act, the securities laws of any state
or any other law.
(b) Market Stand-Off. In connection with any underwritten public
offering by the Company of its equity securities pursuant to an effective
registration statement filed under the Securities Act, including the Company's
initial public offering, the Optionee shall not directly or indirectly sell,
make any short sale of, loan, hypothecate, pledge, offer, grant or sell any
option or other contract for the purchase of, purchase any option or other
contract for the sale of, or otherwise dispose of or transfer, or agree to
engage in any of the foregoing transactions with respect to, any Shares acquired
under this Agreement without the prior written consent of the Company or its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect for
such period of time following the date of the final prospectus for the offering
as may be requested by the Company or such underwriters. In no event, however,
shall such period exceed 180 days. The Market Stand-Off shall in any event
terminate two years after the date of the Company's initial public offering. In
the event of the declaration of a stock dividend, a spin-off,
8
<PAGE>
a stock split, an adjustment in conversion ratio, a recapitalization or a
similar transaction affecting the Company's outstanding securities without
receipt of consideration, any new, substituted or additional securities which
are by reason of such transaction distributed with respect to any Shares subject
to the Market Stand-Off, or into which such Shares thereby become convertible,
shall immediately be subject to the Market Stand-Off. In order to enforce the
Market Stand-Off, the Company may impose stop-transfer instructions with respect
to the Shares acquired under this Agreement until the end of the applicable
stand-off period. The Company's underwriters shall be beneficiaries of the
agreement set forth in this Subsection (b). This Subsection (b) shall not apply
to Shares registered in the public offering under the Securities Act, and the
Optionee shall be subject to this Subsection (b) only if the directors and
officers of the Company are subject to similar arrangements.
(c) Investment Intent at Grant. The Optionee represents and agrees
that the Shares to be acquired upon exercising this option will be acquired for
investment, and not with a view to the sale or distribution thereof.
(d) Investment Intent at Exercise. In the event that the sale of
Shares under the Plan is not registered under the Securities Act but an
exemption is available which requires an investment representation or other
representation, the Optionee shall represent and agree at the time of exercise
that the Shares being acquired upon exercising this option are being acquired
for investment, and not with a view to the sale or distribution thereof, and
shall make such other representations as are deemed necessary or appropriate by
the Company and its counsel.
(e) Legends. All certificates evidencing Shares purchased under this
Agreement shall bear the following legend:
"THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT
IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT
GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON
AN ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE
RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY. THE
SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A
COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE."
All certificates evidencing Shares purchased under this Agreement in an
unregistered transaction shall bear the following legend (and such other
restrictive legends as are required or deemed advisable under the provisions of
any applicable law):
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN
9
<PAGE>
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
(f) Removal of Legends. If, in the opinion of the Company and its
counsel, any legend placed on a stock certificate representing Shares sold under
this Agreement is no longer required, the holder of such certificate shall be
entitled to exchange such certificate for a certificate representing the same
number of Shares but without such legend.
(g) Administration. Any determination by the Company and its counsel
in connection with any of the matters set forth in this Section II shall be
conclusive and binding on the Optionee and all other persons.
SECTION 12. ADJUSTMENT OF SHARES.
In the event of any transaction described in Section 8(a) of the Plan,
the terms of this option (including, without limitation, the number and kind of
Shares subject to this option and the Exercise Price) shall be adjusted as set
forth in Section 8(a) of the Plan. In the event that the Company is a party to a
merger or consolidation, this option shall be subject to the agreement of merger
or consolidation, as provided in Section 8(b) of the Plan.
SECTION 13. MISCELLANEOUS PROVISIONS.
(a) Rights as a Stockholder. Neither the Optionee nor the Optionee's
representative shall have any rights as a stockholder with respect to any Shares
subject to this option until the Optionee or the Optionee's representative
becomes entitled to receive such Shares by filing a notice of exercise and
paying the Purchase Price pursuant to Sections 4 and 5.
(b) No Retention Rights. Nothing in this option or in the Plan shall
confer upon the Optionee any right to continue in Service for any period of
specific duration or interfere with or otherwise restrict in any way the rights
of the Company (or any Parent or Subsidiary employing or retaining the Optionee)
or of the Optionee, which rights are hereby expressly reserved by each, to
terminate his or her Service at any time and for any reason, with or without
Cause.
(c) Notice. Any notice required by the terms of this Agreement shall
be given in writing and shall be deemed effective upon personal delivery or upon
deposit with the United States Postal Service, by registered or certified mail,
with postage and fees prepaid. Notice shall be addressed to the Company at its
principal executive office and to the Optionee at the address that he or she
most recently provided to the Company.
(d) Entire Agreement. The Notice of Stock Option Grant, this
Agreement and the Plan constitute the entire contract between the parties hereto
with regard to the subject matter hereof. They supersede any other agreements,
representations or understandings (whether oral or written and whether express
or implied) which relate to the subject matter hereof.
(e) Choice of Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State.
10
<PAGE>
SECTION 14. DEFINITIONS.
(a) "Agreement" shall mean this Stock Option Agreement.
(b) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time or, if a Committee has been appointed,
such Committee.
(c) "Cause" For purposes of this Agreement, "Cause" for the
termination of Purchaser's employment with the Company or its successor will
exist at any time after the Purchaser (1) has been convicted of a crime
involving fraud, theft, embezzlement or similar criminal conduct or moral
turpitude; (2) has failed or refused to follow policies or directives
established by the management of the Company, (3) has committed acts amounting
to gross negligence or willful misconduct to the detriment of the Company, or
(4) has breached any of the material terms and provisions of his or her
employment and/or consulting agreement.
(d) "Change of Control" shall mean:
(i) The consummation of a merger or consolidation of
the Company with or into another entity or any other corporate
reorganization, if persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other
reorganization own immediately after such merger, consolidation
or other reorganization 50% or more of the voting power of the
outstanding securities of each of (A) the continuing or surviving
entity and (B) any direct or indirect parent corporation of such
continuing or surviving entity; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets.
A transaction shall not constitute a Change of Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean a committee of the Board of Directors, as
described in Section 2 of the Plan.
(g) "Company" shall mean Petopia.com, Inc., a Delaware corporation.
(h) "Consultant" shall mean a person who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(i) "Date of Grant" shall mean the date specified in the Notice of
Stock Option Grant, which date shall be the later of (i) the date on which the
Board of Directors resolved to grant this option or (ii) the first day of the
Optionee's Service.
11
<PAGE>
(j) "Disability" shall mean that the Optionee is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment.
(k) "Employee" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.
(l) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of this option, as specified in the Notice of Stock
Option Grant.
(m) "Fair Market Value" shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination shall
be conclusive and binding on all persons.
(n) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(o) "Nonstatutory Option" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(p) "Notice of Stock Option Grant" shall mean the document so
entitled to which this Agreement is attached.
(q) "Optionee" shall mean the individual named in the Notice of Stock
Option Grant.
(r) "Outside Director" shall mean a member of the Board of Directors
who is not an Employee.
(s) "Parent" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company 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.
(t) "Plan" shall mean the Petopia.com, Inc. 1999 Stock Plan, as in
effect on the Date of Grant.
(u) "Purchase Price" shall mean the Exercise Price multiplied by the
number of Shares with respect to which this option is being exercised.
(v) "Restricted Share" shall mean a Share that is subject to the
Right of Repurchase.
(w) "Right of First Refusal" shall mean the Company's right of first
refusal described in Section 8.
(x) "Right of Repurchase" shall mean the Company's right of
repurchase described in Section 7.
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<PAGE>
(y) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(z) "Service" shall mean service as an Employee, Outside Director or
Consultant.
(aa) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 8 of the Plan (if applicable).
(bb) "Stock" shall mean the Common Stock of the Company.
(cc) "Subsidiary" shall mean any corporation (other than the Company)
in an: unbroken chain of corporations beginning with the Company, if 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.
(dd) "Transferee" shall mean any person to whom the Optionee has
directly or indirectly transferred any Share acquired under this Agreement.
(ee) "Transfer Notice" shall mean the notice of a proposed transfer of
Shares described in Section 8.
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<PAGE>
Exhibit 10.7
Employee:__________________
PETOPIA.COM, INC.
PROPRIETARY INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my becoming employed (or my employment being
continued) or my being retained as a consultant (or my consulting relationship
being continued) by Petopia.com, Inc., a Delaware corporation, or any of its
current or future subsidiaries, affiliates, successors or assigns (collectively,
the "Company"), and in consideration of my employment or consulting relationship
-------
with the Company and my receipt of the compensation now and hereafter paid to me
by the Company, I agree to the following:
1. Employment or Consulting Relationship. I understand and
-------------------------------------
acknowledge that this Agreement does not alter, amend or expand upon any rights
I may have to continue in the employ of or in a consulting relationship with, or
the duration of my employment or consulting relationship with, the Company under
any existing agreements between the Company and me or under applicable law. Any
employment or consulting relationship between the Company and me, whether
commenced prior to or upon the date of this Agreement, shall be referred to
herein as the "Relationship."
------------
2. At Will Employment. I understand and acknowledge that my
------------------
Relationship with the Company is and shall continue to be at will, as defined
under applicable law, meaning that either I or the Company may terminate the
Relationship at any time for any reason or no reason, without further obligation
or liability.
3. Proprietary Information.
-----------------------
(a) Company Information. I agree at all times during the term of the
-------------------
Relationship and thereafter, to hold in strictest confidence, and not to use,
except for the benefit of the Company, or to disclose to any person, firm or
corporation without written authorization of the President of the Company, any
Proprietary Information of the Company that I obtain or create. I further agree
not to make copies of such Proprietary Information except as authorized by the
Company. I understand that "Proprietary Information" means any Company
-----------------------
proprietary information, technical data, trade secrets or know-how, including,
but not limited to, research, product plans, products, services, suppliers,
customer lists and customers (including, but not limited to, customers of the
Company on whom I called or with whom I became acquainted during the
Relationship), prices and costs, markets, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, licenses, finances, budgets or other
business information disclosed to me by the Company either directly or
indirectly in writing, orally or by drawings or observation of parts or
equipment or created by me during the period of the Relationship, whether or not
during working hours. I understand that "Proprietary Information" includes, but
-----------------------
is not limited to, information pertaining to any aspects of the Company's
business which is either information not known by actual or potential
competitors of the Company or is proprietary information of the
<PAGE>
Company or its customers or suppliers, whether of a technical nature or
otherwise. I further understand that Proprietary 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 represent that my performance of
---------------------------
all terms of this Agreement as an employee or consultant of the Company have not
breached and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by me in confidence or trust prior or
subsequent to the commencement of the Relationship, and I will not use in the
course of the Relationship, disclose to the Company, or induce the Company to
use, any inventions, confidential or proprietary information or material
belonging to any previous employer or any other party.
(c) Third Party Information. I recognize that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company'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
Company in a manner consistent with the Company's agreement with such third
party.
4. 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 that were made by me prior to the
Relationship (collectively referred to as "Prior Inventions"), which belong to
----------------
me, which relate to the Company's proposed or current business, products or
research and development, and which are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of the Relationship, I incorporate into a Company
product, process or machine a Prior Invention owned by me or in which I have an
interest, the Company is hereby granted and shall have a non-exclusive, royalty-
free, irrevocable, perpetual, worldwide license (with the right to sublicense)
to make, have made, copy, modify, make derivative works of, use, sell and
otherwise distribute such Prior Invention as part of or in connection with such
product, process or machine.
(b) Assignment of Inventions. I agree that I 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, and agree to assign, to the Company,
or its designee, all my right, title and interest throughout the world in and to
any and all inventions, original works of authorship, developments, concepts,
know-how, improvements or trade secrets, whether or not patentable or
registrable under copyright or similar laws, that 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 of the Relationship
(collectively referred to as "Inventions"), except as provided in Section 4(e)
----------
below. I further acknowledge that all inventions, original works of authorship,
developments, concepts, know-how, improvements or trade secrets which are made
by me
-2-
<PAGE>
(solely or jointly with others) within the scope of and during the period of the
Relationship are "works made for hire" (to the greatest extent permitted by
-------------------
applicable law) and are compensated by my salary (if I am an employee) or by
such amounts paid to me under any applicable consulting agreement or consulting
arrangements (if I am a consultant), unless regulated otherwise by mandatory
law.
(c) 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 the Relationship. The records may be in the form of
notes, sketches, drawings, flow charts, electronic data or recordings,
laboratory notebooks, and any other format. The records will be available to
and remain the sole property of the Company at all times. I agree not to remove
such records from the Company's place of business except as expressly permitted
by Company policy which may, from time to time, be revised at the sole election
of the Company.
(d) Patent and Copyright Registrations. I agree to 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,
trademarks, mask work rights, moral 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, obtain
maintain and transfer 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. 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 Company is unable because of my mental or
physical incapacity or unavailability 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 Company as above, then I hereby irrevocably
designate and appoint the Company 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 application for, prosecution, issuance, maintenance or transfer of
letters patent or copyright registrations thereon with the same legal force and
effect as if executed by me. I hereby waive and irrevocably quitclaim to the
Company any and all claims, of any nature whatsoever, which I now or hereafter
have for infringement of any and all proprietary rights assigned to the Company.
(e) Exception to Assignments. I understand 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). I will advise the Company
---------
promptly in writing of any inventions that I believe meet such provisions and
that are not disclosed on Exhibit A.
---------
-3-
<PAGE>
5. Returning Company Documents. I agree that, at the time of termination
---------------------------
of the Relationship, I will deliver to the Company (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, laboratory notebooks, materials, flow charts,
equipment, other documents or property, or reproductions of any aforementioned
items developed by me pursuant to the Relationship or otherwise belonging to the
Company, its successors or assigns. I further agree that to any property
situated on the Company's premises and owned by the Company, including disks and
other storage media, filing cabinets or other work areas, is subject to
inspection by Company personnel at any time with or without notice. In the event
of the termination of the Relationship, I agree to sign and deliver the
"Termination Certificate" attached hereto as Exhibit C.
----------------------- ---------
6. Notification to Other Parties.
-----------------------------
(a) Employees. In the event that I leave the employ of the Company, I
---------
hereby consent to notification by the Company to my new employer about my rights
and obligations under this Agreement.
(b) Consultants. I hereby grant consent to notification by the
-----------
Company to any other parties besides the Company with whom I maintain a
consulting relationship, including parties with whom such relationship commences
after the effective date of this Agreement, about my rights and obligations
under this Agreement.
7. Solicitation of Employees, Consultants and Other Parties. I agree
--------------------------------------------------------
that during the term of the Relationship, and for a period of twenty-four (24)
months immediately following the termination of the Relationship for any reason,
whether with or without cause, I shall not either directly or indirectly
solicit, induce, recruit or encourage any of the Company's employees or
consultants to terminate their relationship with the Company, or take away such
employees or consultants, or attempt to solicit, induce, recruit, encourage or
take away employees or consultants of the Company, either for myself or for any
other person or entity. Further, for a period of twenty-four (24) months
following termination of the Relationship for any reason, with or without cause,
I shall not solicit any licensor to or customer of the Company or licensee of
the Company's products, in each case, that are known to me, with respect to any
business, products or services that are competitive to the products or services
offered by the Company or under development as of the date of termination of the
Relationship.
8. Representations and Covenants.
-----------------------------
(a) Facilitation of Agreement. I agree to execute promptly any proper
-------------------------
oath or verify any proper document required to carry out the terms of this
Agreement upon the Company's written request to do so.
(b) Conflicts. 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 commencement of
the Relationship. I have not entered
-4-
<PAGE>
into, and I agree I will not enter into, any oral or written agreement in
conflict with any of the provisions of this Agreement.
(c) Voluntary Execution. I certify and acknowledge that I have
-------------------
carefully read all of the provisions of this Agreement and that I understand and
will fully and faithfully comply with such provisions.
9. General Provisions.
------------------
(a) Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(b) Entire Agreement. This Agreement sets forth the entire agreement
----------------
and understanding between the Company and me relating to the subject matter
herein and merges all prior discussions between us. No modification or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by the party to be charged. Any
subsequent change or changes in my duties, obligations, rights 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 Company, its successors, and its assigns.
(e) Survival. The provisions of this Agreement shall survive the
--------
termination of the Relationship and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
(f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS
-----------------
AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF LEGAL COUNSEL, AND I
HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT.
THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE
DRAFTING OR PREPARATION HEREOF.
[Signature Page Follows]
-5-
<PAGE>
The parties have executed this Agreement on the respective dates set forth
below:
COMPANY: EMPLOYEE OR CONSULTANT:
PETOPIA.COM, INC. __________________, an Individual:
By:___________________________ __________________________________
Signature
Title:________________________
Date:_________________________ Date:_____________________________
Address: Address:
357 Tehema Street Street:___________________________
San Francisco, California 94103 ___________________________
-6-
<PAGE>
Exhibit 10.8
PETOPIA.COM, INC.
PROPRIETARY INFORMATION AND
INVENTION ASSIGNMENT/LICENSE-BACK AGREEMENT
As a condition of my becoming employed (or my employment being
continued) or my being retained as a consultant (or my consulting relationship
being continued) by Petopia.com, Inc., a Delaware corporation, or any of its
current or future subsidiaries, affiliates, successors or assigns (collectively,
the "Company"), and in consideration of my employment or consulting relationship
-------
with the Company and my receipt of the compensation now and hereafter paid to me
by the Company, I, Prem Urali, agree to the following:
1. Employment or Consulting Relationship. I understand and
-------------------------------------
acknowledge that this Agreement does not alter, amend or expand upon any rights
I may have to continue in the employ of or in a consulting relationship with, or
the duration of my employment or consulting relationship with, the Company under
any existing agreements between the Company and me or under applicable law. Any
employment and/or consulting relationship between the Company and me, whether
commenced prior to or upon the date of this Agreement, shall be referred to
herein as the "Relationship."
------------
2. At Will Employment. I understand and acknowledge that my
------------------
Relationship with the Company is and shall continue to be at will, as defined
under applicable law, meaning that either I or the Company may terminate the
Relationship at any time for any reason or no reason, without further obligation
or liability.
3. Proprietary Information.
-----------------------
(a) Company Information. I agree at all times during the term of
-------------------
the Relationship and thereafter, to hold in strictest confidence, and not to
use, except for the benefit of the Company and within the scope of my
Relationship, or to disclose to any person, firm or corporation without written
authorization of the President of the Company, any Proprietary Information of
the Company that I obtain or create. I further agree not to make copies of such
Proprietary Information except as authorized by the Company. I understand that
"Proprietary Information" means any Company proprietary information, technical
-----------------------
data, trade secrets or know-how, including, but not limited to, research,
product plans, products, services, suppliers, customer lists and customers
(including, but not limited to, customers of the Company on whom I called or
with whom I became acquainted during the Relationship), prices and costs,
markets, software, developments, inventions, processes, formulas, technology,
designs, drawings, engineering, hardware configuration information, marketing,
licenses, finances, budgets or other business information disclosed to me by the
Company either directly or indirectly in writing, orally or by drawings or
observation of parts or equipment or created by me during the period of the
Relationship, whether or not during working hours. I understand that
"Proprietary Information" includes, but is not limited to, information
-----------------------
pertaining to any aspects of the Company's business which is either information
not known by actual or potential competitors of
<PAGE>
the Company or is proprietary information of the Company or its customers or
suppliers, whether of a technical nature or otherwise. I further understand that
Proprietary 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 represent that my performance of
---------------------------
all terms of this Agreement as an employee or consultant of the Company have not
breached and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by me in confidence or trust prior or
subsequent to the commencement of the Relationship, and I will not use in the
course of the Relationship, disclose to the Company, or induce the Company to
use, any inventions, confidential or proprietary information or material
belonging to any previous employer or any other party.
(c) Third Party Information. I recognize that the Company has
-----------------------
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company'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
Company in a manner consistent with the Company's agreement with such third
party.
4. 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 that were made by me prior to the
Relationship (collectively referred to as "Prior Inventions"), which belong to
----------------
me, which relate to the Company's proposed or current business, products or
research and development, and which are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of the Relationship, I incorporate into a Company
product, process or machine a Prior Invention owned by me or in which I have an
interest, the Company is hereby granted and shall have a non-exclusive, royalty-
free, irrevocable, perpetual, worldwide license (with the right to sublicense)
to make, have made, copy, modify, make derivative works of, use, sell and
otherwise distribute such Prior Invention as part of or in connection with such
product, process or machine.
(b) Assignment of Inventions. I agree that I 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, and agree to assign, to the
Company, or its designee, all my right, title and interest throughout the world
in and to any and all inventions, original works of authorship, developments,
concepts, know-how, improvements or trade secrets, whether or not patentable or
registrable under copyright or similar laws, that 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 of the Relationship
(collectively referred to as "Inventions"), except as provided in Section 4(e)
----------
below. I further acknowledge that all inventions, original works of authorship,
-2-
<PAGE>
developments, concepts, know-how, improvements or trade secrets which are made
by me (solely or jointly with others) within the scope of and during the period
of the Relationship are "works made for hire" (to the greatest extent permitted
-------------------
by applicable law) and are compensated by my salary, during any period as an
employee, or by such amounts paid to me under any applicable consulting
agreement or consulting arrangements, during any period as a consultant, unless
regulated otherwise by mandatory law.
(c) 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 the Relationship. The records may be in the form of
notes, sketches, drawings, flow charts, electronic data or recordings,
laboratory notebooks, and any other format. The records will be available to
and remain the sole property of the Company at all times. I agree not to remove
such records from the Company's place of business except as expressly permitted
by Company policy which may, from time to time, be revised at the sole election
of the Company.
(d) Patent and Copyright Registrations. I agree to 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,
trademarks, mask work rights, moral 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, obtain
maintain and transfer 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. 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 Company is unable because of my mental or
physical incapacity or unavailability 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 Company as above, then I hereby irrevocably
designate and appoint the Company 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 application for, prosecution, issuance, maintenance or transfer of
letters patent or copyright registrations thereon with the same legal force and
effect as if executed by me. I hereby waive and irrevocably quitclaim to the
Company any and all claims, of any nature whatsoever, which I now or hereafter
have for infringement of any and all proprietary rights assigned to the Company.
(e) Exception to Assignments. I understand 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). I will advise the Company
---------
promptly in writing of any inventions that I believe meet such provisions and
that are not disclosed on Exhibit A.
---------
-3-
<PAGE>
5. Limited License. The Company hereby grants me a non-exclusive,
---------------
royalty-free, worldwide license (with the right to sublicense in accordance with
the restrictions set forth herein) to make, have made, copy, modify, make
derivative works of and use the Inventions conceived or reduced to practice
solely by me (the "License"); provided, however, that I shall not use,
-------
sublicense or allow to be sublicensed (either directly or through multiple
tiers) the License in any manner, either directly or indirectly, for the benefit
of or to any third party which is a competitor of the Company, as determined by
the Company in its sole discretion; and provided, further, that any sublicense
shall be bound by the same restrictions set forth herein. Any use or sublicense
of the License in violation of the foregoing shall result in immediate
termination of the License.
6. Returning Company Documents. I agree that, at the time of
---------------------------
termination of the Relationship, I will deliver to the Company (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, laboratory notebooks, materials, flow charts,
equipment, other documents or property, or reproductions of any aforementioned
items developed by me pursuant to the Relationship or otherwise belonging to the
Company, its successors or assigns. I further agree that to any property
situated on the Company's premises and owned by the Company, including disks and
other storage media, filing cabinets or other work areas, is subject to
inspection by Company personnel at any time with or without notice. In the
event of the termination of the Relationship, I agree to sign and deliver the
"Termination Certificate" attached hereto as Exhibit C.
----------------------- ---------
7. Notification to Other Parties.
-----------------------------
(a) Employees. In the event that I leave the employ of the
---------
Company, I hereby consent to notification by the Company to my new employer
about my rights and obligations under this Agreement.
(b) Consultants. I hereby grant consent to notification by the
-----------
Company to any other parties besides the Company with whom I maintain a
consulting relationship, including parties with whom such relationship commences
after the effective date of this Agreement, about my rights and obligations
under this Agreement.
8. Solicitation of Employees, Consultants and Other Parties. I agree
--------------------------------------------------------
that during the term of the Relationship, and for a period of twenty-four (24)
months immediately following the termination of the Relationship for any reason,
whether with or without cause, I shall not either directly or indirectly
solicit, induce, recruit or encourage any of the Company's employees or
consultants to terminate their relationship with the Company, or take away such
employees or consultants, or attempt to solicit, induce, recruit, encourage or
take away employees or consultants of the Company, either for myself or for any
other person or entity. Further, for a period of twenty-four (24) months
following termination of the Relationship for any reason, with or without cause,
I shall not solicit any licensor to or customer of the Company or licensee of
the Company's products, in each case, that are known to me, with respect to any
business, products
-4-
<PAGE>
or services that are competitive to the products or services offered by the
Company or under development as of the date of termination of the Relationship.
9. Representations and Covenants.
-----------------------------
(a) Facilitation of Agreement. I agree to execute promptly any
-------------------------
proper oath or verify any proper document required to carry out the terms of
this Agreement upon the Company's written request to do so.
(b) Conflicts. 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
commencement of the Relationship. I have not entered into, and I agree I will
not enter into, any oral or written agreement in conflict with any of the
provisions of this Agreement.
(c) Voluntary Execution. I certify and acknowledge that I have
-------------------
carefully read all of the provisions of this Agreement and that I understand and
will fully and faithfully comply with such provisions.
10. General Provisions.
------------------
(a) Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(b) Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding between the Company and me relating to the subject
matter herein and merges all prior discussions between us. No modification or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by the party to be charged. Any
subsequent change or changes in my duties, obligations, rights 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 Company, its successors, and its assigns.
(e) Survival. The provisions of this Agreement shall survive the
--------
termination of the Relationship and the assignment of this Agreement by the
Company to any successor in interest or other assignee.
(f) ADVICE OF COUNSEL. I ACKNOWLEDGE THAT, IN EXECUTING THIS
-----------------
AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF LEGAL COUNSEL, AND I
HAVE READ AND UNDERSTOOD ALL OF THE
-5-
<PAGE>
TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
The parties have executed this Agreement on the respective dates set
forth below:
COMPANY:
PETOPIA.COM, INC. PREM URALI, an Individual:
By:_________________________________ _________________________________
Signature
Title:______________________________
Date:_______________________________ Date:____________________________
Address: Address:
357 Tehema Street Street:__________________________
San Francisco, California 94103 __________________________
-6-
<PAGE>
EXHIBIT 10.9
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the "Agreement") is made as
---------
of April 15, 1999 (the "Purchase Date"), by and between Petopia.com, Inc., a
Delaware corporation (the "Company"), and ANDREA C. REISMAN ("Purchaser").
------- ---------
W I T N E S S E T H
WHEREAS, the Purchaser is a founder of the Company and desires to
purchase shares of the Company's common stock as a founder; and
WHEREAS, the Purchaser possesses certain personal and intellectual
property listed on Attachment A to the Bill of Sale attached hereto as Exhibit A
------------ ---------
(the "Assets"), which Purchaser intends to assign to the Company as
------
consideration for the shares purchased hereunder, and which assignment shall be
made pursuant to the Technology Transfer Agreement dated as of even date hereof
between Purchaser and the Company and attached hereto as Exhibit B;
---------
NOW, THEREFORE, in consideration for the mutual promises and covenants
set forth herein, the parties agree as follows:
1. Sale of Stock. Subject to the terms and conditions of this
-------------
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company, two
million, two hundred eighty-eight thousand, eight hundred thirteen (2,288,813)
Shares (as defined below) in exchange for the entirety of the Purchaser's right,
title and interest in the Assets. The Company and the Purchaser agree that the
fair market value of such consideration equals $178,527.41, or $.078 per
purchased Share.
The term "Shares" refers to the Shares and all securities received in
replacement of or in connection with the Shares pursuant to stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Purchase. The purchase and sale of the Shares under this
--------
Agreement shall occur at the principal office of the Company simultaneously with
the execution of this Agreement or at such other time and place as the Company
and Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
delivery of the Assets.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from the Repurchase Option,
<PAGE>
Purchaser shall not assign, encumber or dispose of any interest in such Shares
except in compliance with the provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser's employment with the Company for any reason (including death or
disability), with or without cause, the Company shall upon the date of such
termination (the "Termination Date") have an irrevocable, exclusive option (the
----------------
"Repurchase Option") for a period of 60 days from such date to repurchase all or
-----------------
any portion of the Shares held by Purchaser as of the Termination Date which
have not yet been released from the Company's Repurchase Option at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like); provided, however, that the Repurchase Option
-------- -------
shall continue for a period of up to one year from the Termination Date to the
extent that the Company reasonably determines that such an extension of time is
necessary to prevent the repurchase of Purchaser's Shares from causing other
capital stock of the Company to not qualify as "small business stock" under
Section 1202 of the Internal Revenue Code of 1986, as amended.
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase 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 interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) Subject to Section 3(a)(iv) below, the Repurchase Option
shall be in effect with respect to 60% of the Shares as of the Purchase Date,
with 40% of the Shares not being subject to the Repurchase Option as of the
Purchase Date. The Repurchase Option as to the remaining 60% of the Shares shall
lapse as to 1/36 of such remaining shares on each monthly anniversary of the
closing date of the sale of at least $4,000,000 of the Company's Series A
Preferred Stock (the "Vesting Commencement Date"), until all Shares are released
from the Repurchase Option (provided in each case that Purchaser's employment
with the Company has not been terminated prior to the date of any such release).
Fractional shares shall be rounded to the nearest whole share. Shares as to
which the Repurchase Option has not lapsed are referred to as "Unvested Shares."
---------------
(iv) For purposes hereunder, a "Merger" shall mean the
completion of a merger or consolidation of the Company in which the Company is
not the survivor or in which greater than 50% of the voting power of the Company
is transferred, or a sale of all or substantially all of the Company's assets or
capital stock, excluding a transaction for the sole
-2-
<PAGE>
purpose of changing the legal domicile of the Company. In the event that
Purchaser's employment with the Company (or its successor entity) is terminated
without Cause (defined below) or as a result of a Constructive Termination
(defined below) at any time after the consummation of a Merger, the Repurchase
Option shall immediately lapse as to any remaining Unvested Shares. Upon
termination of the repurchase rights described in Section 3(a)(i) a new
certificate or certificates representing the Shares not repurchased shall be
issued, on request, without the legend referred to in Section 6(a)(ii) below and
delivered to Purchaser.
(v) For purposes of this Agreement, "Cause" for the termination
-----
of Purchaser's employment with the Company or its successor will exist at any
time after the happening of one or more of the following events: (1) Purchaser's
willful misconduct or material failure in the performance of the duties of his
position with the Company or its successor, including Purchaser's failure to
comply in any material respect with the legal directives of the Company's Chief
Executive Officer or the Board of Directors so long as such directives are not
unreasonably inconsistent with the Purchaser's position and duties, and such
refusal to comply is not remedied within 10 days after receiving written notice
from the Company or its successor, which written notice shall state that failure
to remedy such conduct may result in termination for Cause; or (2) conduct that
materially adversely affects the Company or its successor or is materially
detrimental to the reputation of the Founder or of the Company or its successor,
including but not limited to conviction of a felony involving moral turpitude.
(vi) For purposes of this Agreement, "Constructive Termination"
------------------------
shall be deemed to occur if (1) there is an adverse change in Purchaser's
position with the Company or its successor causing such position to be of
materially reduced stature or responsibility; (2) a reduction of more than 25%
of Purchaser's base compensation, or (3) Purchaser's refusal to relocate to a
facility or location that is more than fifty (50) miles from Petopia.com, Inc.'s
principal place of business unless such location is within fifty (50) miles from
Founder's residence.
(b) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(c) Restrictions Binding on Transferees. All transferees of Shares or
-----------------------------------
any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Repurchase Option. Any sale or transfer of the Company's Shares shall be void
unless the provisions of this Agreement are met.
(d) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock
-3-
<PAGE>
of the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act. Upon termination of the right of first refusal described in
Section 3(b) and the expiration or exercise of the Repurchase Option, a new
certificate or certificates representing the Shares not repurchased shall be
issued, on request, without the legend referred to in Section 6(a)(ii) below and
delivered to Purchaser.
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit C executed by
---------
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other party). The escrow holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may resign at any time. Purchaser agrees that if the Secretary
of the Company, or the Secretary's designee, resigns as escrow holder for any or
no reason, the Board of Directors of the Company shall have the power to appoint
a successor to serve as escrow holder pursuant to the terms of this Agreement.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser 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 Shares. Purchaser is
purchasing the Shares for investment for his or 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.
(b) Purchaser understands that the Shares 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
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available.
Purchaser further acknowledges and understands that the Company is under no
obligation to register the Shares. Purchaser understands that the certificate
evidencing the Shares will be imprinted with a legend which prohibits the
transfer of the Shares unless they are registered or such registration is not
required in the opinion of counsel for the Company.
-4-
<PAGE>
(d) Purchaser is familiar with the provisions of Rules 144 and
701, each promulgated under the Securities Act, which, in substance, 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. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of issuance of
the securities, such issuance will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"), the securities exempt under Rule 701 may be resold by Purchaser
------------
90 days thereafter, subject to the satisfaction of certain of the conditions
specified by Rule 144, including, among other things: (1) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Exchange Act);
and (2) in the case of an affiliate, the availability of certain public
information about the Company, and the amount of securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
if applicable. Notwithstanding this Section 5(d), Purchaser acknowledges and
agrees to the restrictions set forth in Section 5(f) hereof.
In the event that the Company does not qualify under Rule 701 at the time
of purchase, then the Shares may be resold by Purchaser in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than one year after the party has purchased,
and made full payment of (within the meaning of Rule 144), the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, (3) 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 Exchange Act) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) Purchaser further understands that at the time he or she
wishes to sell the Shares there may be no public market upon which to make such
a sale, and that, even if such a public market then exists, the Company may not
be satisfying the current public information requirements of Rule 144 or 701,
and that, in such event, Purchaser would be precluded from selling the Shares
under Rule 144 or 701 even if the one-year minimum holding period had been
satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are 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 otherwise than pursuant to
Rule 144 or 701 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 their respective brokers who participate in such transactions do so
at their own risk.
-5-
<PAGE>
(g) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
(h) Purchaser holds good and marketable title to the Assets,
free and clear of restrictions on or conditions to transfer or assignment, and
free and clear of liens, pledges, charges, or encumbrances.
(i) The execution and delivery of this Agreement by Purchaser,
and the consummation of the contemplated transactions, will not result in the
creation or imposition of any valid lien, charge, or encumbrance on any of the
Assets, and will not require the authorization, consent, or approval of any
third party, including any governmental subdivision or regulatory agency.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, 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
DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL FOR THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(ii) 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.
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop
-6-
<PAGE>
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
8 Non-compete. Purchaser agrees that from and after the date hereof
-----------
until (2) years after the date Purchaser is no longer employed by the Company,
Purchaser shall not engage in, own, manage, control, or participate in the
management, ownership or control, directly or indirectly, of any person, firm,
corporation or other entity engaged in the provision, sales or marketing of
goods and services related to house pets insofar as said goods and services are
to be sold on the internet through a proprietary web site (the "Restricted
Business") anywhere in the world (the "Restricted Area"). Notwithstanding the
foregoing, the Purchaser may acquire shares representing not more than 5% of the
outstanding securities of any publicly-traded company engaged in the Restricted
Business. The covenant contained in this Section 8 shall be construed as a
series of separate covenants, one for each country in the world and in each
province or state within such country. If, in any judicial proceeding, a court
shall refuse to enforce any of such separate covenants, such unenforceable
covenant shall be deemed deleted form this Agreement to the extent necessary to
permit the remaining separate covenants included in this Section 8 to be
enforced.
9. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In
this context, "restriction" means the right of the Company to buy back the
-----------
Shares pursuant to the Repurchase Option set forth in Section 3(a) of this
Agreement. Purchaser understands that Purchaser may elect to be taxed at the
time the Shares are purchased, rather than when and as the Repurchase Option
expires, by filing an election under Section 83(b) (an "83(b) Election") of the
--------------
Code with the Internal Revenue Service within 30 days from the date of purchase.
Even if the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any
-7-
<PAGE>
municipality, state or foreign country in which Purchaser may reside, and the
tax consequences of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit D. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit E,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
10. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed the
earlier of (i) 180 days; or (ii) the maximum period of time that any director,
officer or shareholder holding not less than 1% of the equity securities of the
Company shall be obligated pursuant to similar restrictions) from the effective
date of such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the public offering.
11. Miscellaneous.
-------------
(a) Governing Law. This Agreement 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) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly,
-8-
<PAGE>
this Agreement shall be deemed to be the product of all of the parties hereto,
and no ambiguity shall be construed in favor of or against any one of the
parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. 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 THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE 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 THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-9-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
PETOPIA.COM, INC.
By: /s/ Lorne K. Abony
-------------------------
Name: Lorne K. Abony
Title: President
Address:
357 Tehama
San Francisco, CA 94103-4113
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND
AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
Andrea C. Reisman
/s/ Andrea C. Reisman
---------------------
(Signature)
Address:
Vesting Commencement
Date: April 15, 1999
SIGNATURE PAGE OF RESTRICTED STOCK PURCHASES AGREEMENT
------------------------------------------------------
<PAGE>
Exhibit 10.10
RESTRICTED STOCK PURCHASE AGREEMENT
This Restricted Stock Purchase Agreement (the "Agreement") is made as of
---------
April 15, 1999 (the "Purchase Date"), by and between Petopia.com, Inc., a
Delaware corporation (the "Company"), and David Fraze ("Purchaser").
------- ---------
1. Sale of Stock. Subject to the terms and conditions of this
-------------
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company, nine
hundred fifty-six thousand two hundred fifty (956,250) Shares (as defined below)
in exchange for cash consideration equal to $74,587.50, or $.078 per purchased
Share.
The term "Shares" refers to the Shares and all securities received in
replacement of or in connection with the Shares pursuant to stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement or at such other time and place as the Company and
Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
delivery of the Purchase Price.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares while the Shares are subject
to the Company's Repurchase Option (as defined below), except as provided below.
After any Shares have been released from the Repurchase Option, Purchaser shall
not assign, encumber or dispose of any interest in such Shares except in
compliance with the provisions below and applicable securities laws.
(a) Repurchase Option.
-----------------
(i) In the event of the voluntary or involuntary termination of
Purchaser's employment with the Company for any reason (including death or
disability), with or without cause, the Company shall upon the date of such
termination (the "Termination Date") have an irrevocable, exclusive option (the
----------------
"Repurchase Option") for a period of 60 days from such date to repurchase all or
-----------------
any portion of the Shares held by Purchaser as of the Termination Date which
have not yet been released from the Company's Repurchase Option at the original
purchase price per Share specified in Section 1 (adjusted for any stock splits,
stock dividends and the like); provided, however, that the Repurchase Option
-------- -------
shall continue for a period of up to one year from the Termination Date to the
extent that the Company reasonably determines that such an extension of time is
necessary to prevent the repurchase of Purchaser's Shares from causing other
capital stock of the Company to not qualify as "small business stock" under
Section 1202 of the Internal Revenue Code of 1986, as amended.
<PAGE>
(ii) The Repurchase Option shall be exercised by the Company by
written notice to Purchaser or Purchaser's executor and, at the Company's
option, (A) by delivery to Purchaser or Purchaser's executor with such notice of
a check in the amount of the purchase price for the Shares being purchased, or
(B) in the event Purchaser is indebted to the Company, by cancellation by the
Company of an amount of such indebtedness equal to the purchase price for the
Shares being repurchased, or (C) by a combination of (A) and (B) so that the
combined payment and cancellation of indebtedness equals such purchase price.
Upon delivery of such notice and payment of the purchase 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 interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by
Purchaser.
(iii) Subject to Section 3(a)(iv) below, the Repurchase Option
shall be in effect with respect to 60% of the Shares as of the Purchase Date,
with 40% of the Shares not being subject to the Repurchase Option as of the
Purchase Date. The Repurchase Option as to the remaining 60% of the Shares shall
lapse as to 1/36 of such remaining shares on each monthly anniversary of the
closing date of the sale of at least $4,000,000 of the Company's Series A
Preferred Stock (the "Vesting Commencement Date"), until all Shares are released
from the Repurchase Option (provided in each case that Purchaser's employment
with the Company has not been terminated prior to the date of any such release).
Fractional shares shall be rounded to the nearest whole share. Shares as to
which the Repurchase Option has not lapsed are referred to as "Unvested Shares."
---------------
(iv) For purposes hereunder, a "Merger" shall mean the
completion of a merger or consolidation of the Company in which the Company is
not the survivor or in which greater than 50% of the voting power of the Company
is transferred, or a sale of all or substantially all of the Company's assets or
capital stock, excluding a transaction for the sole purpose of changing the
legal domicile of the Company. In the event that Purchaser's employment with the
Company (or its successor entity) is terminated without Cause (defined below) or
as a result of a Constructive Termination (defined below) at any time after the
consummation of a Merger, the Repurchase Option shall immediately lapse as to
any remaining Unvested Shares. Upon termination of the repurchase rights
described in Section 3(a)(i) a new certificate or certificates representing the
Shares not repurchased shall be issued, on request, without the legend referred
to in Section 6(a)(ii) below and delivered to Purchaser.
(v) For purposes of this Agreement, "Cause" for the termination
-----
of Purchaser's employment with the Company or its successor will exist at any
time after the happening of one or more of the following events: (1) Purchaser's
willful misconduct or material failure in the performance of the duties of his
position with the Company or its successor, including Purchaser's failure to
comply in any material respect with the legal directives of the Company's Chief
Executive Officer or the Board of Directors so long as such directives are not
unreasonably inconsistent with the Purchaser's position and duties, and such
refusal to comply is not remedied within 10 days after receiving written notice
from the Company or its successor, which written notice shall state that failure
to remedy such conduct may result in termination for Cause; or (2) conduct that
materially adversely affects the Company or its successor or is
-2-
<PAGE>
materially detrimental to the reputation of the Founder or of the Company or its
successor, including but not limited to conviction of a felony involving moral
turpitude.
(vi) For purposes of this Agreement, "Constructive Termination"
------------------------
shall be deemed to occur if (1) there is an adverse change in Purchaser's
position with the Company or its successor causing such position to be of
materially reduced stature or responsibility; (2) a reduction of more than 25%
of Purchaser's base compensation, or (3) Purchaser's refusal to relocate to a
facility or location that is more than fifty (50) miles from Petopia.com, Inc.'s
principal place of business unless such location is within fifty (50) miles from
Founder's residence.
(b) Assignment. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations; provided, however, that an
assignee, other than a corporation that is the parent or a 100% owned subsidiary
of the Company, must pay the Company, upon assignment of such right, cash equal
to the difference between the original purchase price and fair market value, if
the original purchase price is less than the fair market value of the Shares
subject to the assignment.
(c) Restrictions Binding on Transferees. All transferees of Shares
-----------------------------------
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement, including, insofar as applicable, the
Repurchase Option. Any sale or transfer of the Company's Shares shall be void
unless the provisions of this Agreement are met.
(d) Termination of Rights. The right of first refusal granted the
---------------------
Company by Section 3(b) above and the option to repurchase the Shares in the
event of an involuntary transfer granted the Company by Section 3(c) above shall
terminate upon the first sale of Common Stock of the Company to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act. Upon
termination of the right of first refusal described in Section 3(b) and the
expiration or exercise of the Repurchase Option, a new certificate or
certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 6(a)(ii) below and delivered
to Purchaser.
4. Escrow of Unvested Shares. For purposes of facilitating the
-------------------------
enforcement of the provisions of Section 3 above, Purchaser agrees, immediately
upon receipt of the certificate(s) for the Shares subject to the Repurchase
Option, to deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Exhibit B executed by
---------
Purchaser and by Purchaser's spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary's designee, to hold such
certificate(s) and Assignment Separate from Certificate in escrow and to take
all such actions and to effectuate all such transfers and/or releases as are in
accordance with the terms of this Agreement. Purchaser hereby acknowledges that
the Secretary of the Company, or the Secretary's designee, is so appointed as
the escrow holder with the foregoing authorities as a material inducement to
make this Agreement and that said appointment is coupled with an interest and is
accordingly irrevocable. Purchaser agrees that said escrow holder shall not be
liable to any party hereof (or to any other
-3-
<PAGE>
party). The escrow holder may rely upon any letter, notice or other document
executed by any signature purported to be genuine and may resign at any time.
Purchaser agrees that if the Secretary of the Company, or the Secretary's
designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow
holder pursuant to the terms of this Agreement.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser 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 Shares. Purchaser is
purchasing the Shares for investment for his or 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.
(b) Purchaser understands that the Shares 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 Purchaser's
investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Shares. Purchaser understands that the certificate evidencing the
Shares will be imprinted with a legend which prohibits the transfer of the
Shares unless they are registered or such registration is not required in the
opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and 701,
each promulgated under the Securities Act, which, in substance, 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. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of issuance of the
securities, such issuance will be exempt from registration under the Securities
Act. In the event the Company becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
------------
the securities exempt under Rule 701 may be resold by Purchaser 90 days
thereafter, subject to the satisfaction of certain of the conditions specified
by Rule 144, including, among other things: (1) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Exchange Act); and (2) in the
case of an affiliate, the availability of certain public information about the
Company, and the amount of securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), if applicable.
Notwithstanding this Section 5(d), Purchaser acknowledges and agrees to the
restrictions set forth in Section 5(f) hereof.
-4-
<PAGE>
In the event that the Company does not qualify under Rule 701 at the time
of purchase, then the Shares may be resold by Purchaser in certain limited
circumstances subject to the provisions of Rule 144, which requires, among other
things: (1) the availability of certain public information about the Company;
(2) the resale occurring not less than one year after the party has purchased,
and made full payment of (within the meaning of Rule 144), the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, (3) 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 Exchange Act) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
(e) Purchaser further understands that at the time he or she wishes
to sell the Shares there may be no public market upon which to make such a sale,
and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 or 701, and
that, in such event, Purchaser would be precluded from selling the Shares under
Rule 144 or 701 even if the one-year minimum holding period had been satisfied.
(f) Purchaser further understands that in the event all of the
applicable requirements of Rule 144 or 701 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are 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 otherwise than pursuant to
Rule 144 or 701 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 their respective brokers who participate in such transactions do so
at their own risk.
(g) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, 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 DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT
-5-
<PAGE>
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) 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.
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to
---------------------
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a parent or subsidiary
of the Company, to terminate Purchaser's employment, for any reason, with or
without cause.
8. Section 83(b) Election. Purchaser understands that Section 83(a) of
----------------------
the Internal Revenue Code of 1986, as amended (the "Code"), taxes as ordinary
----
income the difference between the amount paid for the Shares and the fair market
value of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" means the right of the Company to buy back the Shares
-----------
pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the
Shares are purchased, rather than when and as the Repurchase Option expires, by
filing an election under Section 83(b) (an "83(b) Election") of the Code with
--------------
the Internal Revenue Service within 30 days from the date of purchase. Even if
the fair market value of the Shares at the time of the execution of this
Agreement equals the amount paid for the Shares, the election must be made to
avoid income under Section 83(a) in the future. Purchaser understands that
failure to file such an election in a timely manner may result in adverse tax
consequences for Purchaser. Purchaser further understands that an additional
copy of such election form should be filed with his or her federal income tax
return for the calendar year in which the date of this Agreement falls.
Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares
hereunder, and does not purport to be complete. Purchaser further acknowledges
that the Company has directed Purchaser to seek independent advice regarding the
applicable provisions of the Code, the income tax laws of any
-6-
<PAGE>
municipality, state or foreign country in which Purchaser may reside, and the
tax consequences of Purchaser's death.
Purchaser agrees that he will execute and deliver to the Company with
this executed Agreement a copy of the Acknowledgment and Statement of Decision
Regarding Section 83(b) Election (the "Acknowledgment"), attached hereto as
--------------
Exhibit C. Purchaser further agrees that Purchaser will execute and submit with
- ---------
the Acknowledgment a copy of the 83(b) Election, attached hereto as Exhibit D,
---------
if Purchaser has indicated in the Acknowledgment his or her decision to make
such an election.
9. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any Shares (other than those included
in the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed the
earlier of (i) 180 days; or (ii) the maximum period of time that any director,
officer or shareholder holding not less than 1% of the equity securities of the
Company shall be obligated pursuant to similar restrictions) from the effective
date of such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the public offering.
10. Miscellaneous.
-------------
(a) Governing Law. This Agreement 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) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly,
-7-
<PAGE>
this Agreement shall be deemed to be the product of all of the parties hereto,
and no ambiguity shall be construed in favor of or against any one of the
parties hereto.
(e) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or forty-eight (48) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) Successors and Assigns. The rights and benefits of this
----------------------
Agreement shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. 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 THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE 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 THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-8-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
---------------------------
Name: Andrea C. Reisman
Title: Chief Executive Officer
Address:
357 Tehama Street
San Francisco, CA 94103-4113
PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR
CONSULTANT AT THE WILL OF THE COMPANY. PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON PURCHASER ANY RIGHT WITH
RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH THE
COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP
AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
/s/ David Fraze
------------------------------
(Signature)
Name: David Fraze
Address:
Vesting Commencement Date: April 15, 1999
I, ________________________________, spouse of David Fraze have read and
hereby approve the foregoing Agreement. In consideration of the Company's
granting my spouse the right to purchase the Shares as set forth in the
Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or other such interest shall be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
______________________________
SIGNATURE PAGE OF RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------------------------
Spouse of Purchaser
-2-
<PAGE>
Exhibit 10.11
PETOPIA.COM, INC.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This Common Stock Purchase Agreement (the "Agreement") is made as of July
---------
12, 1999, by and between Petopia.com, Inc., a Delaware corporation (the
"Company"), and Brian Devine ("Purchaser"), an employee of PETCO Animal
------- ---------
Supplies, Inc. ("Petco").
-----
1. Sale of Stock. Subject to the terms and conditions of this
-------------
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company, 300,000
shares of the Company's Common Stock (the "Shares") at a purchase price of
------
$0.6375 per Share for a total purchase price of $191,250.00. The term "Shares"
refers to the purchased Shares and all securities received in replacement of or
in connection with the Shares pursuant to stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares. Upon payment therefor, such Shares will be
duly and validly issued, fully paid and non-assessable.
2. Purchase. The purchase and sale of the Shares under this Agreement
--------
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement or at such other time and place as the Company and
Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by cash or check. If Purchaser pays for
the Shares by executing a promissory note in favor of any third party, such note
must be full recourse.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, all Shares initially shall be
Restricted Shares and shall be subject to a right (but not an obligation) of
repurchase by the Company and a Company right of first refusal, and Purchaser
shall not transfer, assign, encumber or otherwise dispose of any Shares except
pursuant to this Section 3 hereof. If the Purchaser transfers any Restricted
Shares, then Section 3 shall apply to the Transferee to the same extent as to
the Purchaser.
(a) Right of Repurchase.
--------------------
(i) Scope of Right of Repurchase. All Shares initially shall
be subject to a right (but not an obligation) of repurchase by the Company, and
Purchaser shall not transfer, assign, encumber or otherwise dispose of any
Restricted Shares except pursuant to this Section 3 hereof.
(ii) Condition Precedent to Exercise. The Right of Repurchase
shall be exercisable during the 60-day period following the date when the
Purchaser's Service to Petco terminates for any reason.
<PAGE>
(iii) Repurchase Price. If the Company exercises the Right of
Repurchase, it shall pay the Purchaser an amount equal to the Fair Market Value
for each of the Restricted Shares being repurchased. The Company's rights under
this Section 3 shall be freely assignable, in whole or in part. The term "Fair
Market Value" shall mean the greatest of (A) the most recent valuation completed
for the Company by an independent third party valuation firm, (B) the last sale
by the Company of its Common Stock to an independent third party, and (C) the
fair market value of the Common Stock as most recently determined by the
Company's Board of Directors.
(iv) Exercise of Repurchase Right. The Right of Repurchase
shall be exercisable only by written notice delivered to the Purchaser prior to
the expiration of the 60-day period specified in Subsection (a)(ii) 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 Purchaser the purchase price
determined according to Subsection (a)(iii) above. Payment shall be made in cash
or cash equivalents or by canceling indebtedness to the Company incurred by the
Purchaser in the purchase of the Restricted Shares. The Right of Repurchase
shall terminate with respect to any Restricted Shares for which it has not been
timely exercised pursuant to this Subsection (a)(iv).
(v) Additional Shares or 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
affecting the Company's 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
Right of Repurchase. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the
Restricted Shares.
(vi) 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 2, 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.
(vii) Termination of Right of Repurchase. The Right of
Repurchase shall terminate upon the earliest to occur of: (A) the closing of a
firm commitment underwritten public offering of the Company's Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"); (B) a sale of all or
--------------
-2-
<PAGE>
substantially all of the assets of the Company or the merger or consolidation of
the Company with or into any other corporation or entity, other than a wholly-
owned subsidiary of the Company, or the sale of the outstanding stock of the
Company, as a result of which the stockholders of the Company immediately prior
to such transaction hold less that fifty percent (50%) of the voting power of
the surviving corporation; and (C) five (5) years from the date hereof.
(b) Right Of First Refusal.
----------------------
(i) Right of First Refusal. In the event that the Purchaser
proposes to sell, pledge or otherwise transfer to a third party any Shares
acquired under this Agreement, the Company shall have the Right of First Refusal
with respect to all (and not less than all) of such Shares. If the Purchaser
desires to transfer Shares acquired under this Agreement, the Purchaser shall
give a written Transfer Notice to the Company describing fully the proposed
transfer, including the number of Shares proposed to be transferred, the
proposed transfer price, the name and address of the proposed Transferee and
proof satisfactory to the Company that the proposed sale or transfer will not
violate any applicable federal or state securities laws. The Transfer Notice
shall be signed both by the Purchaser and by the proposed transferee
("Transferee") and must constitute a binding commitment of both parties to the
transfer of the Shares. The Company shall have the right to purchase all, and
not less than all, of the Shares at the Fair Market Value of such Shares
(subject, however, to any change in such terms permitted under Subsection (b)
below) by delivery of a notice of exercise of the Right of First Refusal within
30 days after the date when the Transfer Notice was received by the Company. The
Company's rights under this Subsection (a) shall be freely assignable, in whole
or in part.
(ii) Transfer of Shares. If the Company fails to exercise its
Right of First Refusal within 30 days after the date when it received the
Transfer Notice, the Purchaser may, not later than 90 days following receipt of
the Transfer Notice by the Company, conclude a transfer of the Shares subject to
the Transfer Notice on the terms and conditions described in the Transfer
Notice, provided that any such sale is made in compliance with applicable
federal and state securities laws and not in violation of any other contractual
restrictions to which the Purchaser is bound. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Purchaser, shall again be subject to the
Right of First Refusal and shall require compliance with the procedure described
in Subsection (a) above. If the Company exercises its Right of First Refusal,
the parties shall consummate the sale of the Shares on the terms set forth in
the Transfer Notice within 60 days after the date when the Company received the
Transfer Notice (or within such longer period as may have been specified in the
Transfer Notice).
(iii) Additional Shares or 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
affecting the Company's 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 Shares subject to this Section 3 or
into which such Shares thereby become
-3-
<PAGE>
convertible shall immediately be subject to this Section 3 Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number and/or class of the Shares subject to this Section 3.
(iv) Termination of Right of First Refusal. Any other provision
of this Section 3 notwithstanding, in the event that the Stock is readily
tradable on an established securities market when the Purchaser desires to
transfer Shares, the Company shall have no Right of First Refusal, and the
Purchaser shall have no obligation to comply with the procedures prescribed by
Subsections (a) and (b) above.
(v) Permitted Transfers. This Section 3 shall not apply to (i)
a transfer by beneficiary designation, will or intestate succession or (ii) a
transfer to the Purchaser's spouse, children or grandchildren or to a trust
established by the Purchaser for the benefit of the Purchaser or the Purchaser's
spouse, children or grandchildren, provided in either case that (i) Purchaser
provides ten (10) business days prior written notice to the Company of his or
her intent to so transfer the Shares and the Company provides written approval
of such transfer to Purchaser, and (ii) the Transferee agrees in writing on a
form prescribed by the Company to be bound by all provisions of this Agreement.
If the Purchaser transfers any Shares acquired under this Agreement, either
under this Subsection (e) or after the Company has failed to exercise the Right
of First Refusal, then this Section 3 shall apply to the Transferee to the same
extent as to the Purchaser.
(vi) 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 Shares to be purchased in accordance with
this Section 3, then after such time the person from whom such Shares are to be
purchased shall no longer have any rights as a holder of such Shares (other than
the right to receive payment of such consideration in accordance with this
Agreement). Such Shares shall be deemed to have been purchased in accordance
with the applicable provisions hereof, whether or not the certificate(s)
therefor have been delivered as required by this Agreement.
4. Purchaser's Put Right.
---------------------
(a) If (i) the Company's web site located at the URL of
www.petopia.com (the "petopia.com Site") has not launched (defined as the date
- --------------- ----------------
on which third party users are first able to access via the World Wide Web and
execute electronic commerce transactions on the Company's petopia.com Site) by
September 1, 1999, and (ii) PETCO Animal Supplies, Inc. exercises its Put Right
under the terms of the Series C Preferred Stock Purchase Agreement dated as of
even date herewith, the Company shall have the obligation to buy from Purchaser,
and Purchaser has the obligation to sell, all but not less than all of the
Common Stock held by Purchaser on such date for $191,250.00, the aggregate
purchase price paid by Purchaser for the Shares (the "Purchaser Put Right").
-------------------
The Company and the Purchaser shall each have a period of ten (10) days after
September 1, 1999 to elect to exercise its Purchaser Put Right by delivering
written notice (the "Exercise Notice") to the other party stating its election
---------------
to exercise such Purchaser Put Right. The Exercise Notice shall be delivered by
overnight courier. Upon the exercise of the Purchaser Put Right by either
party, Purchaser shall then promptly deliver to the
-4-
<PAGE>
Company's executive offices to the attention of the Chief Financial Officer, the
stock certificate(s) for the Common Stock to be repurchased by the Company,
appropriately endorsed to the Company. The Exercise Notice, once delivered,
shall be irrevocable. The Company shall send a check to Purchaser in the amount
of the aggregate purchase price for the Common Stock within ten (10) business
days after receipt of such stock certificate.
(b) Upon the date of repayment by the Company to Purchaser of the
full purchase price for the Common Stock, this Agreement shall terminate in full
and Purchaser shall have no further rights under this Agreement or as a
stockholder of the Company. Purchaser agrees to do such further acts and to
execute, acknowledge and deliver such further documents or instruments necessary
to effect the intent of this Section. This Purchaser Put Right (i) may be
assigned by the Company; (ii) shall not be transferable by Purchaser; and (iii)
shall be subject to and limited by all applicable federal and state securities
and corporate laws and regulations.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is an "accredited investor" as defined in Rule 501(a)
of Regulation D promulgated under the Securities Act.
(b) Purchaser 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 Shares. Purchaser is
purchasing the Shares for investment for his or 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.
(c) Purchaser understands that the Shares 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 Purchaser's
investment intent as expressed herein.
(d) Purchaser further acknowledges and understands that the Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Shares. Purchaser understands that the certificate evidencing the
Shares will be imprinted with a legend which prohibits the transfer of the
Shares unless they are registered or such registration is not required in the
opinion of counsel for the Company.
(e) Purchaser is familiar with the provision of Rule 144, promulgated
under the Securities Act, which, in substance, 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: (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, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, (iii) the sale being made through a broker
-5-
<PAGE>
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)
and the amount of securities being sold during any three month period not
exceeding the specified limitations stated therein, if applicable.
(f) Purchaser further understands that at the time he or she wishes
to sell the Shares there may be no public market upon which to make such a sale,
and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, Purchaser would be precluded from selling the Shares under Rule 144
even if the one-year minimum holding period had been satisfied.
(g) Purchaser further understands 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, notwithstanding the fact that 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 otherwise 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
their respective brokers who participate in such transactions do so at their own
risk.
(h) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, 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 EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
-6-
<PAGE>
(ii) 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.
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations and other applicable state
securities laws.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of Petco, or a parent or subsidiary of
Petco, to terminate Purchaser's employment, for any reason, with or without
cause.
8. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities, Purchaser agrees not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any Shares (other than those included in the registration) without the prior
written consent of the Company or underwriters managing any underwritten
offering of the Company's securities, as the case may be, for such period of
time (not to exceed one hundred eighty (180) days) from the effective date of
such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the public offering.
9. Escrow of Shares. For purposes of facilitating the enforcement of the
----------------
provisions hereof, Purchaser agrees, immediately upon receipt of the
certificate(s) for the Shares subject to the Repurchase Option and Right of
First Refusal, to deliver such certificate(s), together with an Assignment
Separate from Certificate in the form attached to this Agreement as Exhibit A
---------
executed by Purchaser and by Purchaser's spouse (if required for transfer), in
blank, to the Secretary of the Company, or the Secretary's designee, to hold
such certificate(s) and Assignment Separate from Certificate in escrow and to
take all such actions and to effectuate all such transfers and/or releases as
are in accordance with the terms of this Agreement. Purchaser hereby
acknowledges that the Secretary of the Company, or the Secretary's designee, is
so appointed as the escrow holder with the foregoing authorities as a material
inducement to make this Agreement and that said appointment is coupled with an
interest and is accordingly irrevocable.
-7-
<PAGE>
Purchaser agrees that said escrow holder shall not be liable to any party hereof
(or to any other party), except that the Company agrees to pay all costs
associated with obtaining a replacement certificate in the event the Purchaser's
original certificate representing the Shares is lost while in the custody of the
Secretary of the Company, or of the Secretary's designee. The escrow holder may
rely upon any letter, notice or other document executed by any signature
purported to be genuine and may resign at any time. Purchaser agrees that if the
Secretary of the Company, or the Secretary's designee, resigns as escrow holder
for any or no reason, the Board of Directors of the Company shall have the power
to appoint a successor to serve as escrow holder pursuant to the terms of this
Agreement.
10. Miscellaneous.
-------------
(a) Governing Law. This Agreement 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) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded, and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient when delivered personally or
sent by telegram or fax or forty-eight (48) hours after being deposited in the
U.S. mail, as certified or registered mail, with postage prepaid, and addressed
to the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
-8-
<PAGE>
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. 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 THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE 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 THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-9-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
PETOPIA.COM, INC.
By: /s/ David Fraze
------------------------------------
Title: Chief Financial Officer
---------------------------------
Address:
357 Tehama Street
San Francisco, CA 94103
PURCHASER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL
CONFER UPON PURCHASER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT
OR CONSULTING RELATIONSHIP WITH PETCO, NOR SHALL IT INTERFERE IN ANY WAY WITH
PURCHASER'S RIGHT OR PETCO'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR
CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
Brian Devine
/s/ Brian Devine
--------------------------------
(Signature)
Address:
P.O. Box 1305
Rancho Santa Fe, CA 92067-1305
I, Sylvia K. Devine, spouse of Brian Devine, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
irrevocably bound by the Agreement and further agree that any community property
or other such interest shall be similarly bound by the Agreement. I hereby
appoint my spouse as attorney-in-fact with respect to any amendment or exercise
of any rights under the Agreement.
/s/ Sylvia K. Devine
--------------------------------
Spouse of Brian Devine
<PAGE>
EXHIBIT 10.12
PETOPIA.COM, INC.
COMMON STOCK PURCHASE AGREEMENT
-------------------------------
This Common Stock Purchase Agreement (the "Agreement") is made as of
---------
July 12, 1999, by and between Petopia.com, Inc., a Delaware corporation (the
"Company"), and William Woodard ("Purchaser"), an employee of PETCO Animal
- -------- ---------
Supplies, Inc. ("Petco").
-----
1. Sale of Stock. Subject to the terms and conditions of this
-------------
Agreement, on the Purchase Date (as defined below) the Company will issue and
sell to Purchaser, and Purchaser agrees to purchase from the Company, 300,000
shares of the Company's Common Stock (the "Shares") at a purchase price of
------
$0.6375 per Share for a total purchase price of $191,250.00. The term "Shares"
refers to the purchased Shares and all securities received in replacement of or
in connection with the Shares pursuant to stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares. Upon payment therefor, such Shares will be
duly and validly issued, fully paid and non-assessable.
2. Purchase. The purchase and sale of the Shares under this Agreement
shall occur at the principal office of the Company simultaneously with the
execution of this Agreement or at such other time and place as the Company and
Purchaser shall agree (the "Purchase Date"). On the Purchase Date, the
-------------
Company will deliver to Purchaser a certificate representing the Shares to be
purchased by Purchaser (which shall be issued in Purchaser's name) against
payment of the purchase price therefor by cash or check. If Purchaser pays for
the Shares by executing a promissory note in favor of any third party, such note
must be full recourse.
3. Limitations on Transfer. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, all Shares initially shall be
Restricted Shares and shall be subject to a right (but not an obligation) of
repurchase by the Company and a Company right of first refusal, and Purchaser
shall not transfer, assign, encumber or otherwise dispose of any Shares except
pursuant to this Section 3 hereof. If the Purchaser transfers any Restricted
Shares, then Section 3 shall apply to the Transferee to the same extent as to
the Purchaser.
(a) Right of Repurchase.
--------------------
(i) Scope of Right of Repurchase. All Shares initially shall be
subject to a right (but not an obligation) of repurchase by the Company, and
Purchaser shall not transfer, assign, encumber or otherwise dispose of any
Restricted Shares except pursuant to this Section 3 hereof.
(ii) Condition Precedent to Exercise. The Right of Repurchase
shall be exercisable during the 60-day period following the date when the
Purchaser's Service to Petco terminates for any reason.
<PAGE>
(iii) Repurchase Price. If the Company exercises the Right of
Repurchase, it shall pay the Purchaser an amount equal to the Fair Market Value
for each of the Restricted Shares being repurchased. The Company's rights under
this Section 3 shall be freely assignable, in whole or in part. The term "Fair
Market Value" shall mean the greatest of (A) the most recent valuation completed
for the Company by an independent third party valuation firm, (B) the last sale
by the Company of its Common Stock to an independent third party, and (C) the
fair market value of the Common Stock as most recently determined by the
Company's Board of Directors.
(iv) Exercise of Repurchase Right. The Right of Repurchase shall
be exercisable only by written notice delivered to the Purchaser prior to the
expiration of the 60-day period specified in Subsection (a)(ii) 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 Purchaser the purchase price
determined according to Subsection (a)(iii) above. Payment shall be made in cash
or cash equivalents or by canceling indebtedness to the Company incurred by the
Purchaser in the purchase of the Restricted Shares. The Right of Repurchase
shall terminate with respect to any Restricted Shares for which it has not been
timely exercised pursuant to this Subsection (a)(iv).
(v) Additional Shares or 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
affecting the Company's 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
Right of Repurchase. Appropriate adjustments to reflect the distribution of such
securities or property shall be made to the number and/or class of the
Restricted Shares.
(vi) 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 2, 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.
(vii) Termination of Right of Repurchase. The Right of Repurchase
shall terminate upon the earliest to occur of: (A) the closing of a firm
commitment underwritten public offering of the Company's Common Stock pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"); (B) a sale of all or
--------------
-2-
<PAGE>
substantially all of the assets of the Company or the merger or consolidation of
the Company with or into any other corporation or entity, other than a wholly-
owned subsidiary of the Company, or the sale of the outstanding stock of the
Company, as a result of which the stockholders of the Company immediately prior
to such transaction hold less that fifty percent (50%) of the voting power of
the surviving corporation; and (C) five (5) years from the date hereof.
(b) Right Of First Refusal.
----------------------
(i) Right of First Refusal. In the event that the Purchaser
proposes to sell, pledge or otherwise transfer to a third party any Shares
acquired under this Agreement, the Company shall have the Right of First Refusal
with respect to all (and not less than all) of such Shares. If the Purchaser
desires to transfer Shares acquired under this Agreement, the Purchaser shall
give a written Transfer Notice to the Company describing fully the proposed
transfer, including the number of Shares proposed to be transferred, the
proposed transfer price, the name and address of the proposed Transferee and
proof satisfactory to the Company that the proposed sale or transfer will not
violate any applicable federal or state securities laws. The Transfer Notice
shall be signed both by the Purchaser and by the proposed transferee
("Transferee") and must constitute a binding commitment of both parties to the
transfer of the Shares. The Company shall have the right to purchase all, and
not less than all, of the Shares at the Fair Market Value of such Shares
(subject, however, to any change in such terms permitted under Subsection (b)
below) by delivery of a notice of exercise of the Right of First Refusal within
30 days after the date when the Transfer Notice was received by the Company. The
Company's rights under this Subsection (a) shall be freely assignable, in whole
or in part.
(ii) Transfer of Shares. If the Company fails to exercise its
Right of First Refusal within 30 days after the date when it received the
Transfer Notice, the Purchaser may, not later than 90 days following receipt of
the Transfer Notice by the Company, conclude a transfer of the Shares subject to
the Transfer Notice on the terms and conditions described in the Transfer
Notice, provided that any such sale is made in compliance with applicable
federal and state securities laws and not in violation of any other contractual
restrictions to which the Purchaser is bound. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Purchaser, shall again be subject to the
Right of First Refusal and shall require compliance with the procedure described
in Subsection (a) above. If the Company exercises its Right of First Refusal,
the parties shall consummate the sale of the Shares on the terms set forth in
the Transfer Notice within 60 days after the date when the Company received the
Transfer Notice (or within such longer period as may have been specified in the
Transfer Notice).
(iii) Additional Shares or 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
affecting the Company's 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 Shares subject to this Section 3 or
into which such Shares thereby become
-3-
<PAGE>
convertible shall immediately be subject to this Section 3 Appropriate
adjustments to reflect the distribution of such securities or property shall be
made to the number and/or class of the Shares subject to this Section 3.
(iv) Termination of Right of First Refusal. Any other provision
of this Section 3 notwithstanding, in the event that the Stock is readily
tradable on an established securities market when the Purchaser desires to
transfer Shares, the Company shall have no Right of First Refusal, and the
Purchaser shall have no obligation to comply with the procedures prescribed by
Subsections (a) and (b) above.
(v) Permitted Transfers. This Section 3 shall not apply to (i) a
transfer by beneficiary designation, will or intestate succession or (ii) a
transfer to the Purchaser's spouse, children or grandchildren or to a trust
established by the Purchaser for the benefit of the Purchaser or the Purchaser's
spouse, children or grandchildren, provided in either case that (i) Purchaser
provides ten (10) business days prior written notice to the Company of his or
her intent to so transfer the Shares and the Company provides written approval
of such transfer to Purchaser, and (ii) the Transferee agrees in writing on a
form prescribed by the Company to be bound by all provisions of this Agreement.
If the Purchaser transfers any Shares acquired under this Agreement, either
under this Subsection (e) or after the Company has failed to exercise the Right
of First Refusal, then this Section 3 shall apply to the Transferee to the same
extent as to the Purchaser.
(vi) 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 Shares to be purchased in accordance with
this Section 3, then after such time the person from whom such Shares are to be
purchased shall no longer have any rights as a holder of such Shares (other than
the right to receive payment of such consideration in accordance with this
Agreement). Such Shares shall be deemed to have been purchased in accordance
with the applicable provisions hereof, whether or not the certificate(s)
therefor have been delivered as required by this Agreement.
4. Purchaser's Put Right.
---------------------
(a) If (i) the Company's web site located at the URL of
www.petopia.com (the "petopia.com Site") has not launched (defined as the date
- --------------- ----------------
on which third party users are first able to access via the World Wide Web and
execute electronic commerce transactions on the Company's petopia.com Site) by
September 1, 1999, and (ii) PETCO Animal Supplies, Inc. exercises its Put Right
under the terms of the Series C Preferred Stock Purchase Agreement dated as of
even date herewith, the Company shall have the obligation to buy from Purchaser,
and Purchaser has the obligation to sell, all but not less than all of the
Common Stock held by Purchaser on such date for $191,250.00, the aggregate
purchase price paid by Purchaser for the Shares (the "Purchaser Put Right").
-------------------
The Company and the Purchaser shall each have a period of ten (10) days after
September 1, 1999 to elect to exercise its Purchaser Put Right by delivering
written notice (the "Exercise Notice") to the other party stating its election
---------------
to exercise such Purchaser Put Right. The Exercise Notice shall be delivered by
overnight courier. Upon the exercise of the Purchaser Put Right by either party,
Purchaser shall then promptly deliver to the
-4-
<PAGE>
Company's executive offices to the attention of the Chief Financial Officer, the
stock certificate(s) for the Common Stock to be repurchased by the Company,
appropriately endorsed to the Company. The Exercise Notice, once delivered,
shall be irrevocable. The Company shall send a check to Purchaser in the amount
of the aggregate purchase price for the Common Stock within ten (10) business
days after receipt of such stock certificate.
(b) Upon the date of repayment by the Company to Purchaser of the
full purchase price for the Common Stock, this Agreement shall terminate in full
and Purchaser shall have no further rights under this Agreement or as a
stockholder of the Company. Purchaser agrees to do such further acts and to
execute, acknowledge and deliver such further documents or instruments necessary
to effect the intent of this Section. This Purchaser Put Right (i) may be
assigned by the Company; (ii) shall not be transferable by Purchaser; and (iii)
shall be subject to and limited by all applicable federal and state securities
and corporate laws and regulations.
5. Investment and Taxation Representations. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is an "accredited investor" as defined in Rule 501(a)
of Regulation D promulgated under the Securities Act.
(b) Purchaser 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 Shares. Purchaser is
purchasing the Shares for investment for his or 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.
(c) Purchaser understands that the Shares 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 Purchaser's
investment intent as expressed herein.
(d) Purchaser further acknowledges and understands that the Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Shares. Purchaser understands that the certificate evidencing the
Shares will be imprinted with a legend which prohibits the transfer of the
Shares unless they are registered or such registration is not required in the
opinion of counsel for the Company.
(e) Purchaser is familiar with the provision of Rule 144, promulgated
under the Securities Act, which, in substance, 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: (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, in the case of an affiliate, or of a non-affiliate who has held the
securities less than two years, (iii) the sale being made through a broker
-5-
<PAGE>
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)
and the amount of securities being sold during any three month period not
exceeding the specified limitations stated therein, if applicable.
(f) Purchaser further understands that at the time he or she wishes
to sell the Shares there may be no public market upon which to make such a sale,
and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, Purchaser would be precluded from selling the Shares under Rule 144
even if the one-year minimum holding period had been satisfied.
(g) Purchaser further understands 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, notwithstanding the fact that 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 otherwise 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
their respective brokers who participate in such transactions do so at their own
risk.
(h) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, 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 EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
-6-
<PAGE>
(ii) 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.
(iii) Any legend required to be placed thereon by the California
Commissioner of Corporations and other applicable state
securities laws.
(b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. No Employment Rights. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of Petco, or a parent or subsidiary of
Petco, to terminate Purchaser's employment, for any reason, with or without
cause.
8. Market Standoff Agreement. In connection with the initial public
-------------------------
offering of the Company's securities, Purchaser agrees not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any Shares (other than those included in the registration) without the prior
written consent of the Company or underwriters managing any underwritten
offering of the Company's securities, as the case may be, for such period of
time (not to exceed one hundred eighty (180) days) from the effective date of
such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the public offering.
9. Escrow of Shares. For purposes of facilitating the enforcement of the
----------------
provisions hereof, Purchaser agrees, immediately upon receipt of the
certificate(s) for the Shares subject to the Repurchase Option and Right of
First Refusal, to deliver such certificate(s), together with an Assignment
Separate from Certificate in the form attached to this Agreement as Exhibit A
---------
executed by Purchaser and by Purchaser's spouse (if required for transfer), in
blank, to the Secretary of the Company, or the Secretary's designee, to hold
such certificate(s) and Assignment Separate from Certificate in escrow and to
take all such actions and to effectuate all such transfers and/or releases as
are in accordance with the terms of this Agreement. Purchaser hereby
acknowledges that the Secretary of the Company, or the Secretary's designee, is
so appointed as the escrow holder with the foregoing authorities as a material
inducement to make this Agreement and that said appointment is coupled with an
interest and is accordingly irrevocable.
-7-
<PAGE>
Purchaser agrees that said escrow holder shall not be liable to any party hereof
(or to any other party), except that the Company agrees to pay all costs
associated with obtaining a replacement certificate in the event the Purchaser's
original certificate representing the Shares is lost while in the custody of the
Secretary of the Company, or of the Secretary's designee. The escrow holder may
rely upon any letter, notice or other document executed by any signature
purported to be genuine and may resign at any time. Purchaser agrees that if the
Secretary of the Company, or the Secretary's designee, resigns as escrow holder
for any or no reason, the Board of Directors of the Company shall have the power
to appoint a successor to serve as escrow holder pursuant to the terms of this
Agreement.
10. Miscellaneous.
-------------
(a) Governing Law. This Agreement 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) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded, and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
-8-
<PAGE>
(g) Successors and Assigns. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(h) California Corporate Securities Law. 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 THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE 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 THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
[Signature Page Follows]
-9-
<PAGE>
The parties have executed this Agreement as of the date first set forth
above.
PETOPIA.COM, INC.
By: /s/ David Fraze
---------------------------
Title: Chief Financial Officer
------------------------
Address:
357 Tehama Street
San Francisco, CA 94103
PURCHASER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL
CONFER UPON PURCHASER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT
OR CONSULTING RELATIONSHIP WITH PETCO, NOR SHALL IT INTERFERE IN ANY WAY WITH
PURCHASER'S RIGHT OR PETCO'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR
CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
PURCHASER:
William Woodard
/s/ William Woodard
--------------------------------
(Signature)
Address:
12233 Malabar Drive
Poway, CA 92064
I, Pamela Woodard, spouse of William Woodard, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
irrevocably bound by the Agreement and further agree that any community property
or other such interest shall be similarly bound by the Agreement. I hereby
appoint my spouse as attorney-in-fact with respect to any amendment or exercise
of any rights under the Agreement.
/s/ Pamela Woodard
--------------------------------
Spouse of William Woodard
<PAGE>
EXHIBIT 10.13
PETOPIA.COM, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
May 4, 1999
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1. Purchase and Sale of Preferred Stock.......................................... 1
1.1 Sale and Issuance of Series A Preferred Stock............................ 1
1.2 Closing; Delivery........................................................ 1
2. Representations and Warranties of the Company................................. 2
2.1 Organization, Good Standing and Qualification............................ 2
2.2 Capitalization........................................................... 2
2.3 Subsidiaries............................................................. 3
2.4 Authorization............................................................ 3
2.5 Valid Issuance of Securities............................................. 3
2.6 Governmental Consents.................................................... 4
2.7 Litigation............................................................... 4
2.8 Intellectual Property.................................................... 4
2.9 Compliance with Other Instruments........................................ 5
2.10 Agreements; Action....................................................... 5
2.11 No Conflict of Interest.................................................. 6
2.12 Rights of Registration and Voting Rights................................. 6
2.13 Title to Property and Assets............................................. 6
2.14 No Financial Statements.................................................. 7
2.15 Changes.................................................................. 7
2.16 Employee Benefit Plans................................................... 8
2.17 Tax Returns and Payments................................................. 8
2.18 Labor Agreements and Actions............................................. 8
2.19 Employee Matters......................................................... 8
2.20 Permits.................................................................. 9
2.21 Corporate Documents...................................................... 9
2.22 Insurance Coverage....................................................... 9
2.23 Qualified Small Business Stock........................................... 9
2.24 Disclosure............................................................... 9
2.25 Year 2000 Compatability.................................................. 9
3. Representations and Warranties of the Purchasers.............................. 9
3.1 Authorization............................................................ 9
3.2 Purchase Entirely for Own Account........................................ 10
3.3 Disclosure of Information................................................ 10
3.4 Restricted Securities.................................................... 11
3.5 No Public Market......................................................... 10
3.6 Legends.................................................................. 11
3.7 Accredited Investor...................................................... 11
4. Conditions of the Purchasers' Obligations at Closing.......................... 11
4.1 Representations and Warranties........................................... 11
4.2 Performance.............................................................. 11
4.3 Compliance Certificate................................................... 11
4.4 Qualifications........................................................... 11
4.5 Opinion of Company Counsel............................................... 11
4.6 Board of Directors....................................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.7 Investors' Rights Agreement............................................... 12
4.8 Co-Sale Agreement......................................................... 12
4.8 Voting Agreement.......................................................... 12
4.10 Restated Articles......................................................... 12
4.11 Confidential Information and Invention Assignment Agreement............... 12
4.12 IPO Allocation Agreement.................................................. 12
5. Conditions of the Company's Obligations at Closing............................ 12
5.1 Representations and Warranties............................................ 12
5.2 Performance............................................................... 12
5.3 Qualifications............................................................ 12
5.4 Director Indemnification Agreements....................................... 13
5.5 Voting Agreement.......................................................... 13
6. Covenants of the Company...................................................... 13
6.1 Use of Proceeds........................................................... 13
6.2 Compensation Committee.................................................... 13
6.3 Audit Committee........................................................... 13
6.4 Vesting of Founders Stock................................................. 13
6.5 Key Man Life Insurance.................................................... 13
6.6 Qualified Small Business Stock............................................ 13
6.7 Termination of Covenants.................................................. 14
7. Miscellaneous................................................................. 14
7.1 Survival of Warranties.................................................... 14
7.2 Transfer; Successors and Assigns.......................................... 14
7.3 Governing Law............................................................. 14
7.4 Counterparts.............................................................. 14
7.5 Titles and Subtitles...................................................... 14
7.6 Notices................................................................... 14
7.7 Finder's Fee.............................................................. 15
7.8 Fees and Expenses......................................................... 15
7.9 Attorney's Fees........................................................... 15
7.10 Amendments and Waivers.................................................... 15
7.11 Severability.............................................................. 15
7.12 Delays or Omissions....................................................... 15
7.13 Entire Agreement.......................................................... 16
7.14 Corporate Securities Law.................................................. 16
7.15 Confidentiality........................................................... 16
7.16 Exculpation Among Purchasers.............................................. 16
</TABLE>
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<PAGE>
PETOPIA.COM, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series A Preferred Stock Purchase Agreement (the "Agreement") is made
---------
as of May 4, 1999 by and between Petopia.com, Inc., a Delaware corporation (the
"Company"), and each of the investors listed on Exhibit A attached hereto (each
------- ---------
a "Purchaser" and together the "Purchasers").
--------- ----------
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
------------------------------------
1.1 Sale and Issuance of Series A Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Amended
and Restated Certificate of Incorporation in the form attached hereto as Exhibit
-------
B (the "Restated Certificate").
- - --------------------
(b) Subject to the terms and conditions of this Agreement, each
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to each Purchaser at the Closing that number of shares of Series A
Preferred Stock set forth opposite each such Purchaser's name on Exhibit A
---------
attached hereto at a purchase price of $1.00 per share (the "Original Purchase
Price"). The shares of Series A Preferred Stock issued to the Purchasers
pursuant to this Agreement shall be hereinafter referred to as the "Stock."
-----
(c) In connection with the sale and purchase of the Stock, the
Company agrees to sell warrants to purchase such number of shares of Series A
Preferred Stock set forth opposite each Purchaser's name on Exhibit A attached
hereto (the "Warrants"), at a purchase price of $0.001 per share, with an
--------
exercise price of $1.75 per share. The Company is valuing each Warrant at the
price of $0.001 per share for all purposes, including with respect to financial
statement and/or tax purposes. The Stock, the Common Stock issuable upon
conversion of the Stock, the Warrants and the Common Stock issuable upon the
exercise of the Warrants (the "Warrant Stock") shall be collectively referred to
herein as the "Securities."
-----------
1.2 Closing; Delivery.
-----------------
(a) The purchase and sale of the Stock and the Warrants shall
take place at the offices of Perkins Coie LLP, 250 Montgomery Street, 16/th/
Floor, California, at 10:00 a.m., on May 4, 1999, or at such other time and
place as the Company and the Purchasers of a majority of the Stock mutually
agree upon, orally or in writing (which time and place are designated as the
"Closing").
-------
(b) Subject to the terms of this Agreement, at the Closing, the
Company shall deliver to each Purchaser a certificate representing the Stock and
the Warrants being purchased thereby against payment of the purchase price
therefor by check payable to the
1
<PAGE>
Company, by wire transfer to the Company's bank account, by cancellation of
indebtedness, or by any combination thereof.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C (the "Schedule of
--------- -----------
Exceptions"), which exceptions shall be deemed to be representations and
- ----------
warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own its properties and to carry on its business. The Company is duly qualified
to transact 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 on its business or properties.
2.2 Capitalization. The authorized capital of the Company consists,
--------------
or will consist, immediately prior to the Closing, of:
(a) 9,900,000 shares of Preferred Stock, all of which shares
have been designated Series A Preferred Stock, none of which are issued and
outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Series A Preferred Stock are as stated in the Restated
Certificate.
(b) 25,000,000 shares of Common Stock, 8,203,500 shares of which
are issued and outstanding immediately prior to the Closing. The holders of
record of the currently issued and outstanding shares of Common Stock
immediately prior to the Closing are set forth in Section 2.2 of the Schedule of
Exceptions. All of the outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, and were issued
in compliance with all applicable federal and state securities laws.
(c) The Company has (i) reserved 5,062,500 shares of Common
Stock for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Stock Option Plan duly adopted by the Board of
Directors and approved by the Company's stockholders (the "Stock Plan") (ii)
----------
reserved 9,000,000 shares of its Common Stock for issuance upon conversion of
the Stock, and (iii) reserved 900,000 shares of its Series A Preferred Stock for
issuance upon exercise of the Warrants. Of such reserved shares of Common Stock,
no options to purchase shares have been granted, and 5,062,500 shares of Common
Stock remain available for issuance to officers, directors, employees and
consultants pursuant to the Stock Plan.
(d) Except for (i) conversion privileges of the Series A
Preferred Stock and Warrant Stock, (ii) 5,062,500 shares of Common Stock
reserved for issuance pursuant to the Stock Plan, (iii) the rights of first
refusal set forth in the Investors Rights Agreement and Co-Sale Agreement and
(iv) the Sequoia Note and the Warrant to purchase up to 900,000 shares of Stock
to be issued to Purchaser in connection herewith, there are no outstanding
options, warrants, rights (including conversion or preemptive rights and rights
of first refusal or similar rights) or
-2-
<PAGE>
agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital stock.
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the due authorization,
execution and delivery of this Agreement, the Investors' Rights Agreement, in
the form attached hereto as Exhibit D (the "Investors' Rights Agreement"), the
--------- ---------------------------
Co-Sale Agreement in the form attached hereto as Exhibit E (the "Co-Sale
--------- -------
Agreement"), the Voting Agreement in the form attached hereto as Exhibit F (the
- --------- ---------
"Voting Agreement"), the IPO Allocation Agreement in the form attached hereto as
----------------
Exhibit J (the "IPO Allocation Agreement" and collectively with the Investors'
- --------- ------------------------
Rights Agreement, the Co-Sale Agreement and the Voting Agreement the "Related
-------
Agreements"), and any other agreements or instruments executed by the Company in
- ----------
connection herewith or therewith, the performance of all obligations of the
Company hereunder and thereunder and the authorization, issuance and delivery of
the Securities has been taken or will be taken prior to the Closing. This
Agreement, the Related Agreements and the other agreements and instruments
executed by the Company in connection herewith or therewith, when executed and
delivered by the Company, shall constitute valid and legally binding obligations
of the Company, enforceable against the Company in accordance with their terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock and the Warrants being
----------------------------
issued to the Purchasers hereunder, when issued, sold and delivered in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement, the Co-
Sale Agreement and applicable state and federal securities laws. Based in part
upon the representations of the Purchasers in Section 3 hereof and subject to
the provisions of Section 2.6 below, the Stock and the Warrants will be issued
in compliance with all applicable federal and state securities laws. The Common
Stock issuable upon conversion of the Stock (the "Conversion Stock") and the
Warrant Stock has been duly and validly reserved for issuance, and upon issuance
in accordance with the terms of the Restated Certificate, shall be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the Co-Sale
Agreement and applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Related Agreements and any other
agreements or instruments executed by the Company in connection herewith or
-3-
<PAGE>
therewith, or in connection with the issuance of the Stock and the Warrants,
except for filings pursuant to Section 25102(f) of the California Corporate
Securities Law of 1968, as amended, and the rules thereunder, other applicable
state securities laws and Regulation D of the Securities Act of 1933, as amended
(the "Securities Act").
--------------
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
this Agreement or the Related Agreements or the right of the Company to enter
into them, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse change in the assets, condition or affairs of the Company, financially
or otherwise, or any change in the current equity ownership of the Company, nor
is the Company aware that there is any basis for the foregoing. There is no
governmental investigation pending or, to the knowledge of the Company,
threatened against the Company or affecting any of the Company's properties or
assets, or against any officer, key employee or stockholder of the Company in
his or her capacity as such. Neither the Company, nor, to its knowledge, any
officer, key employee or stockholder of the Company, in his or her capacity as
such, is in default with respect to any order, writ, injunction, decree, ruling
or decision of any court, commission, board or other government agency which may
materially and adversely affect the business or assets of the Company. Neither
the Company nor any of its subsidiaries is a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality.
2.8 Intellectual Property. 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, except, in either case, for end-user, object code,
internal-use software license and support/maintenance agreements. The Company
has not received any communications alleging that the Company has violated or,
by conducting its business, would violate any of the patents, trademarks,
service marks, tradenames, copyrights, trade secrets or other proprietary rights
or processes of any other person or entity. To the knowledge of the Company,
the use of any tradenames, trademarks, copyrights, software, technology, know-
how or processes by the Company in its business does not infringe on the rights
of any proprietary information or intangible property right of any third person
or entity, including, without limitation, any patent, trade secret, copyright,
trademark or tradename. The Company is not aware that any 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 such
employee's best efforts to promote the interest of the Company or that would
conflict with the Company's business. The Company does not believe it is or
will be necessary to use any inventions of any of its employees (or persons it
currently intends to hire) made prior to their employment by the Company. The
Company has at all times used commercially reasonable efforts to treat its trade
secrets as confidential and has not disclosed or otherwise dealt with such items
in such a manner as to cause the loss of such trade secrets by release into the
public domain.
-4-
<PAGE>
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any
provisions of (i) its Restated Certificate or Bylaws, (ii) any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound, (iii) any mortgage, indenture, lease, license, other agreement or
instrument by which it is bound or to which it or any of its properties are
subject or (iv) to its knowledge, of any provision of federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of the Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby or thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) To its knowledge, the Company has avoided every condition,
and has not performed any act, the occurrence of which would result in the
Company's loss of any right granted under any license, distribution agreement or
other agreement to which the Company is a party.
2.10 Agreements; Action.
------------------
(a) All agreements, understandings, instruments or contracts to
which the Company or any of its subsidiaries is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to, the
Company or any of its subsidiaries in excess of $15,000, (ii) the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company or any of its subsidiaries, or (iii) the grant of rights to manufacture,
produce, assemble, license, market, or sell its products to any other person or
affect the Company's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products, and all agreements between the Company
and its officers, directors, consultants and employees (collectively, the
"Contracts") are set forth in Section 2.10 of the Schedule of Exceptions. All of
---------
the Contracts are valid and binding obligations of the Company and in full force
and effect in all material respects and enforceable by the Company in accordance
with their respective terms in all material respects, subject to the effect of
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, usury or other laws of general application relating to or affecting
enforcement of creditors' rights and rules or laws concerning equitable
remedies. The Company is not in material default under any of such Contracts.
(b) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $15,000 or in excess of $25,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
-5-
<PAGE>
2.11 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. To the Company's knowledge, none of the
Company's officers or directors, or any members of their immediate families,
are, directly or indirectly, indebted to the Company (other than in connection
with purchases of the Company's stock) or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company except that officers, directors and/or stockholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
To the Company's knowledge, none of the Company's officers or directors or any
members of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.12 Rights of Registration and Voting Rights. Except as
----------------------------------------
contemplated in the Investors' Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. To the Company's knowledge, except as contemplated in the
Voting Agreement, no stockholder of the Company has entered into any agreements
with respect to the voting of capital shares of the Company.
2.13 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets, and, to the knowledge of the Company, there exists no material violation
by the Company of any law, regulation or ordinance (including, without
limitation, laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to any real property owned, leased or
subleased by the Company. With respect to the property and assets it leases,
the Company is in material compliance with such leases and, to its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
There are no defaults by the Company or, to the knowledge of the Company, by any
other party thereto, which might curtail in any material respect the current use
of the Company's property. The performance by the Company of this Agreement and
the Related Agreements will not result in the termination of, or in any increase
of any amounts payable under, any lease listed in the Schedule of Exceptions.
2.14 No Financial Statements. The Company has not prepared any
-----------------------
historical balance sheet, income statement, statement of cash flows or
stockholders' equity or other financial statement. The Company has no material
liability obligation, absolute or contingent (individually or in the aggregate),
except (i) obligations and liabilities incurred after the date of incorporation
in the ordinary course of business that are not material, individually or in the
aggregate, and (ii) obligations under contracts and commitments incurred in the
ordinary course of business that would not be required to be reflected in
financial statements prepared in accordance with generally accepted accounting
principles.
-6-
<PAGE>
2.15 Changes. Since the inception of the Company's business, there
-------
has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Business Plan
dated February 1999 (the "Business Plan"), except changes in the ordinary course
of business that have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company, is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or condition of
any character that might materially and adversely affect the business,
properties, prospects or financial condition of the Company; or
-7-
<PAGE>
(m) any arrangement or commitment by the Company to do any of
the things described in this Section 2.15.
2.16 Employee Benefit Plans. The Company does not have any "Employee
----------------------
Benefit Plan" as such term is defined in the Employee Retirement Income Security
Act of 1974.
2.17 Tax Returns and Payments. The Company has filed all tax returns
------------------------
and reports as required by law. These returns and reports are true and correct
in all material respects and were filed within the applicable periods for such
filings. The Company has paid all taxes and other assessments due. The Company
has established adequate reserves (net of estimated tax payments already made)
for the payment of all taxes payable in respect of the period subsequent to the
last periods covered by such returns. There is no pending dispute with any
taxing authority relating to any of such returns and the Company has not
received notice of any proposed liability for any tax to be imposed upon the
properties or assets of the Company. No deficiencies for any tax are currently
assessed against the Company, and no tax returns of the Company have ever been
audited, and, to the knowledge of the Company, there is no such audit pending or
threatened. There is no tax lien, whether imposed by any federal, state or
local taxing authority, outstanding against the assets, properties or business
of the Company. The Company has no liabilities for taxes that are accrued
whether or not yet due and payable. For the purposes of this Agreement, the
term "tax" shall include all federal, state and local taxes, including income,
franchise, property, sales, withholding, payroll and employment taxes.
2.18 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To its knowledge, the Company is in compliance in all material respects with all
applicable state and federal equal employment opportunity laws and regulations
and with other laws and regulations related to employment, labor, terms and
conditions of employment, and wages and hours.
2.19 Employee Matters. Each employee, consultant and officer of the
----------------
Company has executed an agreement with the Company regarding confidentiality and
proprietary information substantially in the form attached hereto as Exhibit G.
---------
The Company is not aware that any of its employees or consultants is in
violation thereof. Except as set forth on the Schedule of Exceptions, the
Company does not have in effect, and its assets are not subject to, any
employment agreements, consulting agreements, deferred compensation, pension or
retirement agreements or arrangements, bonus, incentive or profit-sharing plans
or arrangements, or labor or collective bargaining agreements, written or oral.
-8-
<PAGE>
2.20 Permits. The Company has all franchises, permits, licenses and
-------
any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, or
financial condition of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority and, to the knowledge of the Company, no suspension or
cancellation of any of them is threatened.
2.21 Corporate Documents. The Restated Certificate and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.22 Insurance Coverage. The Schedule of Exceptions contains an
------------------
accurate summary of the insurance policies currently maintained by the Company,
if any. There are currently no claims pending against the Company under any
insurance policies currently in effect and covering the property, business or
employees of the Company, and all premiums due and payable with respect to the
policies maintained by the Company have been paid to date.
2.23 Qualified Small Business Stock. As of the Closing, the Company
------------------------------
will meet the requirement to be a "Qualified Small Business as defined in
Section 1202(d) of the Internal Revenue Code (the "Code").
2.24 Disclosure. The Company has fully provided each Purchaser with
----------
all the information that such Purchaser has requested for deciding whether to
purchase the Stock. To its knowledge, neither this Agreement, nor any other
statements or certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
2.25 Year 2000 Compatibility. To the Company's knowledge, all of the
-----------------------
Company's and any of its subsidiary's products (including products currently
under development) record, store, process, calculate and present calendar dates
falling on or after January 1, 2000, and calculate any information dependent on
or relating to such dates in the same manner and with the same functionality,
data, integrity and performance as the products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"Year 2000 Compliant").
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants to the Company that:
3.1 Authorization. Such Purchaser has full power and authority to
-------------
enter into this Agreement. This Agreement, the Related Agreements, and any
other agreements or instruments executed by the Purchaser in connection herewith
or therewith, when executed and delivered by the Purchaser, will constitute
valid and legally binding obligations of the Purchaser,
-9-
<PAGE>
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
any other laws of general application affecting enforcement of creditors' rights
generally, and as limited by laws relating to the availability of a specific
performance, injunctive relief, or other equitable remedies, or (b) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
3.3 Disclosure of Information. The Purchaser has had an opportunity
-------------------------
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Stock and the Warrants with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as the Business Plan and
any other written information delivered by the Company to the Purchaser, were
intended to describe the aspects of the Company's business which it believes to
be material.
3.4 Restricted Securities. The Purchaser understands that the
---------------------
Securities have 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 which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 No Public Market. The Purchaser 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
Securities.
-10-
<PAGE>
3.6 Legends. The Purchaser understands that the Securities, and any
-------
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, 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 EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the Related Agreements.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
4. Conditions of the Purchasers' Obligations at Closing. The obligations
----------------------------------------------------
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement and the Related Agreements that are required to be performed or
complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
----------------------
deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 4.1, 4.2 and 4.10 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock and the Warrants pursuant to this Agreement shall be obtained and
effective as of the Closing.
4.5 Opinion of Company Counsel. The Purchasers shall have received
--------------------------
from Perkins Coie LLP, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit H.
---------
-11-
<PAGE>
4.6 Board of Directors. As of the Closing, the Board shall be
------------------
comprised of (i) two directors nominated by the Common Stock who shall initially
be Andrea Reisman and Lorne Abony (the "Common Stock Directors"), (ii) two
----------------------
directors nominated by a majority of the holders of Series A Preferred Stock
(the "Series A Directors"), who shall initially be Jay C. Hoag and Michael G.
------------------
Linnert and (iii) one director mutually agreeable to the holders of Common Stock
and Series A Preferred Stock, which shall initially be vacant (the "Outside
-------
Director"). The Company shall enter into Indemnification Agreements with each
- --------
director, in a form reasonably acceptable to each such director.
4.7 Investors' Rights Agreement. The Company and each Purchaser
---------------------------
shall have executed and delivered the Investors' Rights Agreement.
4.8 Co-Sale Agreement. Andrea C. Reisman, Lorne Abony, David Fraze
-----------------
and Manuel Henriguez (collectively the "Founders"), the Company and each
--------
Purchaser shall have executed and delivered the Co-Sale Agreement.
4.9 Voting Agreement. The Company, the Founders and each Purchaser
-----------------
shall have executed and delivered the Voting Agreement.
4.10 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the date of
the Closing, which shall continue to be in full force and effect as of the date
of the Closing.
4.11 Confidential Information and Invention Assignment Agreement. The
-----------------------------------------------------------
Company and each of its employees, consultants and officers shall have entered
into the Company's standard form Confidential Information and Invention
Assignment Agreement, in substantially the form attached hereto as Exhibit G.
---------
4.12 IPO Allocation Agreement. The Company and the Purchasers shall
------------------------
have entered into the IPO Allocation Agreement in substantially the form
attached hereto as Exhibit J.
---------
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained
-----------
in this Agreement and the Related Agreements to be performed by the Purchasers
on or prior to the Closing shall have been performed or complied with in all
material respects.
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in
-12-
<PAGE>
connection with the lawful issuance and sale of the Stock and the Warrants
pursuant to this Agreement shall be obtained and effective as of the Closing.
5.4 Director Indemnification Agreements. The Company shall have
-----------------------------------
authorized indemnification agreements with its directors, which agreements shall
be substantially in the form set forth as Exhibit I hereto, and shall have
---------
entered into such agreements with each of the directors referenced in Section
4.6 hereof.
5.5 Voting Agreement. The Company, the Founders and each Purchaser
-----------------
shall have executed and delivered the Voting Agreement.
6. Covenants of the Company.
-------------------------
6.1 Use of Proceeds. The proceeds from the sale of the Stock and the
---------------
Warrants shall be used by the Company for working capital and general corporate
purposes.
6.2 Compensation Committee. The Board shall appoint and maintain a
----------------------
Compensation Committee, which shall contain no more than three persons, one of
whom shall be a Series A Director, to administer the Company's stock option
plans and make recommendations to the Board of Directors with respect to
compensation of executive officers, Company benefit plans and employment
matters. The Board of Directors shall have the power to accept or reject any
recommendation of the Compensation Committee, but shall not approve the
compensation in amounts which differ from the amounts recommended by the
Compensation Committee.
6.3 Audit Committee. The Company will maintain an Audit Committee
---------------
composed of no more than three (3) and shall include at least one Series A
Director.
6.4 Vesting of Founders' Stock. Prior to the closing, the Founders
--------------------------
shall each have entered into an agreement with the Company providing that 40% of
the Founder's stock options and common stock equivalents shall be immediately
exerciseable and 60% of such stock shall vest monthly over a three (3) year
period. The vesting restrictions on the Founders' stock shall be accelerated
following an acquisition, merger, sale of assets or other change of control of
the Company, or if the Founder is terminated without cause or constructively
terminated.
6.5 Key Man Life Insurance. The Company will use best efforts to
----------------------
maintain term life insurance in the amount of $2,000,000 on the Company's Chief
Executive Officer ("Key Man Life Insurance"). The beneficiary of the Key Man
----------------------
Life Insurance shall be the Company.
6.6 Qualified Small Business Stock. The Company covenants that so
------------------------------
long as the Stock, the Conversion Stock or the Warrant Stock (collectively, the
"Securities") are held by a Purchaser (or a transferee in whose hands the
Securities are eligible to qualify as Qualified Small Business Stock as defined
in Section 1202(c) of the Code), it will use its best efforts to cause the
Securities to qualify as Qualified Small Business Stock. In addition, the
Company shall submit to the Purchaser and to the Internal Revenue Service any
reports that may be required under Section 1202(d)(1)(C) of the Code and any
related Treasury Regulations. In
-13-
<PAGE>
addition, after any Purchaser has delivered to the Company a written request
therefor (a "QSBS Certificate"), the Company shall deliver to such Purchaser a
QSBS Certificate informing the Purchaser whether such Purchaser's interest in
the Company constitutes "qualified small business stock" as defined in Section
1202(c) of the Code. The Company's obligation to furnish this QSBS Certificate
shall continue notwithstanding the fact that a class of the Company's stock may
be traded on an established securities market.
6.7 Termination of Covenants. Except for Sections 6.4 and 6.6, the
------------------------
covenants contained in this Section 6 will terminate upon the closing of the
Company's filing of a registration statement under the Securities Act in
connection with its initial public offering of securities.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
7.2 Transfer; Successors and Assigns. The terms and conditions of
--------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement 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.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7.5 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.
7.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at such
party's address as set forth on the signature page or Exhibit A hereto, or as
---------
subsequently modified by written notice, and (a) if to the Company, with a copy
to Perkins Coie LLP, 135
-14-
<PAGE>
Commonwealth Drive, Suite 250, Menlo Park, CA 94025, attn: Debra B. Rosler, or
(b) if to the Purchasers, to the address of record provided to the Company by
each Purchaser.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Fees and Expenses. The Company shall pay the reasonable,
-----------------
itemized fees and expenses of Gunderson Dettmer, LLP, the counsel for the
Purchasers, incurred with respect to this Agreement, the documents referred to
herein and the transactions contemplated hereby and thereby, not to exceed
$20,000 in the aggregate for all such costs and expenses.
7.9 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of this
Agreement or the Related Agreements, the 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.
7.10 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Common Stock issued or issuable upon conversion of
the Stock. Any amendment or waiver effected in accordance with this Section
7.10 shall be binding upon the Purchasers and each transferee of the Stock (or
the Common Stock issuable upon conversion thereof), each future holder of all
such securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
7.12 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in 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
-15-
<PAGE>
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.
7.13 Entire Agreement. This Agreement, the Related Agreements and the
----------------
documents and instruments referred to herein constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to the subject matter hereof
existing between the parties hereto are expressly canceled.
7.14 Corporate Securities Law. 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 THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.15 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock and Warrants purchased hereunder. The provisions of this
Section 7.15 shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by the parties
hereto with respect to the transactions contemplated hereby.
7.16 Exculpation Among Purchasers. Each Purchaser acknowledges that
----------------------------
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Securities.
[Remainder of page intentionally left blank]
-16-
<PAGE>
The parties have executed this Series A Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
------------------------------------------
Name: Andrea C. Reisman
Its: Chief Executive Officer
INVESTORS:
TCV III (GP)
a Delaware General Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
-------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
-------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
-------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
<PAGE>
TCV III Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
-------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Mailing Address:
Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jay C. Hoag
Phone: (650) 614-8210
Fax: (650) 614-8222
<PAGE>
EXHIBIT 10.14
AMENDMENT TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS AMENDMENT TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT, dated as of
May 28, 1999 (this "Amendment"), by and between PETOPIA.COM, INC. (the
---------
"Company"), the Purchasers listed on Exhibit A to the Series A Preferred Stock
------- ---------
Purchase Agreement dated as of May 4, 1999 (the "Purchase Agreement") and the
------------------
purchasers listed on Exhibit A attached hereto (the "Additional Purchasers")
--------- ---------------------
WHEREAS, the Company and the "Purchasers" (as defined in the Purchase
Agreement) are parties to the Purchase Agreement pursuant to which each
Purchaser purchased shares of Series A Preferred Stock from the Company on the
terms and conditions set forth therein;
WHEREAS, the Company and the Purchasers wish to amend the Purchase
Agreement in accordance with Section 7.10 of the Purchase Agreement (terms
defined in the Purchase Agreement are used herein as therein defined);
WHEREAS, the Additional Purchasers desire to purchase and the Company
desires to sell up to 755,000 shares of the Company's Series A Preferred Stock
at one or more Subsequent Closings (as defined below);
NOW, THEREFORE, in consideration of the foregoing recitals (which are
hereby incorporated into and shall be deemed part of this Amendment) and of the
covenants and mutual agreements contained in this Amendment, each of the
Purchasers, the Additional Purchasers and the Company agrees as follows:
Section 1. Amendments. The Company and the Purchasers hereby agree that
----------
the Purchase Agreement shall be amended as follows:
(A) Section 1.2 of the Purchase Agreement shall be deleted in its entirety
-----------
and substituting the following therefor:
"1.2 Initial Closing; Delivery.
-------------------------
(a) The initial closing of the purchase and sale of the Stock
and the Warrants (the "Initial Closing") shall take place at the
---------------
offices of Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo
Park, California, at 10:00 a.m., on May 4, 1999, or at such other time
and place as the Company and the Purchasers acquiring a majority of
the Stock at the Initial Closing mutually agree upon, orally or in
writing (such date, the "Initial Closing Date").
--------------------
(b) At the Initial Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock and the Warrants being
purchased thereby against payment of the purchase price therefor by
check payable to the Company, by wire transfer to the Company's bank
account, by cancellation of indebtedness, or by any combination
thereof."
<PAGE>
(B) The Following Section 1.3 of the Purchase Agreement shall be added to
-----------
Article 1 of the Purchase Agreement immediately after Section 1.2:
"1.3 Subsequent Closings. The Company may sell up to an
-------------------
additional 755,000 shares of the Series A Preferred Stock not sold at
the Initial Closing to such purchasers as it shall select at one or
more subsequent closings (each, a "Subsequent Closing," and the date
------------------
of each such Subsequent Closing, a "Subsequent Closing Date"), at a
-----------------------
price of not less than $1.00 per share and on terms no more favorable
than those contained herein. Notwithstanding the foregoing, no
Subsequent Closing may occur after the date which is 30 days from the
date of this Amendment. Upon payment of the purchase price for the
shares of Series A Preferred Stock being purchased and execution of a
signature page counterpart to this Agreement, the Investors' Rights
Agreement, the Co-Sale Agreement and the Voting Agreement
(collectively, the "Series A Agreements" and each as defined below)
-------------------
and without need for an amendment thereto aside from this Amendment,
except to add such purchaser's name to Exhibit A to such agreements,
---------
any such purchaser shall become a party to the Series A Agreements as
of the applicable Subsequent Closing Date, and shall be deemed a
"Purchaser" or an "Investor" for purposes of the Series A Agreements,
as the case may be, provided that (a) the representations and
warranties of the Company shall be deemed made as of the Initial
Closing Date; (b) the representations and warranties of each purchaser
shall be deemed made as of the applicable Subsequent Closing Date; (c)
no further deliveries pursuant to Section 4 of this Agreement shall be
made by the Company as of a Subsequent Closing Date; and (d) a
purchaser in any such Subsequent Closing shall not be entitled to
purchase any Warrants. The Initial Closing and each Subsequent
Closing are referred to herein collectively as the "Closing" and the
-------
Initial Closing Date and Subsequent Closing Date are referred to
herein collectively as the "Closing Date."
------------
Section 2. Additional Purchasers. Each of the Additional Purchasers
---------------------
listed on the attached Exhibit A shall become parties to the Purchase Agreement
---------
by executing this Amendment and by virtue of their inclusion on Exhibit A
---------
attached hereto, which Exhibit A shall supplement and be read in conjunction
---------
with Exhibit A to the Purchase Agreement.
---------
Section 3. Governing Law. This Amendment shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
Section 4. Amendments. This Amendment may not be modified or amended
----------
except by written agreement signed by the Company and a majority of the holders
of the Series A Preferred Stock.
Section 5. Counterparts. This Amendment may be executed in as many
------------
counterparts as may be deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the Purchasers, the Additional Purchasers and the
Company have caused this Amendment to be duly executed as of the date first
above written.
COMPANY:
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
----------------------------------------------------
Name: Andrea C. Reisman
Its: Chief Executive Officer
PURCHASERS:
TCV III (GP)
a Delaware General Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
---------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
---------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
---------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
<PAGE>
TCV III Strategic Partners, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
---------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
ADDITIONAL PURCHASERS:
Angel Investors, L.P.
By: Angel Management, LLC
Its General Partner
By:____________________________________________________
Its:___________________________________________________
TWB Investment Partnership
By:____________________________________________________
Its:
/s/ A. Brooke Seawell
-------------------------------------------------------
A. Brooke Seawell
/s/ Brett Bullington
-------------------------------------------------------
Brett Bullington
The David A. Duffield Trust dated 7/14/88
By:____________________________________________________
/s/ Margaret L. Taylor
-------------------------------------------------------
Margaret L. Taylor
/s/ Michael Kennealy
-------------------------------------------------------
Michael Kennealy
<PAGE>
EXHIBIT 10.15
PETOPIA.COM, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
July 1, 1999
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1. Purchase and Sale of Preferred Stock........................................................... 1
1.1 Sale and Issuance of Series B Preferred Stock.............................................. 1
1.2 Closing; Delivery.......................................................................... 1
2. Representations and Warranties of the Company.................................................. 2
2.1 Organization, Good Standing and Qualification.............................................. 2
2.2 Capitalization............................................................................. 2
2.3 Subsidiaries............................................................................... 3
2.4 Authorization.............................................................................. 3
2.5 Valid Issuance of Securities............................................................... 3
2.6 Governmental Consents...................................................................... 4
2.7 Litigation................................................................................. 4
2.8 Intellectual Property...................................................................... 4
2.9 Compliance with Other Instruments.......................................................... 5
2.10 Agreements; Action......................................................................... 5
2.11 No Conflict of Interest.................................................................... 6
2.12 Rights of Registration and Voting Rights................................................... 6
2.13 Title to Property and Assets............................................................... 6
2.14 No Financial Statements.................................................................... 7
2.15 Changes.................................................................................... 7
2.16 Employee Benefit Plans..................................................................... 8
2.17 Tax Returns and Payments................................................................... 8
2.18 Labor Agreements and Actions............................................................... 8
2.19 Confidential Information and Invention Assignment Agreements............................... 9
2.20 Permits.................................................................................... 9
2.21 Corporate Documents........................................................................ 9
2.22 Insurance Coverage......................................................................... 9
2.23 Qualified Small Business Stock............................................................. 9
2.24 Disclosure................................................................................. 9
2.25 Year 2000 Compatibility.................................................................... 9
3. Representations and Warranties of the Purchasers............................................... 10
3.1 Authorization.............................................................................. 10
3.2 Purchase Entirely for Own Account.......................................................... 10
3.3 Disclosure of Information.................................................................. 10
3.4 Restricted Securities...................................................................... 10
3.5 No Public Market........................................................................... 11
3.6 Legends.................................................................................... 11
3.7 Accredited Investor........................................................................ 11
3.8 Foreign Investors.......................................................................... 11
4. Conditions of the Purchasers' Obligations at Closing........................................... 12
4.1 Representations and Warranties............................................................. 12
4.2 Performance................................................................................ 12
4.3 Compliance Certificate..................................................................... 12
4.4 Qualifications............................................................................. 12
4.5 Opinion of Company Counsel................................................................. 12
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.6 Board of Directors......................................................................... 12
4.7 Investors' Rights Agreement................................................................ 12
4.8 Co-Sale Agreement.......................................................................... 12
4.9 Voting Agreement........................................................................... 12
4.10 Restated Articles.......................................................................... 13
4.11 Confidential Information and Invention Assignment Agreement................................ 13
5. Conditions of the Company's Obligations at Closing............................................. 13
5.1 Representations and Warranties............................................................. 13
5.2 Performance................................................................................ 13
5.3 Qualifications............................................................................. 13
5.4 Investors' Rights Agreement................................................................ 13
5.5 Voting Agreement........................................................................... 13
6. Covenants of the Company....................................................................... 13
6.1 Use of Proceeds............................................................................ 13
6.2 Key Man Life Insurance..................................................................... 13
6.3 Qualified Small Business Stock............................................................. 13
6.4 Termination of Covenants................................................................... 14
7. Miscellaneous.................................................................................. 14
7.1 Survival of Warranties..................................................................... 14
7.2 Transfer; Successors and Assigns........................................................... 14
7.3 Governing Law.............................................................................. 14
7.4 Counterparts............................................................................... 14
7.5 Titles and Subtitles....................................................................... 14
7.6 Notices.................................................................................... 14
7.7 Finder's Fee............................................................................... 15
7.8 Fees and Expenses.......................................................................... 15
7.9 Attorney's Fees............................................................................ 15
7.10 Amendments and Waivers..................................................................... 15
7.11 Severability............................................................................... 15
7.12 Delays or Omissions........................................................................ 15
7.13 Entire Agreement........................................................................... 16
7.14 Corporate Securities Law................................................................... 16
7.15 Confidentiality............................................................................ 16
7.16 Exculpation Among Purchasers............................................................... 16
</TABLE>
-ii-
<PAGE>
PETOPIA.COM, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series B Preferred Stock Purchase Agreement (the "Agreement") is made
---------
as of July 1, 1999 by and between Petopia.com, Inc., a Delaware corporation (the
"Company"), and each of the purchasers listed on the Schedule of Purchasers
-------
attached hereto as Exhibit A (the "Schedule of Purchasers") who are signatories
--------- ----------------------
to this Agreement, and any other person or persons who shall have executed this
Agreement in connection with the purchase of Additional Shares, as defined below
(the "Additional Purchasers"), which person or persons shall be added to a
---------------------
Supplemental Schedule of Purchasers, as defined below, at such time as they
shall purchase such Additional Shares pursuant hereto.
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
------------------------------------
1.1 Sale and Issuance of Series B Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Second
Amended and Restated Certificate of Incorporation in the form attached hereto as
Exhibit B (the "Restated Certificate").
- --------- --------------------
(b) Subject to the terms and conditions of this Agreement, each
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to each Purchaser at the Closing that number of shares of Series B
Preferred Stock set forth opposite each such Purchaser's name on Exhibit A
---------
attached hereto at a purchase price of $2.5852 per share (the "Original Purchase
-----------------
Price"). The shares of Series B Preferred Stock issued to the Purchasers
- -----
pursuant to this Agreement shall be hereinafter referred to as the "Stock." The
-----
Stock and the Common Stock issuable upon conversion of the Stock shall be
collectively referred to herein as the "Securities."
----------
1.2 Closing; Delivery.
-----------------
(a) The purchase and sale of the Stock shall take place at the
offices of Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo Park,
California, at 10:00 a.m., on July 1, 1999, or at such other time and place as
the Company and the Purchasers of a majority of the Stock mutually agree upon,
orally or in writing (which time and place are designated as the "Closing"). The
-------
closings of the purchase and sale of up to the authorized number of shares of
Series B Preferred Stock (the "Additional Shares") hereunder (the "Subsequent
----------------- ----------
Closings") shall be held at the offices of Perkins Coie LLP at such times and
- --------
dates as the Company and the Additional Purchasers shall specify, but in no
event shall an Subsequent Closing occur later than 30 days from the Closing.
(b) Subject to the terms of this Agreement, at the Closing, the
Company shall deliver to each Purchaser a certificate representing the Stock
being purchased hereby against payment of the purchase price therefor by check
payable to the Company, by wire
-1-
<PAGE>
transfer to the Company's bank account, by cancellation of indebtedness, or by
any combination thereof. At the Subsequent Closings, if any, a Supplemental
Schedule of Purchasers shall be added to this Agreement as Exhibit A.1 (the
-----------
"Supplemental Schedule of Purchasers") and the Company will deliver to each
-----------------------------------
Additional Purchaser who shall have executed this Agreement a certificate or
certificates representing the number of Additional Shares being purchased hereby
against (i) payment of the purchase price therefor by check payable to the
Company, by wire transfer to the Company's bank account, by cancellation of
indebtedness, or by any combination thereof, and (ii) delivery of signature
pages to this Agreement and each of the Related Agreements (as defined below).
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to each Purchaser that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C (the "Schedule of
--------- -----------
Exceptions"), which exceptions shall be deemed to be representations and
- ----------
warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own its properties and to carry on its business. The Company is duly qualified
to transact 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 on its business or properties.
2.2 Capitalization. Immediately prior to the Closing, the authorized
--------------
capital of the Company consists of:
(a) 25,000,000 shares of Preferred Stock, (i) 11,555,000 of
which have been designated Series A Preferred Stock, 9,755,000 of which are
issued and outstanding immediately prior to the Closing, and (ii) 8,000,000 of
which have been designated Series B Preferred Stock, none of which are issued
and outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Series A and Series B Preferred Stock are as stated in the
Restated Certificate.
(b) 41,000,000 shares of Common Stock, 9,652,500 shares of which
are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, and were issued in compliance with all
applicable federal and state securities laws.
(c) The Company has reserved 5,062,500 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its 1999 Stock Plan duly adopted by the Board of Directors and
approved by the Company's stockholders (the "Stock Plan"), of which options to
----------
purchase 2,017,125 shares of Common Stock are currently outstanding, options to
purchase 1,215,000 shares of Common Stock have been exercised and 1,830,375
shares are available for future issuance under the Stock Plan. The Company has
reserved 11,555,000 shares of Common Stock for issuance upon conversion of the
Series A Preferred Stock and warrants to purchase Series A Preferred Stock
("Series A Warrants") and 8,000,000 shares of Common Stock for issuance upon
------------------
conversion of the Series B
-2-
<PAGE>
Preferred Stock. The Company has reserved 1,800,000 shares of its Series A
Preferred Stock for issuance upon exercise of the Series A Warrants and 585,000
shares of Common Stock for issuance upon the exercise of warrants to purchase
Common Stock issuable to the founders of Loveland Pet Products, Inc. ("Loveland
--------
Warrants").
- --------
(d) Except for (i) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock, Series A Warrants and Loveland
Warrants (ii) the rights of first refusal as set forth in the Investors' Rights
Agreement and the Co-Sale Agreement, (iii) the rights to participate in the
initial public offering as indicated in the IPO Allocation Agreement dated as of
May 4, 1999 between the Company and certain purchasers of Series A Preferred
Stock (the "IPO Allocation Agreement"), and (iv) 5,062,500 shares of Common
------------------------
Stock reserved for issuance pursuant to the Stock Plan, there are, to our
knowledge, no options, warrants, conversion privileges or other rights (or
agreements for any such rights) outstanding to purchase or otherwise obtain from
the Company any of the Company's securities except as set forth on the Schedule
of Exceptions.
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the due authorization,
execution and delivery of this Agreement, the Amended and Restated Investors'
Rights Agreement in the form attached hereto as Exhibit D (the "Investors'
--------- ----------
Rights Agreement"), the Amended and Restated Co-Sale Agreement in the form
- ----------------
attached hereto as Exhibit E (the "Co-Sale Agreement"), and the Amended and
--------- -----------------
Restated Voting Agreement in the form attached hereto as Exhibit F (the "Voting
--------- ------
Agreement" and collectively with the Investors' Rights Agreement and the Co-Sale
- ---------
Agreement, the "Related Agreements"), and any other agreements or instruments
------------------
executed by the Company in connection herewith or therewith, the performance of
all obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Securities has been taken or will be taken prior to
the Closing. This Agreement, the Related Agreements and the other agreements
and instruments executed by the Company in connection herewith or therewith,
when executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, or (iii) to the extent the
indemnification provisions contained in the Investors' Rights Agreement may be
limited by applicable federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock being issued to the
----------------------------
Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Co-Sale Agreement and
applicable state and federal securities laws. Based in part upon the
representations of the Purchasers in Section 3 hereof and subject to the
provisions of Section 2.6
-3-
<PAGE>
below, the Stock will be issued in compliance with all applicable federal and
state securities laws. The Common Stock issuable upon conversion of the Stock
(the "Conversion Stock") has been duly and validly reserved for issuance, and
----------------
upon issuance in accordance with the terms of the Restated Certificate, shall be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement, the Co-
Sale Agreement and applicable federal and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Related Agreements and any other
agreements or instruments executed by the Company in connection herewith or
therewith, or in connection with the issuance of the Stock, except for filings
pursuant to Section 25102(f) of the California Corporate Securities Law of 1968,
as amended, and the rules thereunder, other applicable state securities laws and
Regulation D of the Securities Act of 1933, as amended (the "Securities Act").
--------------
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
this Agreement or the Related Agreements or the right of the Company to enter
into them, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse change in the assets, condition or affairs of the Company, financially
or otherwise, or any change in the current equity ownership of the Company, nor
is the Company aware that there is any basis for the foregoing. There is no
governmental investigation pending or, to the knowledge of the Company,
threatened against the Company or affecting any of the Company's properties or
assets, or against any officer, key employee or stockholder of the Company in
his or her capacity as such. Neither the Company, nor, to its knowledge, any
officer, key employee or stockholder of the Company, in his or her capacity as
such, is in default with respect to any order, writ, injunction, decree, ruling
or decision of any court, commission, board or other government agency which may
materially and adversely affect the business or assets of the Company. Neither
the Company nor any of its subsidiaries is a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality.
2.8 Intellectual Property. 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, except, in either case, for end-user, object code,
internal-use software license and support/maintenance agreements. The Company
has not received any communications alleging that the Company has violated or,
by conducting its business, would violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets or other proprietary
rights or processes of any other person or entity. To the knowledge of the
Company, the use of any trade names, trademarks, copyrights, software,
technology, know-how or processes by the Company in its business does not
infringe on the rights of any proprietary information or intangible property
right of any third person or entity, including, without
-4-
<PAGE>
limitation, any patent, trade secret, copyright, trademark or trade name. The
Company is not aware that any 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 such employee's best efforts to
promote the interest of the Company or that would conflict with the Company's
business. The Company does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company. The Company has at all times used
commercially reasonable efforts to treat its trade secrets as confidential and
has not disclosed or otherwise dealt with such items in such a manner as to
cause the loss of such trade secrets by release into the public domain.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provisions
of (i) its Restated Certificate or Bylaws, (ii) any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound, (iii)
any mortgage, indenture, lease, license, other agreement or instrument by which
it is bound or to which it or any of its properties are subject or (iv) to its
knowledge, of any provision of federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of the
Agreement and the Related Agreements and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
(b) To its knowledge, the Company has avoided every condition,
and has not performed any act, the occurrence of which would result in the
Company's loss of any right granted under any license, distribution agreement or
other agreement to which the Company is a party.
2.10 Agreements; Action.
------------------
(a) All agreements, understandings, instruments or contracts to
which the Company or any of its subsidiaries is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to, the
Company or any of its subsidiaries in excess of $15,000, (ii) the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company or any of its subsidiaries, or (iii) the grant of rights to manufacture,
produce, assemble, license, market, or sell its products to any other person or
affect the Company's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products, and all agreements between the Company
and its officers, directors, consultants and employees (collectively, the
"Contracts") are set forth in Section 2.10 of the Schedule of Exceptions. All
---------
of the Contracts are valid and binding obligations of the Company and in full
force and effect in all material respects and enforceable by the Company in
accordance with their respective terms in all material respects, subject to the
effect of applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, usury or other laws of general
-5-
<PAGE>
application relating to or affecting enforcement of creditors' rights and rules
or laws concerning equitable remedies. The Company is not in material default
under any of such Contracts.
(b) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $15,000 or in excess of $25,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
2.11 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. To the Company's knowledge, none of the
Company's officers or directors, or any members of their immediate families,
are, directly or indirectly, indebted to the Company (other than in connection
with purchases of the Company's stock) or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company except that officers, directors and/or stockholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
To the Company's knowledge, none of the Company's officers or directors or any
members of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.12 Rights of Registration and Voting Rights. Except as contemplated
----------------------------------------
in the Investors' Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity. To the Company's knowledge, except as contemplated in the Voting
Agreement, no stockholder of the Company has entered into any agreements with
respect to the voting of capital shares of the Company.
2.13 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets, and, to the knowledge of the Company, there exists no material violation
by the Company of any law, regulation or ordinance (including, without
limitation, laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to any real property owned, leased or
subleased by the Company. With respect to the property and assets it leases,
the Company is in material compliance with such leases and, to its knowledge,
holds a valid leasehold interest free of any liens, claims or encumbrances.
There are no defaults by the Company or, to the knowledge of the Company, by any
other party thereto, which might curtail in any material respect the current use
of the Company's property. The performance by the Company of this Agreement and
the Related
-6-
<PAGE>
Agreements will not result in the termination of, or in any increase of any
amounts payable under, any lease listed in the Schedule of Exceptions.
2.14 Financial Statements. Attached hereto as Exhibit I is a copy of
-------------------- ---------
the Company's most recent regularly prepared unaudited balance sheet and related
income statement (the "Unaudited Financial Statements"). The Unaudited
------------------------------
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except for the absence of
normal audit adjustments and the absence of other supporting statements,
schedules and footnotes, and were prepared in accordance with the books and
records of the Company and fairly present the financial position of the Company
as of the date of such Unaudited Financial Statements (the "Balance Sheet
-------------
Date").
- ----
2.15 Changes. Since the Balance Sheet Date, there has not been:
-------
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Unaudited
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company, is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
-7-
<PAGE>
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or condition of
any character that might materially and adversely affect the business,
properties, prospects or financial condition of the Company; or
(m) any arrangement or commitment by the Company to do any of
the things described in this Section 2.15.
2.16 Employee Benefit Plans. The Company does not have any "Employee
----------------------
Benefit Plan" as such term is defined in the Employee Retirement Income Security
Act of 1974.
2.17 Tax Returns and Payments. The Company has filed all tax returns
------------------------
and reports as required by law. These returns and reports are true and correct
in all material respects and were filed within the applicable periods for such
filings. The Company has paid all taxes and other assessments due. The Company
has established adequate reserves (net of estimated tax payments already made)
for the payment of all taxes payable in respect of the period subsequent to the
last periods covered by such returns. There is no pending dispute with any
taxing authority relating to any of such returns and the Company has not
received notice of any proposed liability for any tax to be imposed upon the
properties or assets of the Company. No deficiencies for any tax are currently
assessed against the Company, and no tax returns of the Company have ever been
audited, and, to the knowledge of the Company, there is no such audit pending or
threatened. There is no tax lien, whether imposed by any federal, state or
local taxing authority, outstanding against the assets, properties or business
of the Company. The Company has no liabilities for taxes that are accrued
whether or not yet due and payable. For the purposes of this Agreement, the
term "tax" shall include all federal, state and local taxes, including income,
franchise, property, sales, withholding, payroll and employment taxes.
2.18 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To its knowledge, the Company is in compliance in all material respects with all
applicable state and federal equal employment opportunity laws and regulations
-8-
<PAGE>
and with other laws and regulations related to employment, labor, terms and
conditions of employment, and wages and hours.
2.19 Employee Matters. Each employee, director, consultant and
----------------
officer of the Company has executed an agreement with the Company regarding
confidentiality and proprietary information substantially in the form attached
hereto as Exhibit G. The Company is not aware that any of its employees or
---------
consultants is in violation thereof. Except as set forth on the Schedule of
Exceptions, the Company does not have in effect, and its assets are not subject
to, any employment agreements, consulting agreements, deferred compensation,
pension or retirement agreements or arrangements, bonus, incentive or profit-
sharing plans or arrangements, or labor or collective bargaining agreements,
written or oral.
2.20 Permits. The Company has all franchises, permits, licenses and
-------
any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, or
financial condition of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority and, to the knowledge of the Company, no suspension or
cancellation of any of them is threatened.
2.21 Corporate Documents. The Restated Certificate and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.22 Insurance Coverage. The Schedule of Exceptions contains an
------------------
accurate summary of the insurance policies currently maintained by the Company,
if any. There are currently no claims pending against the Company under any
insurance policies currently in effect and covering the property, business or
employees of the Company, and all premiums due and payable with respect to the
policies maintained by the Company have been paid to date.
2.23 Qualified Small Business Stock. As of the Closing, the Company
------------------------------
will meet the requirement to be a "Qualified Small Business" as defined in
Section 1202(d) of the Internal Revenue Code (the "Code").
----
2.24 Disclosure. The Company has fully provided each Purchaser with
----------
all the information that such Purchaser has requested for deciding whether to
purchase the Stock. To its knowledge, neither this Agreement, nor any other
statements or certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
2.25 Year 2000 Compatibility. To the Company's knowledge, all of the
-----------------------
Company's and any of its subsidiary's products (including products currently
under development) record, store, process, calculate and present calendar dates
falling on or after
-9-
<PAGE>
January 1, 2000, and calculate any information dependent on or relating to such
dates in the same manner and with the same functionality, data, integrity and
performance as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant").
-------------------
3. Representations and Warranties of the Purchasers. Each Purchaser
------------------------------------------------
hereby represents and warrants to the Company that:
3.1 Authorization. Such Purchaser has full power and authority to
-------------
enter into this Agreement. This Agreement, the Related Agreements, and any
other agreements or instruments executed by the Purchaser in connection herewith
or therewith, when executed and delivered by the Purchaser, will constitute
valid and legally binding obligations of the Purchaser, enforceable in
accordance with their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors' rights
generally, and as limited by laws relating to the availability of a specific
performance, injunctive relief, or other equitable remedies, or (b) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
3.3 Disclosure of Information. The Purchaser has had an opportunity
-------------------------
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Securities with the Company's management
and has had an opportunity to review the Company's facilities. The Purchaser
understands that such discussions, as well as the Business Plan and any other
written information delivered by the Company to the Purchaser, were intended to
describe the aspects of the Company's business which it believes to be material.
3.4 Restricted Securities. The Purchaser understands that the
---------------------
Securities have 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 which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration
-10-
<PAGE>
and qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 No Public Market. The Purchaser 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
Securities.
3.6 Legends. The Purchaser understands that the Securities, and any
-------
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, 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 EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the Related Agreements.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
3.8 Foreign Investors. If the Purchaser is not a United States
-----------------
person (as defined by Section 7701(a)(30) of the Code), such Purchaser hereby
represents that it has satisfied itself as to the full observance of the laws of
its jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including (a) the legal requirements
within its jurisdiction for the purchase of the Securities, (b) any foreign
exchange restrictions applicable to such purchase, (c) any governmental or other
consents that may need to be obtained, and (d) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale, or transfer of the Securities. Such Purchaser's subscription and payment
for and continued beneficial ownership of the Securities, will not violate any
applicable securities or other laws of the Purchaser's jurisdiction.
-11-
<PAGE>
4. Conditions of the Purchasers' Obligations at Closing. The obligations
----------------------------------------------------
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement and the Related Agreements that are required to be performed or
complied with by it on or before the Closing.
4.3 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company shall deliver to the Purchasers at the Closing a certificate certifying
that the conditions specified in Sections 4.1, 4.2 and 4.10 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be obtained and effective as of
the Closing.
4.5 Opinion of Company Counsel. The Purchasers shall have received
--------------------------
from Perkins Coie LLP, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit H.
---------
4.6 Board of Directors. As of the Closing, the Board shall be
------------------
comprised of (i) two directors nominated by the holders of Common Stock, one of
whom shall be Andrea Reisman and the other seat which shall be vacant (the
"Common Stock Directors"), (ii) two directors nominated by a majority of the
----------------------
holders of Series A Preferred Stock (the "Series A Directors"), who shall be Jay
------------------
C. Hoag and Michael G. Linnert and (iii) one director mutually agreeable to the
holders of Common Stock and Series A Preferred Stock, who shall be A. Brooke
Seawell (the "Outside Director").
----------------
4.7 Investors' Rights Agreement. The Company, each Purchaser, a
---------------------------
majority of the holders of the Series A Preferred Stock and a majority of the
holders of the Common Stock shall have executed and delivered the Investors'
Rights Agreement.
4.8 Co-Sale Agreement. The Company, a majority of the Founders (as
-----------------
defined in the Co-Sale Agreement), a majority of the holders of the Series A
Preferred Stock and each Purchaser shall have executed and delivered the Co-Sale
Agreement.
4.9 Voting Agreement. The Company, the Founders, a majority of the
-----------------
holders of the Series A Preferred Stock and each Purchaser shall have executed
and delivered the Voting Agreement.
-12-
<PAGE>
4.10 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the date of
the Closing, which shall continue to be in full force and effect as of the date
of the Closing.
4.11 Confidential Information and Invention Assignment Agreement. The
-----------------------------------------------------------
Company and each of its employees, consultants and officers shall have entered
into the Company's standard form Confidential Information and Invention
Assignment Agreement, in substantially the form attached hereto as Exhibit G.
---------
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained
-----------
in this Agreement and the Related Agreements to be performed by the Purchasers
on or prior to the Closing shall have been performed or complied with in all
material respects.
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be obtained and effective as of
the Closing.
5.4 Investors' Rights Agreement. The Company, each Purchaser, a
---------------------------
majority of the holders of the Series A Preferred Stock and a majority of the
holders of the Common Stock shall have executed and delivered the Investors'
Rights Agreement.
5.5 Voting Agreement. The Company, the Founders and each Purchaser
-----------------
shall have executed and delivered the Voting Agreement.
6. Covenants of the Company.
-------------------------
6.1 Use of Proceeds. The proceeds from the sale of the Stock shall
---------------
be used by the Company for working capital and general corporate purposes.
6.2 Key Man Life Insurance. The Company will use best efforts to
----------------------
obtain and maintain term life insurance in the amount of $2,000,000 on the
Company's Chief Executive Officer ("Key Man Life Insurance"). The beneficiary
----------------------
of the Key Man Life Insurance shall be the Company.
6.3 Qualified Small Business Stock. The Company covenants that so
------------------------------
long as the Securities are held by a Purchaser (or a transferee in whose hands
the Securities are eligible to qualify as Qualified Small Business Stock as
defined in Section 1202(c) of the Code), it will use
-13-
<PAGE>
its best efforts to cause the Securities to qualify as Qualified Small Business
Stock. In addition, the Company shall submit to the Purchaser and to the
Internal Revenue Service any reports that may be required under Section
1202(d)(1)(C) of the Code and any related Treasury Regulations. In addition,
after any Purchaser has delivered to the Company a written request therefor (a
"QSBS Certificate"), the Company shall deliver to such Purchaser a QSBS
----------------
Certificate informing the Purchaser whether such Purchaser's interest in the
Company constitutes "qualified small business stock" as defined in Section
1202(c) of the Code. The Company's obligation to furnish this QSBS Certificate
shall continue notwithstanding the fact that a class of the Company's stock may
be traded on an established securities market.
6.4 Termination of Covenants. Except for Section 6.3, the covenants
------------------------
contained in this Section 6 will terminate upon the effectiveness of the
Company's registration statement under the Securities Act in connection with its
initial public offering of securities.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
7.2 Transfer; Successors and Assigns. The terms and conditions of
--------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement 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.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7.5 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.
7.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, addressed to the
party to be notified at such party's address as set forth on the signature page
or Exhibit A hereto, or as subsequently modified by written notice, and (a) if
---------
to the Company, with a copy to Perkins Coie LLP, 135 Commonwealth Drive, Suite
-14-
<PAGE>
250, Menlo Park, CA 94025, attn: Debra B. Rosler, or (b) if to the Purchasers,
to the address of record provided to the Company by each Purchaser.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.8 Fees and Expenses. The Company shall pay the reasonable,
-----------------
itemized fees and expenses of Wilson, Sonsini, Goodrich & Rosati, PC, the
counsel for the Purchasers, incurred with respect to this Agreement, the
documents referred to herein and the transactions contemplated hereby and
thereby, not to exceed $10,000 in the aggregate for all such costs and expenses.
7.9 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of this
Agreement or the Related Agreements, the 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.
7.10 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Common Stock issued or issuable upon conversion of
the Stock. Any amendment or waiver effected in accordance with this Section
7.10 shall be binding upon the Purchasers and each transferee of the Stock (or
the Common Stock issuable upon conversion thereof), each future holder of all
such securities, and the Company.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
7.12 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in 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
-15-
<PAGE>
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.
7.13 Entire Agreement. This Agreement, the Related Agreements and the
----------------
documents and instruments referred to herein constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to the subject matter hereof
existing between the parties hereto are expressly canceled.
7.14 Corporate Securities Law. 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 THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.15 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of the Securities purchased hereunder. The provisions of this Section
7.15 shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
7.16 Exculpation Among Purchasers. Each Purchaser acknowledges that
----------------------------
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Securities.
[Remainder of page intentionally left blank]
-16-
<PAGE>
The parties have executed this Series B Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
----------------------------------------
Name: Andrea C. Reisman
Its: Chief Executive Officer
<PAGE>
PURCHASERS:
ARKARO HOLDING, B.V.
By: /s/ Maria C. van der Sluijs-Plantz
---------------------------------------
Name: Maria C. van der Sluijs-Plantz
Title: Managing Director
Mailing Address:
Locatellikade 1
Parnassustoren
1076 AZ Amsterdam
P.O. Box 75215
1070 AE Amsterdam
The Netherlands
Attention: Maria C. van der Sluijs-Plantz
Phone: 31-20-57-55-600
Fax: 31-20-67-30-016
<PAGE>
EXHIBIT 10.16
PETOPIA.COM, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
July 12, 1999
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1. Purchase and Sale of Preferred Stock................................... 1
1.1 Sale and Issuance of Series C Preferred Stock and Warrants.......... 1
1.2 Closing; Delivery................................................... 1
2. Representations and Warranties of the Company.......................... 2
2.1 Organization, Good Standing and Qualification....................... 2
2.2 Capitalization...................................................... 2
2.3 Subsidiaries........................................................ 3
2.4 Authorization....................................................... 3
2.5 Valid Issuance of Securities........................................ 4
2.6 Governmental Consents............................................... 4
2.7 Litigation.......................................................... 4
2.8 Intellectual Property............................................... 5
2.9 Compliance with Other Instruments................................... 5
2.10 Agreements; Action................................................ 6
2.11 No Conflict of Interest........................................... 6
2.12 Rights of Registration and Voting Rights.......................... 6
2.13 Title to Property and Assets...................................... 7
2.14 No Financial Statements........................................... 7
2.15 Changes........................................................... 7
2.16 Employee Benefit Plans............................................ 8
2.17 Tax Returns and Payments.......................................... 8
2.18 Labor Agreements and Actions...................................... 9
2.19 Confidential Information and Invention Assignment Agreements...... 9
2.20 Permits........................................................... 9
2.21 Corporate Documents............................................... 9
2.22 Insurance Coverage................................................ 10
2.23 Qualified Small Business Stock.................................... 10
2.24 Disclosure........................................................ 10
2.25 Year 2000 Compatibility........................................... 10
3. Representations and Warranties of the Purchaser........................ 10
3.1 Authorization....................................................... 10
3.2 Purchase Entirely for Own Account................................... 11
3.3 Disclosure of Information........................................... 11
3.4 Restricted Securities............................................... 11
3.5 No Public Market.................................................... 11
3.6 Legends............................................................. 11
3.7 Accredited Investor................................................. 12
4. Conditions of the Purchaser's Obligations at Closing.................. 12
4.1 Representations and Warranties...................................... 12
4.2 Performance......................................................... 12
4.3 Compliance Certificate.............................................. 12
4.4 Qualifications...................................................... 12
4.5 Opinion of Company Counsel.......................................... 13
4.6 Board of Directors.................................................. 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.7 Investors' Rights Agreement...........................................13
4.8 Co-Sale Agreement.....................................................13
4.9 Voting Agreement......................................................13
4.10 Restated Articles...................................................13
4.11 Confidential Information and Invention Assignment Agreement.........13
5. Conditions of the Company's Obligations at Closing.......................13
5.1 Representations and Warranties........................................13
5.2 Performance...........................................................13
5.3 Qualifications........................................................14
5.4 Investors' Rights Agreement...........................................14
5.5 Co-Sale Agreement.....................................................14
5.6 Voting Agreement......................................................14
5.7 Alliance Agreement....................................................14
5.8 Compliance Certificate................................................14
6. Covenants of the Company................................................ 14
6.1 Use of Proceeds.......................................................14
6.2 Key Man Life Insurance................................................14
6.3 Qualified Small Business Stock........................................14
6.4 Termination of Covenants..............................................15
6.5 Issuance and Sale of Common Stock to Petco Employees..................15
6.6 Purchaser's Put Right.................................................16
6.7 Special Veto Right on Sales of Stock to PETCO Competitors.............17
7. Miscellaneous............................................................18
7.1 Survival of Warranties................................................18
7.2 Transfer; Successors and Assigns......................................18
7.3 Governing Law.........................................................18
7.4 Counterparts..........................................................18
7.5 Titles and Subtitles..................................................18
7.6 Notices...............................................................18
7.7 Finder's Fee..........................................................19
7.8 Attorney's Fees.......................................................19
7.9 Amendments and Waivers................................................19
7.10 Severability........................................................19
7.11 Delays or Omissions.................................................19
7.12 Entire Agreement....................................................20
7.13 Corporate Securities Law............................................20
7.14 Confidentiality.....................................................20
</TABLE>
-ii-
<PAGE>
PETOPIA.COM, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series C Preferred Stock Purchase Agreement (the "Agreement") is made
---------
as of July 12, 1999 by and between Petopia.com, Inc., a Delaware corporation
(the "Company"), and PETCO Animal Supplies, Inc., a Delaware corporation
-------
("Purchaser" or "Petco").
--------- -----
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
------------------------------------
1.1 Sale and Issuance of Series C Preferred Stock and Warrants.
----------------------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Third
Amended and Restated Certificate of Incorporation in the form attached hereto as
Exhibit A (the "Restated Certificate").
- --------- --------------------
(b) Subject to the terms and conditions of this Agreement,
Purchaser agrees to purchase at the Closing and the Company agrees to sell and
issue to Purchaser at the Closing 3,017,175 shares of Series C Preferred Stock
at a purchase price of $2.5852 per share. The Company agrees to issue up to an
additional 4,803,458 shares of Series C Preferred Stock to Purchaser upon the
achievement of certain milestones under the Alliance Agreement between the
Company and Purchaser dated as of even date herewith (the "Alliance Agreement").
------------------
The purchase price shall be payable by $7,800,000.81 in cash, and the
consideration of the execution and delivery by Purchaser of the Alliance
Agreement. The shares of Series C Preferred Stock issued to the Purchaser
pursuant to this Agreement shall be hereinafter referred to as the "Stock."
-----
(c) In connection with the purchase and sale of the Stock, the
Company agrees to issue three (3) warrants to Purchaser to purchase shares of
Series C Preferred Stock (the "Petco Warrants"). The number of shares of Series
----- --------
C Preferred Stock issuable upon exercise of each Petco Warrant and the exercise
price per share of each such Petco Warrant shall be as set forth on Exhibit B
---------
attached hereto. The Stock, the shares of Common Stock issuable upon conversion
of the Stock, the Petco Warrants, the shares of Series C Preferred Stock
issuable upon exercise of the Petco Warrants (the "Warrant Stock"), and the
-------------
shares of Common Stock issuable upon conversion of the Warrant Stock, shall be
collectively referred to herein as the "Securities."
----------
1.2 Closing; Delivery.
-----------------
(a) The purchase and sale of the Stock and the issuance of the
Petco Warrants shall take place at the offices of Perkins Coie LLP, 135
Commonwealth Drive, Suite 250, Menlo Park, California, at 10:00 a.m., on July
12, 1999, or at such other time and place as the Company and the Purchaser
mutually agree upon, orally or in writing (which time and place are designated
as the "Closing").
-------
-1-
<PAGE>
(b) Subject to the terms of this Agreement, at the Closing, the
Company shall deliver to Purchaser a certificate representing the Stock being
purchased thereby and the Petco Warrants, against payment of the purchase price
therefor by wire transfer to the Company's bank account and the execution and
delivery of the Alliance Agreement and the Related Agreements by Purchaser.
(c) Subject to the terms of this Agreement and the Alliance
Agreement, upon the achievement of each milestone set forth in Section 6.7 of
the Alliance Agreement, the Company will deliver to Purchaser a certificate or
certificates representing the number of shares of Series C Preferred Stock
earned by Purchaser as set forth therein, against delivery of a Certificate of
Chief Executive Officer of Petco in the form described in Section 5.8 hereof.
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Purchaser that, except as set forth on a Schedule of
Exceptions attached hereto as Exhibit D (the "Schedule of Exceptions"), which
--------- ----------------------
exceptions shall be deemed to be representations and warranties as if made
hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own its properties and to carry on its business. The Company is duly qualified
to transact 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 on its business or properties.
2.2 Capitalization. Immediately prior to the Closing, the authorized
--------------
capital of the Company consists of:
(a) 35,000,000 shares of Preferred Stock, (i) 11,555,000 of
which shares have been designated Series A Preferred Stock, 9,755,000 of which
are issued and outstanding immediately prior to the Closing, (ii) 8,000,000 of
which have been designated Series B Preferred Stock, 7,736,345 of which are
issued and outstanding immediately prior to the Closing, and (iii) 12,940,620 of
which have been designated Series C Preferred Stock, none of which are issued
and outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Series A, Series B and Series C Preferred Stock are as stated
in the Restated Certificate.
(b) 55,000,000 shares of Common Stock, 8,155,561 shares of which
are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, and were issued in compliance with all
applicable federal and state securities laws.
(c) The Company has reserved 5,588,500 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its 1999 Stock Plan duly adopted by the Board of Directors and
approved by the Company's stockholders (the "Stock Plan"), of which options to
----------
purchase 2,017,125 shares of Common Stock are
-2-
<PAGE>
currently outstanding, options to purchase 1,215,000 shares of Common Stock have
been exercised and 2,296,375 shares are available for future issuance under the
Stock Plan. The Company has reserved (i) 11,555,000 shares of Common Stock for
issuance upon conversion of the Series A Preferred Stock, of which 1,800,000
shares have been reserved for issuance upon exercise of warrants to purchase
Series A Preferred Stock ("Series A Warrants"), (ii) 8,000,000 shares of Common
-----------------
Stock for issuance upon conversion of the Series B Preferred Stock, (iii)
12,940,620 shares of Common Stock for issuance upon conversion of the Series C
Preferred Stock, of which 5,119,987 shares have been reserved for issuance upon
exercise of the Petco Warrants, (iv) 585,000 shares of Common Stock for issuance
upon the exercise of warrants to purchase Common Stock issued to Loveland Pet
Products, Inc. ("Loveland Warrants"), and (v) 904,000 shares of Common Stock for
-----------------
issuance to certain Petco employees pursuant to Section 6.5 hereof.
(d) Except for (i) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series A
Warrants, Loveland Warrants and the Petco Warrants, (ii) the rights of first
refusal as set forth in the Investors' Rights Agreement and the Co-Sale
Agreement, (iii) the rights to participate in the initial public offering as
indicated in the IPO Allocation Agreement dated as of May 4, 1999 between the
Company and certain purchasers of Series A Preferred Stock (the "IPO Allocation
--------------
Agreement"), (iv) 5,588,500 shares of Common Stock reserved for issuance
- ---------
pursuant to the Stock Plan, and (v) 904,000 shares of Common Stock reserved for
issuance to certain Petco employees pursuant to Section 6.5 hereof, there are,
to our knowledge, no options, warrants, conversion privileges or other rights
(or agreements for any such rights) outstanding to purchase or otherwise obtain
from the Company any of the Company's securities except as set forth on the
Schedule of Exceptions.
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the due authorization,
execution and delivery of this Agreement, the Amended and Restated Investors'
Rights Agreement in the form attached hereto as Exhibit E (the "Investors'
--------- ----------
Rights Agreement"), the Amended and Restated Co-Sale Agreement in the form
- ----------------
attached hereto as Exhibit F (the "Co-Sale Agreement"), and the Amended and
--------- -----------------
Restated Voting Agreement in the form attached hereto as Exhibit G (the "Voting
--------- ------
Agreement" and collectively with the Investors' Rights Agreement and the Co-Sale
- ---------
Agreement, the "Related Agreements"), and any other agreements or instruments
------------------
executed by the Company in connection herewith or therewith, the performance of
all obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Securities has been taken or will be taken prior to
the Closing. This Agreement, the Related Agreements and the other agreements and
instruments executed by the Company in connection herewith or therewith, when
executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, or (iii) to the extent the
indemnification provisions
-3-
<PAGE>
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock being issued to the
----------------------------
Purchaser hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Co-Sale Agreement and
applicable state and federal securities laws. Based in part upon the
representations of the Purchaser in Section 3 hereof and subject to the
provisions of Section 2.6 below, the Stock will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock (the "Conversion Stock") and the Warrant Stock has been
----------------
duly and validly reserved for issuance, and upon issuance in accordance with the
terms of the Restated Certificate, shall be duly and validly issued, fully paid
and nonassessable and free of restrictions on transfer other than restrictions
on transfer under this Agreement, the Co-Sale Agreement and applicable federal
and state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Related Agreements and any other
agreements or instruments executed by the Company in connection herewith or
therewith, or in connection with the issuance of the Stock, except for filings
pursuant to Section 25102(f) of the California Corporate Securities Law of 1968,
as amended, and the rules thereunder, other applicable state securities laws and
Regulation D of the Securities Act of 1933, as amended (the "Securities Act").
--------------
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
this Agreement or the Related Agreements or the right of the Company to enter
into them, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse change in the assets, condition or affairs of the Company, financially
or otherwise, or any change in the current equity ownership of the Company, nor
is the Company aware that there is any basis for the foregoing. There is no
governmental investigation pending or, to the knowledge of the Company,
threatened against the Company or affecting any of the Company's properties or
assets, or against any officer, key employee or stockholder of the Company in
his or her capacity as such. Neither the Company, nor, to its knowledge, any
officer, key employee or stockholder of the Company, in his or her capacity as
such, is in default with respect to any order, writ, injunction, decree, ruling
or decision of any court, commission, board or other government agency which may
materially and adversely affect the business or assets of the Company. Neither
the Company nor any of its subsidiaries is a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality.
2.8 Intellectual Property. 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
-4-
<PAGE>
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity, except, in
either case, for end-user, object code, internal-use software license and
support/maintenance agreements. The Company has not received any communications
alleging that the Company has violated or, by conducting its business, would
violate any of the patents, trademarks, service marks, trade names, copyrights,
trade secrets or other proprietary rights or processes of any other person or
entity. To the knowledge of the Company, the use of any trade names, trademarks,
copyrights, software, technology, know-how or processes by the Company in its
business does not infringe on the rights of any proprietary information or
intangible property right of any third person or entity, including, without
limitation, any patent, trade secret, copyright, trademark or trade name. The
Company is not aware that any 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 such employee's best efforts to
promote the interest of the Company or that would conflict with the Company's
business. The Company does not believe it is or will be necessary to use any
inventions of any of its employees (or persons it currently intends to hire)
made prior to their employment by the Company. The Company has at all times used
commercially reasonable efforts to treat its trade secrets as confidential and
has not disclosed or otherwise dealt with such items in such a manner as to
cause the loss of such trade secrets by release into the public domain.
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any
provisions of (i) its Restated Certificate or Bylaws, (ii) any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound, (iii) any mortgage, indenture, lease, license, other agreement or
instrument by which it is bound or to which it or any of its properties are
subject or (iv) to its knowledge, of any provision of federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of the Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby or thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company.
(b) To its knowledge, the Company has avoided every condition,
and has not performed any act, the occurrence of which would result in the
Company's loss of any right granted under any license, distribution agreement or
other agreement to which the Company is a party.
2.10 Agreements; Action.
------------------
(a) All agreements, understandings, instruments or contracts
to which the Company or any of its subsidiaries is a party or by which it is
bound that involve (i) obligations (contingent or otherwise) of, or payments to,
the Company or any of its subsidiaries in excess of $15,000, (ii) the license of
any patent, copyright, trade secret or other proprietary right to or from the
Company or any of its subsidiaries, or (iii) the grant of rights to
-5-
<PAGE>
manufacture, produce, assemble, license, market, or sell its products to any
other person or affect the Company's exclusive right to develop, manufacture,
assemble, distribute, market or sell its products, and all agreements between
the Company and its officers, directors, consultants and employees
(collectively, the "Contracts") are set forth in Section 2.10 of the Schedule of
----------
Exceptions. All of the Contracts are valid and binding obligations of the
Company and in full force and effect in all material respects and enforceable by
the Company in accordance with their respective terms in all material respects,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium, usury or other laws of general application
relating to or affecting enforcement of creditors' rights and rules or laws
concerning equitable remedies. The Company is not in material default under any
of such Contracts.
(b) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $15,000 or in excess of $25,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
2.11 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. To the Company's knowledge, none of the
Company's officers or directors, or any members of their immediate families,
are, directly or indirectly, indebted to the Company (other than in connection
with purchases of the Company's stock) or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company except that officers, directors and/or stockholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
To the Company's knowledge, none of the Company's officers or directors or any
members of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.12 Rights of Registration and Voting Rights. Except as
----------------------------------------
contemplated in the Investors' Rights Agreement, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity. To the Company's knowledge, except as contemplated in the
Voting Agreement, no stockholder of the Company has entered into any agreements
with respect to the voting of capital shares of the Company.
2.13 Title to Property and Assets. The Company owns its property
----------------------------
and assets free and clear of all mortgages, liens, loans and encumbrances,
except such encumbrances and liens which arise in the ordinary course of
business and do not materially impair the Company's ownership or use of such
property or assets, and, to the knowledge of the Company, there exists no
material violation by the Company of any law, regulation or ordinance
(including, without
-6-
<PAGE>
limitation, laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to any real property owned, leased or
subleased by the Company. With respect to the property and assets it leases, the
Company is in material compliance with such leases and, to its knowledge, holds
a valid leasehold interest free of any liens, claims or encumbrances. There are
no defaults by the Company or, to the knowledge of the Company, by any other
party thereto, which might curtail in any material respect the current use of
the Company's property. The performance by the Company of this Agreement and the
Related Agreements will not result in the termination of, or in any increase of
any amounts payable under, any lease listed in the Schedule of Exceptions.
2.14 Financial Statements. Attached hereto as Exhibit H is a copy
-------------------- ---------
of the Company's most recent regularly prepared unaudited balance sheet and
income statement (the "Unaudited Financial Statements"). The Unaudited Financial
------------------------------
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except for the absence of normal audit
adjustments and the absence of other supporting statements, schedules and
footnotes, and were prepared in accordance with the books and records of the
Company and fairly present the financial position of the Company as of the date
of such Unaudited Financial Statements (the "Balance Sheet Date").
------------------
2.15 Changes. Since the Balance Sheet Date, there has not been:
-------
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Unaudited
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
-7-
<PAGE>
(h) any resignation or termination of employment of any
officer or key employee of the Company; and the Company, is not aware of any
impending resignation or termination of employment of any such officer or key
employee;
(i) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or condition
of any character that might materially and adversely affect the business,
properties, prospects or financial condition of the Company; or
(m) any arrangement or commitment by the Company to do any of
the things described in this Section 2.15.
2.16 Employee Benefit Plans. The Company does not have any
----------------------
"Employee Benefit Plan" as such term is defined in the Employee Retirement
Income Security Act of 1974.
2.17 Tax Returns and Payments. The Company has filed all tax
------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects and were filed within the applicable periods
for such filings. The Company has paid all taxes and other assessments due. The
Company has established adequate reserves (net of estimated tax payments already
made) for the payment of all taxes payable in respect of the period subsequent
to the last periods covered by such returns. There is no pending dispute with
any taxing authority relating to any of such returns and the Company has not
received notice of any proposed liability for any tax to be imposed upon the
properties or assets of the Company. No deficiencies for any tax are currently
assessed against the Company, and no tax returns of the Company have ever been
audited, and, to the knowledge of the Company, there is no such audit pending or
threatened. There is no tax lien, whether imposed by any federal, state or local
taxing authority, outstanding against the assets, properties or business of the
Company. The Company has no liabilities for taxes that are accrued whether or
not yet due and payable. For the purposes of this Agreement, the term "tax"
shall include all federal, state and local taxes, including income, franchise,
property, sales, withholding, payroll and employment taxes.
2.18 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the
-8-
<PAGE>
employees, representatives or agents of the Company. There is no strike or other
labor dispute involving the Company pending, or to the knowledge of the Company
threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company,
nor is the Company aware of any labor organization activity involving its
employees. The employment of each officer and employee of the Company is
terminable at the will of the Company. To its knowledge, the Company is in
compliance in all material respects with all applicable state and federal equal
employment opportunity laws and regulations and with other laws and regulations
related to employment, labor, terms and conditions of employment, and wages and
hours.
2.19 Employee Matters. Each employee, director, consultant and
----------------
officer of the Company has executed an agreement with the Company regarding
confidentiality and proprietary information substantially in the form attached
hereto as Exhibit I. The Company is not aware that any of its employees or
---------
consultants is in violation thereof. Except as set forth on the Schedule of
Exceptions, the Company does not have in effect, and its assets are not subject
to, any employment agreements, consulting agreements, deferred compensation,
pension or retirement agreements or arrangements, bonus, incentive or profit-
sharing plans or arrangements, or labor or collective bargaining agreements,
written or oral.
2.20 Permits. The Company has all franchises, permits, licenses and
-------
any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, or
financial condition of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority and, to the knowledge of the Company, no suspension or
cancellation of any of them is threatened.
2.21 Corporate Documents. The Restated Certificate and Bylaws of
-------------------
the Company are in the form provided to counsel for the Purchaser. The copy of
the minute books of the Company provided to the Purchaser's counsel contains
minutes of all meetings of directors and stockholders and all actions by written
consent without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.22 Insurance Coverage. The Schedule of Exceptions contains an
------------------
accurate summary of the insurance policies currently maintained by the Company,
if any. There are currently no claims pending against the Company under any
insurance policies currently in effect and covering the property, business or
employees of the Company, and all premiums due and payable with respect to the
policies maintained by the Company have been paid to date.
2.23 Qualified Small Business Stock. As of the Closing, the Company
------------------------------
will meet the requirement to be a "Qualified Small Business" as defined in
Section 1202(d) of the Internal Revenue Code, as amended (the "Code").
----
-9-
<PAGE>
2.24 Disclosure. The Company has fully provided each Purchaser with
----------
all the information that such Purchaser has requested for deciding whether to
purchase the Stock. To its knowledge, neither this Agreement, nor any other
statements or certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
2.25 Year 2000 Compatibility. To the Company's knowledge, all of
-----------------------
the Company's and any of its subsidiary's products (including products currently
under development) record, store, process, calculate and present calendar dates
falling on or after January 1, 2000, and calculate any information dependent on
or relating to such dates in the same manner and with the same functionality,
data, integrity and performance as the products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates.
3. Representations and Warranties of the Purchaser. Purchaser hereby
-----------------------------------------------
represents and warrants to the Company that:
3.1 Authorization. Purchaser has full power and authority to enter
-------------
into this Agreement, the Related Agreements and the Alliance Agreement, and to
consummate the transactions contemplated hereby and thereby. The sale of shares
of the Company's Common Stock pursuant to Section 6.5 hereof to certain Petco
employees and directors has been approved by the Board of Directors of the
Purchaser. This Agreement, the Related Agreements and the Alliance Agreement,
and any other agreements or instruments executed by the Purchaser in connection
herewith or therewith, when executed and delivered by the Purchaser, will
constitute valid and legally binding obligations of the Purchaser, enforceable
in accordance with their terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and any other
laws of general application affecting enforcement of creditors' rights
generally, and as limited by laws relating to the availability of a specific
performance, injunctive relief, or other equitable remedies, or (b) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
the Purchaser in reliance upon the Purchaser's representation to the Company,
which by the Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that the Securities to be acquired by the Purchaser will be acquired
for investment for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.
-10-
<PAGE>
3.3 Disclosure of Information. The Purchaser has had an
-------------------------
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Securities with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as the Business Plan and
any other written information delivered by the Company to the Purchaser, were
intended to describe the aspects of the Company's business which it believes to
be material.
3.4 Restricted Securities. The Purchaser understands that the
---------------------
Securities have 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 which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
3.5 No Public Market. The Purchaser 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
Securities.
3.6 Legends. The Purchaser understands that the Securities, and
-------
any securities issued in respect of or exchange for the Securities, may bear one
or all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, 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 EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the Related Agreements.
(c) Any legend required by the Blue Sky laws of any state to
the extent such laws are applicable to the shares represented by the certificate
so legended.
-11-
<PAGE>
3.7 Accredited Investor. The Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act (an
"Accredited Investors").
4. Conditions of the Purchaser's Obligations at Closing. The obligations
----------------------------------------------------
of the Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.2 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement and the Related Agreements that are required to be performed or
complied with by it on or before the Closing.
4.3 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company shall deliver to the Purchaser at the Closing a certificate certifying
that the conditions specified in Sections 4.1, 4.2 and 4.10 have been fulfilled.
4.4 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be obtained and effective as of
the Closing.
4.5 Opinion of Company Counsel. The Purchaser shall have received
--------------------------
from Perkins Coie LLP, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit J.
---------
4.6 Board of Directors. As of the Closing, the Board shall be
------------------
comprised of Andrea C. Reisman, Jay C. Hoag, Michael G. Linnert, A. Brooke
Seawell, Brian K. Devine, Mike Woodard and one vacancy.
4.7 Investors' Rights Agreement. The Company, the Purchaser and a
---------------------------
majority of the holders of the Registrable Securities (as defined in the
Investors' Rights Agreement) shall have executed and delivered the Investors'
Rights Agreement.
4.8 Co-Sale Agreement. The Company, a majority of the Founders (as
-----------------
defined in the Co-Sale Agreement), a majority of the holders of each of the
Series A and Series B Preferred Stock, and the Purchaser shall have executed and
delivered the Co-Sale Agreement.
4.9 Voting Agreement. The Company, a majority of the Founders, a
-----------------
majority of the holders of each of the Series A and Series B Preferred Stock,
and the Purchaser shall have executed and delivered the Voting Agreement.
-12-
<PAGE>
4.10 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the date of
the Closing, which shall continue to be in full force and effect as of the date
of the Closing.
4.11 Confidential Information and Invention Assignment Agreement. The
-----------------------------------------------------------
Company and each of its employees, consultants and officers shall have entered
into the Company's standard form Confidential Information and Invention
Assignment Agreement, in substantially the form attached hereto as Exhibit I.
---------
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to the Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of the Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
5.2 Performance. All covenants, agreements and conditions contained
-----------
in this Agreement and the Related Agreements to be performed by the Purchaser on
or prior to the Closing shall have been performed or complied with in all
material respects.
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities and the Grants pursuant to Section 6.5 of this Agreement shall be
obtained and effective as of the Closing.
5.4 Investors' Rights Agreement. The Company, the Purchaser and a
---------------------------
majority of the holders of the Registrable Securities (as defined in the
Investors' Rights Agreement) shall have executed and delivered the Investors'
Rights Agreement.
5.5 Co-Sale Agreement. The Company, a majority of the Founders (as
-----------------
defined in the Co-Sale Agreement), a majority of the holders of each of the
Series A and Series B Preferred Stock, and the Purchaser shall have executed and
delivered the Co-Sale Agreement.
5.6 Voting Agreement. The Company, a majority of the Founders, a
-----------------
majority of the holders of each of the Series A and Series B Preferred Stock,
and the Purchaser shall have executed and delivered the Voting Agreement.
5.7 Alliance Agreement. The Company and the Purchaser shall have
-------------------
executed and delivered the Alliance Agreement in the form attached hereto as
Exhibit K.
- ---------
5.8 Compliance Certificate. The Chief Executive Officer of the
----------------------
Purchaser shall deliver to the Company at the Closing a certificate certifying
that the conditions specified in Sections 5.1 and 5.2 have been fulfilled.
-13-
<PAGE>
6. Covenants of the Company.
-------------------------
6.1 Use of Proceeds. The proceeds from the sale of the Stock shall
---------------
be used by the Company for working capital and general corporate purposes.
6.2 Key Man Life Insurance. The Company will use best efforts to
----------------------
obtain and maintain term life insurance in the amount of $2,000,000 on the
Company's Chief Executive Officer ("Key Man Life Insurance"). The beneficiary
----------------------
of the Key Man Life Insurance shall be the Company.
6.3 Qualified Small Business Stock. The Company covenants that so
------------------------------
long as the Securities are held by Purchaser (or a transferee in whose hands the
Securities are eligible to qualify as Qualified Small Business Stock as defined
in Section 1202(c) of the Code), it will use its best efforts to cause the
Securities to qualify as Qualified Small Business Stock. In addition, the
Company shall submit to the Purchaser and to the Internal Revenue Service any
reports that may be required under Section 1202(d)(1)(C) of the Code and any
related Treasury Regulations. In addition, after any Purchaser has delivered to
the Company a written request therefor (a "QSBS Certificate"), the Company shall
----------------
deliver to Purchaser a QSBS Certificate informing the Purchaser whether such
Purchaser's interest in the Company constitutes "qualified small business stock"
as defined in Section 1202(c) of the Code. The Company's obligation to furnish
this QSBS Certificate shall continue notwithstanding the fact that a class of
the Company's stock may be traded on an established securities market.
6.4 Termination of Covenants. Except for Section 6.3, the covenants
------------------------
contained in this Section 6 will terminate upon the effectiveness of the
Company's registration statement under the Securities Act in connection with its
initial public offering of securities.
6.5 Issuance and Sale of Common Stock to Petco Employees.
----------------------------------------------------
(a) The Company shall reserve an aggregate of 904,000 shares of
Common Stock (the "Petco Pool") and shall increase the number of shares of
----------
Common Stock reserved for issuance under the 1999 Stock Plan by 526,000 shares,
for the issuance and sale to certain Petco employees and directors listed on
Exhibit L hereto, in the number of shares set forth opposite the name of each
- ---------
such employee or director (the "Grants"). The purchase price per share of Common
------
Stock shall be the Fair Market Value of the Common Stock on the date of issuance
thereof, which shall be defined as the greatest of: (i) the most recent
valuation completed for the Company by an independent third party valuation
firm, (ii) the last sale by the Company of its Common Stock to an independent
third party, and (iii) the fair market value of the Common Stock as most
recently determined by the Company's Board of Directors. The shares of Common
Stock being sold hereby shall be subject to a Company right to repurchase of all
of the stock purchased by a Petco employee or director at the then Fair Market
Value of the Common Stock, which right shall be exercisable for a period of
sixty (60) days following the termination of a Petco employee's or director's
service to Purchaser. Purchaser shall provide written notice to the Company of a
termination of a Petco employee's or director's service to Purchaser within five
(5) days after the termination thereof. This right of repurchase shall terminate
upon the earliest to occur of (i) the consummation of the Company's IPO, (ii) a
sale of
-14-
<PAGE>
all or substantially all of the assets of the Company or the merger or
consolidation of the Company with or into any other corporation or entity, other
than a wholly-owned subsidiary of the Company, or a sale of the outstanding
stock of the Company, as a result of which the stockholders of the Company
immediately prior to such transaction hold less than fifty percent (50%) of the
voting power of the surviving corporation, and (iii) five (5) years from the
date hereof.
(b) Stock issuances to Petco employees who are listed as consultants
to the Company on Exhibit L attached hereto ("Consultants") shall take the form
--------- -----------
of stock grants under the Company's Stock Plan, pursuant to a Stock Purchase
Agreement under the Stock Plan in the form attached as Exhibit M hereto. As a
---------
condition to the issuance of a stock grant to a Consultant, each such Consultant
shall enter into a consulting agreement with the Company in the form attached
hereto as Exhibit N. For Petco employees and directors not serving as
---------
Consultants who are listed as Accredited Investors on Exhibit L attached hereto,
---------
the Company shall issue and sell Common Stock to such individuals outside of the
Stock Plan upon the execution and delivery of a Common Stock Purchase Agreement
in the form attached hereto as Exhibit O. Notwithstanding the foregoing, in no
---------
event (i) shall the Company be required to sell shares of its Common Stock
pursuant to this Section 6.5 if such sale and issuance would, in connection
therewith or as a condition thereto, require the Company to qualify to do
business or to file a general consent to service of process, in any such states
or jurisdictions in which the Petco employees receiving Grants are located, if
the Company has not previously qualified to do business or filed a general
consent to service of process in such state or jurisdiction (ii) may the number
of individuals purchasing stock outside the Stock Plan pursuant to this Section
6.5 exceed the maximum number of purchasers that would permit the issuances, in
combination with other relevant Company issuances under Section 25102(f) of the
California Corporations Code, to qualify for an exemption pursuant to Section
25102(f), or (iii) shall the Company issue stock to a number of Petco employees
which would result in the Company having 500 or more stockholders of record.
(c) The purchase and sale of the Common Stock to such Petco employees
and directors shall take place as soon as practicable after the Closing, at
which time the Company shall deliver to each such Petco employee or director a
certificate representing the Common Stock being purchased thereby against
payment of the total purchase price therefor by cash or check and the execution
and delivery of the appropriate Stock Purchase Agreement. The issuances and
amendments to the Stock Plan have been approved by the Company's Board of
Directors and stockholders.
(d) If after the initial round of Grants listed on Exhibit L hereto,
---------
there remain shares available in the Petco Pool for issuance, the Company and
the Purchaser shall cooperate in good faith to identify and mutually agree upon
other Petco employees to whom the Company's Common Stock shall be offered and
sold and the number of shares to be sold to each such Petco employee. These
issuances shall be presented for approval by the Company's Board of Directors at
the next regularly scheduled Board meeting and shall be issued effective as of
the date of such Board meeting, at the then Fair Market Value of the Company's
Common Stock.
6.6 Purchaser's Put Right.
---------------------
-15-
<PAGE>
(a) If the Company's web site located at the URL of www.petopia.com
---------------
(the "petopia.com Site") has not launched (defined as the date on which third
----------------
party users are first able to access via the World Wide Web and execute
electronic commerce transactions on the Company's petopia.com Site) by September
1, 1999, Purchaser shall have the right to sell to the Company, and the Company
shall have the obligation to buy from Purchaser all but not less than all of the
Series C Preferred Stock held by Purchaser on such date for an aggregate
purchase price of $7,800,000.81 (the "Put Right"). Purchaser shall have a
---------
period of ten (10) days after September 1, 1999 to elect to exercise its Put
Right by delivering written notice (the "Exercise Notice") to the Company
---------------
stating its election to exercise such Put Right and providing wire instructions
to the Purchaser's account. The Exercise Notice shall be delivered by Purchaser
by overnight courier to the Company's executive offices to the attention of the
Chief Financial Officer, accompanied by the stock certificate(s) for the Series
C Preferred Stock to be repurchased by the Company, appropriately endorsed to
the Company. The Exercise Notice, once delivered to the Company, shall be
irrevocable. The Company shall wire the aggregate purchase price for the Series
C Preferred Stock to Purchaser's account within five (5) business days after
receipt of such stock certificate(s).
(b) Upon the date of repayment by the Company to Purchaser of the
full purchase price for the Series C Preferred Stock, this Agreement and the
Alliance Agreement shall terminate, all unexercised Petco Warrants shall
immediately expire, and the directors nominated to the Company's Board of
Directors by Purchaser shall tender their resignations from the Company's Board
of Directors effective as of such date. Purchaser agrees to do such further acts
and to execute, acknowledge and deliver such further documents or instruments
necessary to remove Purchaser as a party to the Related Agreements and to effect
the intent of this Section 6.6.
(c) This Put Right shall not be transferable by Purchaser except to a
wholly-owned subsidiary of Purchaser, and shall be subject to and limited by all
applicable federal and state securities and corporate laws and regulations.
6.7 Special Veto Right on Sales of Stock to PETCO Competitors.
---------------------------------------------------------
(a) From and after the date hereof until the later to occur of (i) the
termination of the Alliance Agreement and (ii) the date on which Purchaser holds
less than twenty percent (20%) of the Company's capital stock (calculated on a
fully-diluted basis), including for purposes of this calculation, all shares of
Series C Preferred Stock issuable pursuant to the Alliance Agreement and 50% of
the shares of Series C Preferred Stock issuable upon the exercise of the Petco
Warrants, the Company shall not, without the approval or waiver of Purchaser,
sell or otherwise dispose of equity securities to a third party that is a PETCO
Competitor (as defined in the Alliance Agreement). If the Company proposes to
offer any shares of, or securities convertible into or exercisable for any
shares of, any class of its capital stock ("Shares") to a PETCO Competitor, the
------
Company shall first deliver a written notice thereof to the Purchaser stating
(i) its bona fide intention to offer such Shares, (ii) the number of such Shares
to be offered, (iii) the price and terms, if any, upon which it proposes to
offer such Shares, and (iv) the identity of the proposed purchaser of such
Shares. The Purchaser shall have ten (10) days from receipt of such notice to
provide a written notice to the Company of its refusal to
-16-
<PAGE>
consent to such offering (a "Refusal Notice"). If the Company does not receive a
--------------
Refusal Notice within such ten (10) day period, Purchaser shall be deemed to
have waived its veto right and the Company shall be free to offer such shares to
the third party, subject to the terms and conditions of the Investors' Rights
Agreement and the Co-Sale Agreement.
(b) The veto right contained in this Section 6.7 shall not apply to
(i) the issuance or sale of Common Stock (or options therefor) to employees,
consultants and directors, pursuant to plans or agreements approved by the Board
of Directors, provided that such individuals are not employees, consultants or
directors of a PETCO Competitor, (ii) the sale of the Company's securities by
third parties on the public market, (iii) the issuance of securities pursuant to
the conversion or exercise of convertible or exercisable securities then
outstanding, (iv) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise, provided that such
transaction is not with a PETCO Competitor, (v) the issuance of securities to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings, or similar transactions, provided that such
issuance has been approved by the Board of Directors, or (vii) the issuance of
securities that, with unanimous approval of the Board of Directors of the
Company, are not offered to any existing stockholder of the Company.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties, representations and covenants of the Company and the
Purchaser contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
7.2 Transfer; Successors and Assigns. The terms and conditions of
--------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement 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.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7.5 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.
-17-
<PAGE>
7.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, addressed to the
party to be notified at such party's address as set forth on the signature page
or Exhibit A hereto, or as subsequently modified by written notice, and (a) if
---------
to the Company, with a copy to Perkins Coie LLP, 135 Commonwealth Drive, Suite
250, Menlo Park, CA 94025, attn: Debra B. Rosler, and (b) if to the Purchaser,
with a copy to Latham & Watkins, 701 "B" Street, Suite 2100, San Diego, CA
92101, attn: Thomas A. Edwards.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Purchaser agrees to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Purchaser or any of its officers, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless Purchaser from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
7.8 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of this
Agreement or the Related Agreements, the 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.
7.9 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Common Stock issued or issuable upon conversion of
the Stock. Any amendment or waiver effected in accordance with this Section
7.10 shall be binding upon the Purchaser and each transferee of the Stock (or
the Common Stock issuable upon conversion thereof), each future holder of all
such securities, and the Company.
7.10 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
7.11 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in 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
-18-
<PAGE>
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.
7.12 Entire Agreement. This Agreement, the Related Agreements, the
----------------
Alliance Agreement and the documents and instruments referred to herein
constitute the entire agreement between the parties hereto pertaining to the
subject matter hereof, and any and all other written or oral agreements relating
to the subject matter hereof existing between the parties hereto are expressly
canceled.
7.13 Corporate Securities Law. 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 THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.14 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Securities purchased hereunder. The provisions of this Section
7.14 shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
[Remainder of page intentionally left blank]
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<PAGE>
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
---------------------
Name: Andrea C. Reisman
Its: Chief Executive Officer
PURCHASER:
PETCO ANIMAL SUPPLIES, INC.
By: /s/ Brian K. Devine
-------------------
Name: Brian K. Devine
Title: Chairman, President & Chief Executive
Officer
Mailing Address:
9125 Rehco Road
San Diego, CA 92121
Phone: (619) 453-7845
Fax: (619) 677-3033
<PAGE>
Exhibit 10.17
PETOPIA.COM, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
November 29, 1999
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1. Purchase and Sale of Preferred Stock.................................................. 1
1.1 Sale and Issuance of Series D Preferred Stock.................................... 1
1.2 Closing; Delivery................................................................ 1
2. Representations and Warranties of the Company......................................... 2
2.1 Organization, Good Standing and Qualification.................................... 2
2.2 Capitalization................................................................... 2
2.3 Subsidiaries..................................................................... 4
2.4 Authorization.................................................................... 4
2.5 Valid Issuance of Securities..................................................... 4
2.6 Governmental Consents............................................................ 4
2.7 Litigation....................................................................... 5
2.8 Intellectual Property............................................................ 5
2.9 Compliance with Other Instruments................................................ 6
2.10 Agreements; Action............................................................... 6
2.11 No Conflict of Interest.......................................................... 7
2.12 Rights of Registration and Voting Rights......................................... 7
2.13 Title to Property and Assets..................................................... 7
2.14 No Financial Statements.......................................................... 8
2.15 Changes.......................................................................... 8
2.16 Employee Benefit Plans........................................................... 9
2.17 Tax Returns and Payments......................................................... 9
2.18 Labor Agreements and Actions..................................................... 9
2.19 Confidential Information and Invention Assignment Agreements..................... 10
2.20 Permits.......................................................................... 10
2.21 Corporate Documents.............................................................. 10
2.22 Insurance Coverage............................................................... 10
2.23 Disclosure....................................................................... 10
2.24 Year 2000 Compatibility.......................................................... 10
2.25 No Merger Discussions............................................................ 11
3. Representations and Warranties of the Purchaser....................................... 11
3.1 Authorization.................................................................... 11
3.2 Purchase Entirely for Own Account................................................ 11
3.3 Disclosure of Information........................................................ 12
3.4 Restricted Securities............................................................ 12
3.5 No Public Market................................................................. 12
3.6 Legends.......................................................................... 12
3.7 Accredited Investor.............................................................. 13
4. Conditions of the Purchaser's Obligations at Closing.................................. 13
4.1 Approvals........................................................................ 13
4.2 Representations and Warranties................................................... 13
4.3 Performance...................................................................... 13
4.4 Compliance Certificate........................................................... 13
4.5 Qualifications................................................................... 13
4.6 Opinion of Company Counsel....................................................... 13
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
4.7 Board of Directors............................................................... 13
4.8 Investors' Rights Agreement...................................................... 13
4.9 Co-Sale Agreement................................................................ 14
4.10 Voting Agreement................................................................. 14
4.11 Restated Articles................................................................ 14
4.12 Minimum Offering................................................................. 14
5. Conditions of the Company's Obligations at Closing.................................... 14
5.1 Representations and Warranties................................................... 14
5.2 Performance...................................................................... 14
5.3 Qualifications................................................................... 14
5.4 Investors' Rights Agreement...................................................... 14
5.5 Co-Sale Agreement................................................................ 15
5.6 Voting Agreement................................................................. 15
6. Covenants of the Company.............................................................. 15
6.1 Use of Proceeds.................................................................. 15
6.2 Key Man Life Insurance........................................................... 15
6.3 Series D Warrants................................................................ 15
6.4 Termination of Covenants......................................................... 15
7. Miscellaneous......................................................................... 15
7.1 Survival of Warranties........................................................... 15
7.2 Transfer; Successors and Assigns................................................. 16
7.3 Governing Law.................................................................... 16
7.4 Counterparts..................................................................... 16
7.5 Titles and Subtitles............................................................. 16
7.6 Notices.......................................................................... 16
7.7 Finder's Fee..................................................................... 16
7.8 Fees and Expenses................................................................ 16
7.9 Attorney's Fees.................................................................. 17
7.10 Amendments and Waivers........................................................... 17
7.11 Severability..................................................................... 17
7.12 Delays or Omissions.............................................................. 17
7.13 Entire Agreement................................................................. 18
7.14 Corporate Securities Law......................................................... 18
7.15 Confidentiality.................................................................. 18
7.16 Exculpation Among Purchasers..................................................... 18
</TABLE>
-ii-
<PAGE>
PETOPIA.COM, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
This Series D Preferred Stock Purchase Agreement (the "Agreement") is made
---------
as of November 29, 1999 by and between Petopia.com, Inc., a Delaware corporation
(the "Company"), and each of the investors listed on Exhibit A attached hereto
------- ---------
("each a "Purchaser" and together the "Purchasers").
--------- ----------
The parties hereby agree as follows:
1. Purchase and Sale of Preferred Stock.
------------------------------------
1.1 Sale and Issuance of Series D Preferred Stock.
---------------------------------------------
(a) The Company shall adopt and file with the Secretary of State
of the State of Delaware on or before the Closing (as defined below) the Fourth
Amended and Restated Certificate of Incorporation in the form attached hereto as
Exhibit B (the "Restated Certificate").
- --------- --------------------
(b) Subject to the terms and conditions of this Agreement, the
Purchasers agree to purchase and the Company agrees to sell and issue to each
Purchaser at the First and Subsequent Closings that number of shares of Series D
Preferred Stock set forth opposite each such Purchaser's name on Exhibit A
---------
attached hereto at a purchase price of $5.6061 per share (the "Purchase Price").
--------------
The shares of Series D Preferred Stock issued to the Purchasers pursuant to this
Agreement shall be hereinafter referred to as the "Stock."
-----
(c) The Stock and the shares of Common Stock issuable upon
conversion of the Stock shall be collectively referred to herein as the
"Securities."
----------
1.2 Closing; Delivery.
-----------------
(a) The purchase and sale of the Stock shall take place at the
offices of Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo Park,
California, at 10:00 a.m., on November 29, 1999, or at such other time and place
as the Company and the Purchasers of not less than 6,243,200 shares of the Stock
mutually agree upon, orally or in writing (which time and place are designated
as the "First Closing"). The closings of the purchase and sale of up to
-------------
8,918,856 shares of Stock in the aggregate (not including shares of Stock sold
in the First Closing, the "Additional Shares") hereunder (the "Subsequent
----------------- ----------
Closings") shall be held at the offices of Perkins Coie LLP at such times and
- --------
dates as the Company and the additional Purchasers (the "Additional Purchasers")
---------------------
shall specify, but in no event shall a Subsequent Closing occur later than the
earlier of (i) the day immediately preceding the date of filing of the Company's
registration statement on Form S-1 under the Securities Act of 1933, as amended
(the "Securities Act"), and (ii) December 15, 1999 (the earlier of such dates,
--------------
the "Cutoff Date"). Any Additional Shares may be sold only to (a) the investors
-----------
listed on Exhibit A-1, or (b) any other person, not being a financial investor,
-----------
acceptable to Attractor Investment Management Inc. ("Attractor") in its sole and
---------
absolute discretion. If as of the Cutoff Date the Company has sold fewer than
8,918,856 shares of Stock hereunder, the Company shall offer each Purchaser the
right to
-1-
<PAGE>
purchase that number of shares of Stock equal to the product of (x) the
difference of 8,918,856 and the aggregate number of shares of Stock sold by the
Company prior to the Cutoff Date, and (y) a fraction, the numerator of which is
the number of shares of Stock held by such Purchaser and the denominator of
which is the aggregate number of shares of Stock sold by the Company prior to
the Cutoff Date. Nothing in this paragraph shall require the Company to issue
more than 8,918,856 shares of Stock in the aggregate.
(b) Subject to the terms of this Agreement, at the Closing, the
Company shall deliver to each Purchaser a certificate representing the Stock
being purchased by such Purchaser against payment of the purchase price therefor
by check payable to the Company, by wire transfer to the Company's bank account,
by cancellation of indebtedness, or by any combination thereof. At the
Subsequent Closings, if any, a Supplemental Schedule of Purchasers shall be
added to this Agreement as Exhibit A-2 and the Company will deliver to each
-----------
Additional Purchaser who shall have executed this Agreement a certificate or
certificates representing the number of Additional Shares being purchased hereby
against (i) payment of the purchase price therefor by check payable to the
Company, by wire transfer to the Company's bank account, by cancellation of
indebtedness, or by any combination thereof, and (ii) delivery of signature
pages to this Agreement and each of the Related Agreements (as defined below).
2. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Purchasers that, except as set forth on a
Schedule of Exceptions attached hereto as Exhibit C (the "Schedule of
--------- -----------
Exceptions"), which exceptions shall be deemed to be representations and
- ----------
warranties as if made hereunder:
2.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own its properties and to carry on its business. The Company is duly qualified
to transact 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 on its business or properties.
2.2 Capitalization. Immediately prior to the Closing, the authorized
--------------
capital of the Company consists of:
(a) 42,500,000 shares of Preferred Stock, (i) 11,555,000 of
which shares have been designated Series A Preferred Stock, 9,755,000 of which
are issued and outstanding immediately prior to the Closing and 1,800,000 of
which have been reserved for issuance upon exercise of outstanding warrants to
purchase shares of Series A Preferred Stock (the "Series A Warrants"), (ii)
-----------------
8,000,000 of which have been designated Series B Preferred Stock, 7,736,345 of
which are issued and outstanding immediately prior to the Closing, (iii)
12,940,620 of which have been designated Series C Preferred Stock, 3,017,175 of
which are issued and outstanding immediately prior to the Closing, 4,803,458 of
which have been reserved for issuance to PETCO Animal Supplies, Inc. ("PETCO")
-----
upon the achievement of certain milestones (the "PETCO Shares"), and 5,119,987
------------
of which have been reserved for issuance upon exercise of outstanding warrants
to purchase shares of Series C Preferred Stock (the "Series C Warrants"), and
-----------------
(iv) 10,000,000 of which have been designated Series D Preferred Stock, none
-2-
<PAGE>
of which are issued and outstanding immediately prior to the Closing. The
rights, privileges and preferences of the Series A, Series B, Series C and
Series D Preferred Stock are as stated in the Restated Certificate. All
issuances of shares of Series A, Series B and Series C Preferred Stock
referenced above, other than the PETCO Shares, have been consummated and, except
as described above, the Company will not issue additional shares of Series A,
Series B or Series C Preferred Stock. The shares of Series A, Series B and
Series C Preferred Stock issued by the Company were duly authorized, validly
issued, fully paid, nonassessable, free and clear of any liens or encumbrances
(other than those imposed by the purchasers thereof), and based in part on the
representations made by the purchasers thereof, were exempt from registration
under Section 5 of the Securities Act of 1933, as amended and the California
Corporate Securities Law of 1968, as amended. The rights of PETCO as set forth
in Section 6.6 of the Series C Preferred Stock Purchase Agreement dated July 12,
1999 by and between the Company and PETCO expired prior to any exercise thereof.
(b) 65,000,000 shares of Common Stock, 9,581,971 shares of which
are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, and were issued in compliance with all
applicable federal and state securities laws.
(c) The Company has reserved 7,500,000 shares of Common Stock
for issuance to officers, directors, employees and consultants of the Company
pursuant to its 1999 Stock Plan duly adopted by the Board of Directors and
approved by the Company's stockholders (the "Stock Plan"), of which options to
----------
purchase 4,572,816 shares of Common Stock are currently outstanding, 1,737,410
shares of Common Stock have been issued and 1,189,774 shares are available for
future issuance under the Stock Plan. The Company has reserved (i) 11,555,000
shares of Common Stock for issuance upon conversion of the Series A Preferred
Stock, (ii) 8,000,000 shares of Common Stock for issuance upon conversion of the
Series B Preferred Stock, (iii) 12,940,620 shares of Common Stock for issuance
upon conversion of the Series C Preferred Stock, (iv) 10,000,000 shares of
Common Stock for issuance upon conversion of the Series D Preferred Stock, (v)
585,000 shares of Common Stock for issuance upon the exercise of outstanding
warrants to purchase Common Stock issued or issuable to the founders of Loveland
Pet Products, Inc. (the "Loveland Warrants").
-----------------
(d) Except for (i) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series A Warrants, Loveland Warrants, the Petco Shares and the
Series C Warrants, (ii) the rights of first refusal as set forth in the
Investors' Rights Agreement and the Co-Sale Agreement (each as defined below),
(iii) the rights to participate in the initial public offering as indicated in
Section 2.6 of the Investors' Rights Agreement (as defined below) and in the IPO
Allocation Agreement dated as of May 4, 1999 between the Company and certain
purchasers of Series A Preferred Stock (the "May IPO Allocation Agreement"), and
----------------------------
(iv) 7,500,000 shares of Common Stock reserved for issuance pursuant to the
Stock Plan, there are, to our knowledge, no options, warrants, conversion
privileges or other rights (or agreements for any such rights) outstanding to
purchase or otherwise obtain from the Company any of the Company's securities
except as set forth on the Schedule of Exceptions.
-3-
<PAGE>
2.3 Subsidiaries. The Company does not currently own or control,
------------
directly or indirectly, any interest in any other corporation, association, or
other business entity.
2.4 Authorization. All corporate action on the part of the Company,
-------------
its officers, directors and stockholders necessary for the due authorization,
execution and delivery of this Agreement, the Third Amended and Restated
Investors' Rights Agreement in the form attached hereto as Exhibit D (the
---------
"Investors' Rights Agreement"), the Third Amended and Restated Co-Sale Agreement
---------------------------
in the form attached hereto as Exhibit E (the "Co-Sale Agreement"), and the
--------- -----------------
Third Amended and Restated Voting Agreement in the form attached hereto as
Exhibit F (the "Voting Agreement") collectively with the Investors' Rights
- --------- ----------------
Agreement, the Co-Sale Agreement and the Voting Agreement, the "Related
-------
Agreements"), and any other agreements or instruments executed by the Company in
- ----------
connection herewith or therewith, the performance of all obligations of the
Company hereunder and thereunder and the authorization, issuance and delivery of
the Securities has been taken or will be taken prior to the Closing. This
Agreement, the Related Agreements and the other agreements and instruments
executed by the Company in connection herewith or therewith, when executed and
delivered by the Company, shall constitute valid and legally binding obligations
of the Company, enforceable against the Company in accordance with their terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
2.5 Valid Issuance of Securities. The Stock being issued to each of
----------------------------
the Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and free of restrictions on transfer other
than restrictions on transfer under this Agreement, the Co-Sale Agreement and
applicable state and federal securities laws. Based in part upon the
representations of each Purchaser in Section 3 hereof and subject to the
provisions of Section 2.6 below, the Stock will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock (the "Conversion Stock") has been duly and validly
----------------
reserved for issuance, and upon issuance in accordance with the terms of the
Restated Certificate, shall be duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Co-Sale Agreement and applicable federal and
state securities laws.
2.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Related Agreements and any other
agreements or instruments executed by the Company in connection herewith or
therewith, or in connection with the issuance of the Stock, except for filings
pursuant to Section 25102(f) of the California Corporate Securities Law of 1968,
as amended, and the rules thereunder, other applicable state securities laws and
Regulation D of the Securities Act.
-4-
<PAGE>
2.7 Litigation. There is no action, suit, proceeding or
----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries that questions the validity of
this Agreement or the Related Agreements or the right of the Company to enter
into them, or to consummate the transactions contemplated hereby or thereby, or
that might result, either individually or in the aggregate, in any material
adverse change in the assets, condition or affairs of the Company, financially
or otherwise, or any change in the current equity ownership of the Company, nor
is the Company aware that there is any basis for the foregoing. There is no
governmental investigation pending or, to the knowledge of the Company,
threatened against the Company or affecting any of the Company's properties or
assets, or against any officer, key employee or stockholder of the Company in
his or her capacity as such. Neither the Company, nor, to its knowledge, any
officer, key employee or stockholder of the Company, in his or her capacity as
such, is in default with respect to any order, writ, injunction, decree, ruling
or decision of any court, commission, board or other government agency which may
materially and adversely affect the business or assets of the Company. Neither
the Company nor any of its subsidiaries is a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality.
2.8 Intellectual Property. To the best of its knowledge, the Company
---------------------
has sufficient title and ownership of or licenses to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information, proprietary
rights and processes necessary for its business as now conducted without any
conflict with or infringement of the rights of others, except for such items as
have yet to be conceived or developed or that are expected to be available for
licensing on reasonable terms from third parties. 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, except, in either case, for end-user,
object code, internal-use software license and support/maintenance agreements.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business, would violate any of the patents,
trademarks, service marks, trade names, copyrights, trade secrets or other
proprietary rights or processes of any other person or entity. To the knowledge
of the Company, the use of any trade names, trademarks, copyrights, software,
technology, know-how or processes by the Company in its business does not
infringe on the rights of any proprietary information or intangible property
right of any third person or entity, including, without limitation, any patent,
trade secret, copyright, trademark or trade name. The Company is not aware that
any 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 such employee's best efforts to promote the interest
of the Company or that would conflict with the Company's business. The Company
does not believe it is or will be necessary to use any inventions of any of its
employees (or persons it currently intends to hire) made prior to their
employment by the Company. The Company has at all times used commercially
reasonable efforts to treat its trade secrets as confidential and has not
disclosed or otherwise dealt with such items in such a manner as to cause the
loss of such trade secrets by release into the public domain.
-5-
<PAGE>
2.9 Compliance with Other Instruments.
---------------------------------
(a) The Company is not in violation or default of any provisions
of (i) its Restated Certificate or Bylaws, (ii) any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound, (iii)
any mortgage, indenture, lease, license, other agreement or instrument by which
it is bound or to which it or any of its properties are subject or (iv) to its
knowledge, of any provision of federal or state statute, rule or regulation
applicable to the Company. The execution, delivery and performance of the
Agreement and the Related Agreements and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company.
(b) To its knowledge, the Company has avoided every condition,
and has not performed any act, the occurrence of which would result in the
Company's loss of any right granted under any license, distribution agreement or
other agreement to which the Company is a party.
2.10 Agreements; Action.
------------------
(a) All agreements, understandings, instruments or contracts to
which the Company or any of its subsidiaries is a party or by which it is bound
that involve (i) obligations (contingent or otherwise) of, or payments to, the
Company or any of its subsidiaries in excess of $50,000, (ii) the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company or any of its subsidiaries, or (iii) the grant of rights to manufacture,
produce, assemble, license, market, or sell its products to any other person or
affect the Company's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products, and all agreements between the Company
and its officers, directors, consultants and employees (collectively, the
"Contracts") are set forth in Section 2.10 of the Schedule of Exceptions. All
---------
of the Contracts are valid and binding obligations of the Company and in full
force and effect in all material respects and enforceable by the Company in
accordance with their respective terms in all material respects, subject to the
effect of applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, usury or other laws of general application relating to
or affecting enforcement of creditors' rights and rules or laws concerning
equitable remedies. The Company is not in material default under any of such
Contracts.
(b) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of business.
-6-
<PAGE>
2.11 No Conflict of Interest. The Company is not indebted, directly
-----------------------
or indirectly, to any of its officers or directors or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. To the Company's knowledge, none of the
Company's officers or directors, or any members of their immediate families,
are, directly or indirectly, indebted to the Company (other than in connection
with purchases of the Company's stock) or have any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation which
competes with the Company except that officers, directors and/or stockholders of
the Company may own stock in (but not exceeding two percent of the outstanding
capital stock of) any publicly traded company that may compete with the Company.
To the Company's knowledge, none of the Company's officers or directors or any
members of their immediate families are, directly or indirectly, interested in
any material contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
2.12 Rights of Registration and Voting Rights. Except as contemplated
----------------------------------------
in the Investors' Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity. To the Company's knowledge, except as contemplated in the Voting
Agreement, no stockholder of the Company has entered into any agreements with
respect to the voting of capital shares of the Company.
2.13 Title to Property and Assets. The Company owns its property and
----------------------------
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets, and, to the knowledge of the Company, there exists no material violation
by the Company of any law, regulation or ordinance (including, without
limitation, laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to any real property owned, leased or
subleased by the Company. With respect to the property and assets it leases, the
Company is in material compliance with such leases and, to its knowledge, holds
a valid leasehold interest free of any liens, claims or encumbrances. There are
no defaults by the Company or, to the knowledge of the Company, by any other
party thereto, which might curtail in any material respect the current use of
the Company's property. The performance by the Company of this Agreement and the
Related Agreements will not result in the termination of, or in any increase of
any amounts payable under, any lease listed in the Schedule of Exceptions.
2.14 Financial Statements. Attached hereto as Exhibit G is a copy of
-------------------- ---------
the Company's most recent regularly prepared unaudited balance sheet and income
statement (the "Unaudited Financial Statements"). The Unaudited Financial
------------------------------
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except for the absence of normal audit
adjustments and the absence of other supporting statements, schedules and
footnotes, and were prepared in accordance with the books and records of the
Company and fairly present the financial position of the Company as of the date
of such Unaudited Financial Statements (the "Balance Sheet Date").
------------------
-7-
<PAGE>
2.15 Changes. Since the Balance Sheet Date, there has not been:
-------
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Unaudited
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company;
(c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties,
prospects or financial condition of the Company;
(e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any officer
or key employee of the Company; and the Company, is not aware of any impending
resignation or termination of employment of any such officer or key employee;
(i) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(j) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(l) to the Company's knowledge, any other event or condition of
any character that might materially and adversely affect the business,
properties, prospects or financial condition of the Company; or
-8-
<PAGE>
(m) any arrangement or commitment by the Company to do any of
the things described in this Section 2.15.
2.16 Employee Benefit Plans. The Company does not have any "Employee
----------------------
Benefit Plan" as such term is defined in the Employee Retirement Income Security
Act of 1974.
2.17 Tax Returns and Payments. The Company has filed all tax returns
------------------------
and reports as required by law. These returns and reports are true and correct
in all material respects and were filed within the applicable periods for such
filings. The Company has paid all taxes and other assessments due. The Company
has established adequate reserves (net of estimated tax payments already made)
for the payment of all taxes payable in respect of the period subsequent to the
last periods covered by such returns. There is no pending dispute with any
taxing authority relating to any of such returns and the Company has not
received notice of any proposed liability for any tax to be imposed upon the
properties or assets of the Company. No deficiencies for any tax are currently
assessed against the Company, and no tax returns of the Company have ever been
audited, and, to the knowledge of the Company, there is no such audit pending or
threatened. There is no tax lien, whether imposed by any federal, state or local
taxing authority, outstanding against the assets, properties or business of the
Company. The Company has no liabilities for taxes that are accrued whether or
not yet due and payable. For the purposes of this Agreement, the term "tax"
shall include all federal, state and local taxes, including income, franchise,
property, sales, withholding, payroll and employment taxes.
2.18 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of the Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company, nor is the Company aware of any
labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company. To
its knowledge, the Company is in compliance in all material respects with all
applicable state and federal equal employment opportunity laws and regulations
and with other laws and regulations related to employment, labor, terms and
conditions of employment, and wages and hours.
2.19 Employee Matters. Each employee, director, consultant and
----------------
officer of the Company has executed an agreement with the Company regarding
confidentiality and proprietary information substantially in the form attached
hereto as Exhibit H. The Company is not aware that any of its employees or
---------
consultants is in violation thereof. Except as set forth on the Schedule of
Exceptions, the Company does not have in effect, and its assets are not subject
to, any employment agreements, consulting agreements, deferred compensation,
pension or retirement agreements or arrangements, bonus, incentive or profit-
sharing plans or arrangements, or labor or collective bargaining agreements,
written or oral.
-9-
<PAGE>
2.20 Permits. The Company has all franchises, permits, licenses and
-------
any similar authority necessary for the conduct of its business, the lack of
which could materially and adversely affect the business, properties, or
financial condition of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority and, to the knowledge of the Company, no suspension or
cancellation of any of them is threatened.
2.21 Corporate Documents. The Restated Certificate and Bylaws of the
-------------------
Company are in the form provided to counsel for the Purchasers. The copy of the
minute books of the Company provided to the Purchasers' counsel contains minutes
of all meetings of directors and stockholders and all actions by written consent
without a meeting by the directors and stockholders since the date of
incorporation and reflects all actions by the directors (and any committee of
directors) and stockholders with respect to all transactions referred to in such
minutes accurately in all material respects.
2.22 Insurance Coverage. The Schedule of Exceptions contains an
------------------
accurate summary of the insurance policies currently maintained by the Company,
if any. There are currently no claims pending against the Company under any
insurance policies currently in effect and covering the property, business or
employees of the Company, and all premiums due and payable with respect to the
policies maintained by the Company have been paid to date.
2.23 Disclosure. The Company has fully provided each Purchaser with
----------
all the information that such Purchaser has requested for deciding whether to
purchase the Stock. To its knowledge, neither this Agreement, nor any other
statements or certificates made or delivered in connection herewith or therewith
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements herein or therein not misleading.
2.24 Year 2000 Compatibility. To the Company's knowledge, all of the
-----------------------
Company's and any of its subsidiary's products (including products currently
under development) are "Y2K Compliant." For the purposes of this paragraph, a
product, service or system that is Y2K Compliant is one that is able to record,
store, process, calculate and present calendar dates falling on or after January
1, 2000, and calculate any information dependent on or relating to such dates in
the same manner and with the same functionality, data, integrity and performance
as such product, service or system is able to record, store, process, calculate
and present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates. To the Company's actual
knowledge, without independent investigation, the third party products, services
and systems for the operation of the Company's business are Y2K Compliant.
2.25 No Merger Discussions. The Company has not engaged in any
---------------------
discussions in the past six months relating to any merger or consolidation of
the Company with one or more other corporations in which the Company's present
stockholders will control less than a majority of the voting securities of the
surviving corporation.
3. Representations and Warranties of the Purchaser. Each Purchaser
-----------------------------------------------
hereby represents and warrants to the Company that:
-10-
<PAGE>
3.1 Authorization. Such Purchaser has full power and authority to
-------------
enter into this Agreement and the Related Agreements, and to consummate the
transactions contemplated hereby and thereby. This Agreement and the Related
Agreements, and any other agreements or instruments executed by such Purchaser
in connection herewith or therewith, when executed and delivered by such
Purchaser, will constitute valid and legally binding obligations of such
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities laws.
3.2 Purchase Entirely for Own Account. This Agreement is made with
---------------------------------
such Purchaser in reliance upon such Purchaser's representation to the Company,
which by such Purchaser's execution of this Agreement, such Purchaser hereby
confirms, that the Securities to be acquired by such Purchaser will be acquired
for investment for such Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that such
Purchaser has no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, such Purchaser
further represents that such Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. Such Purchaser has not been formed for the specific purpose of
acquiring the Securities.
3.3 Disclosure of Information. Such Purchaser has had an opportunity
-------------------------
to discuss the Company's business, management, financial affairs and the terms
and conditions of the offering of the Securities with the Company's management
and has had an opportunity to review the Company's facilities. Such Purchaser
understands that such discussions, as well as the Business Plan and any other
written information delivered by the Company to such Purchaser, were intended to
describe the aspects of the Company's business which it believes to be material.
3.4 Restricted Securities. Such Purchaser understands that the
---------------------
Securities have 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 which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchasers' representations as
expressed herein. Such Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, such Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. Such Purchaser acknowledges that the
Company has no obligation to register or qualify the Securities for resale
except as set forth in the Investors' Rights Agreement. Such Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the
-11-
<PAGE>
Securities, and on requirements relating to the Company which are outside of
such Purchaser's control, and which the Company is under no obligation and may
not be able to satisfy.
3.5 No Public Market. Such Purchaser 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
Securities.
3.6 Legends. Such Purchaser understands that the Securities, and any
-------
securities issued in respect of or exchange for the Securities, may bear one or
all of the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, 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 EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."
(b) Any legend set forth in the Related Agreements.
(c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.
3.7 Accredited Investor. Such Purchaser is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act (an
"Accredited Investors").
--------------------
4. Conditions of the Purchasers' Obligations at Closing. The obligations
----------------------------------------------------
of the Purchasers to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
4.1 Approvals. The transactions contemplated hereby shall have been
---------
duly authorized by all necessary corporate actions by the Company.
4.2 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
4.3 Performance. The Company shall have performed and complied with
-----------
all covenants, agreements, obligations and conditions contained in this
Agreement and the Related Agreements that are required to be performed or
complied with by it on or before the Closing.
-12-
<PAGE>
4.4 Compliance Certificate. The Chief Executive Officer of the
----------------------
Company shall deliver to the Purchaser at the Closing a certificate certifying
that the conditions specified in Sections 4.1, 4.2 and 4.11 have been fulfilled.
4.5 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be obtained and effective as of
the Closing.
4.6 Opinion of Company Counsel. The Purchasers shall have received
--------------------------
from Perkins Coie LLP, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit I.
---------
4.7 Board of Directors. As of the Closing, the Board shall be
------------------
comprised of Andrea C. Reisman, Jay C. Hoag, Michael G. Linnert, A. Brooke
Seawell, Brian K. Devine, Mike Woodard and one vacancy.
4.8 Investors' Rights Agreement. The Company, each Purchaser and a
---------------------------
majority of the holders of the Registrable Securities (as defined in the
Investors' Rights Agreement) shall have executed and delivered the Investors'
Rights Agreement.
4.9 Co-Sale Agreement. The Company, a majority of the Founders (as
-----------------
defined in the Co-Sale Agreement), a majority of the holders of each of the
Series A, Series B and Series C Preferred Stock, and each Purchaser shall have
executed and delivered the Co-Sale Agreement.
4.10 Voting Agreement. The Company, a majority of the Founders, a
-----------------
majority of the holders of each of the Series A, Series B and Series C Preferred
Stock, and each Purchaser shall have executed and delivered the Voting
Agreement.
4.11 Restated Certificate. The Company shall have filed the Restated
--------------------
Certificate with the Secretary of State of Delaware on or prior to the date of
the Closing, which shall continue to be in full force and effect as of the date
of the Closing.
4.12 Minimum Offering. The Company shall have received commitments
----------------
from Purchasers to purchase not less than 6,243,200 shares of Stock in the
aggregate.
5. Conditions of the Company's Obligations at Closing. The obligations
--------------------------------------------------
of the Company to the Purchasers under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:
5.1 Representations and Warranties. The representations and
------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
-13-
<PAGE>
5.2 Performance. All covenants, agreements and conditions contained
-----------
in this Agreement and the Related Agreements to be performed by the Purchasers
on or prior to the Closing shall have been performed or complied with in all
material respects.
5.3 Qualifications. All authorizations, approvals or permits, if
--------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Securities pursuant to this Agreement shall be obtained and effective as of
the Closing.
5.4 Investors' Rights Agreement. The Company, each Purchaser and a
---------------------------
majority of the holders of the Registrable Securities (as defined in the
Investors' Rights Agreement) shall have executed and delivered the Investors'
Rights Agreement.
5.5 Co-Sale Agreement. The Company, a majority of the Founders (as
-----------------
defined in the Co-Sale Agreement), a majority of the holders of each of the
Series A, Series B and Series C Preferred Stock, and each Purchaser shall have
executed and delivered the Co-Sale Agreement.
5.6 Voting Agreement. The Company, a majority of the Founders, a
-----------------
majority of the holders of each of the Series A, Series B and Series C Preferred
Stock, and each Purchaser shall have executed and delivered the Voting
Agreement.
6. Covenants of the Company.
-------------------------
6.1 Use of Proceeds. The proceeds from the sale of the Stock shall
---------------
be used by the Company for working capital and general corporate purposes.
6.2 Key Man Life Insurance. The Company will use best efforts to
----------------------
obtain and maintain term life insurance in the amount of $2,000,000 on the
Company's Chief Executive Officer ("Key Man Life Insurance"). The beneficiary
----------------------
of the Key Man Life Insurance shall be the Company.
6.3 Series D Warrants. If the Company sells more than 8,918,856
-----------------
shares of Stock (the number of any such shares, the "Excess Shares"), then it
-------------
will issue to each Purchaser and Additional Purchaser that did not purchase
Excess Shares warrants (the "Series D Warrants") to purchase additional shares
-----------------
of Stock, the exact aggregate number of which shall be equal to the product of
(x) a fraction, the numerator of which is the shares of Stock held by such
Purchaser or Additional Purchaser and the denominator of which 8,918,856, and
(y) the aggregate number of Excess Shares.
The Series D Warrants, if any, shall terminate five years after the
issuance thereof, unless earlier exercised. The exercise price for the Series D
Warrants shall be equal to the Purchase Price hereunder. The holders of the
shares of Stock issued pursuant to the exercise of the Series D Warrants shall
become parties to the Related Agreements upon execution and delivery of the
signature pages thereto.
-14-
<PAGE>
6.4 Termination of Covenants. The covenants contained in this
------------------------
Section 6 will terminate upon the effectiveness of the Company's registration
statement under the Securities Act in connection with its initial public
offering of securities.
7. Miscellaneous.
-------------
7.1 Survival of Warranties. Unless otherwise set forth in this
----------------------
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing.
7.2 Transfer; Successors and Assigns. The terms and conditions of
--------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement 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.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
7.5 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.
7.6 Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, addressed to the
party to be notified at such party's address as set forth on the signature page
or Exhibit A hereto, or as subsequently modified by written notice, and (a) if
---------
to the Company, with a copy to Perkins Coie LLP, 135 Commonwealth Drive, Suite
250, Menlo Park, CA 94025, attn: Mark S. Albert, and (b) if to a Purchaser, to
the address of record provided to the Company by such Purchaser, with a copy to
Buchalter, Nemer, Fields & Younger, 601 South Figueroa Street, Suite 2400, Los
Angeles, CA 90017, Attn: Rick Cohen, Esq.
7.7 Finder's Fee. Each party represents that it neither is nor will
------------
be obligated for any finder's fee or commission in connection with this
transaction. Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which Purchaser or any of its officers, employees, or
-15-
<PAGE>
representatives is responsible. The Company agrees to indemnify and hold
harmless Purchaser from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
7.8 Fees and Expenses. Upon the First Closing, or if the Purchasers
-----------------
have satisfied the conditions of Section 5 hereof and stand ready, willing and
able to consummate the transactions contemplated hereby and the transaction
contemplated hereby does not close because the Company has failed to satisfy the
conditions of Section 4 hereof, the Company shall pay the reasonable, itemized
fees (not to exceed $15,000 in the aggregate) and expenses of Buchalter, Nemer,
Fields & Younger, special counsel for the Purchasers, incurred with respect to
this Agreement, the documents referred to herein and the transactions
contemplated hereby and thereby. In addition, the Company shall pay the
reasonable, itemized fees and expenses of one special counsel to the Purchasers
in connection with the review of any amendments, waivers, consents or approvals
sought by the Company under this Agreement, not to exceed $10,000 per year in
the aggregate for all such costs and expenses.
7.9 Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of any of this
Agreement or the Related Agreements, the 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.
7.10 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the Company and the holders
of at least a majority of the Common Stock issued or issuable upon conversion of
the Stock, provided, however, that if such amendment or waiver has the effect of
-------- -------
affecting a particular Purchaser (i) in a manner different than the other
Purchasers, and (ii) in a manner adverse to the interests of such Purchaser,
then such amendment shall require the consent of such Purchaser. Any amendment
or waiver effected in accordance with this Section 7.10 shall be binding upon
the Purchaser and each transferee of the Stock (or the Common Stock issuable
upon conversion thereof), each future holder of all such securities, and the
Company.
7.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
7.12 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party under this Agreement, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such non-breaching or non-defaulting party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in 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
-16-
<PAGE>
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.
7.13 Entire Agreement. This Agreement, the Related Agreements and the
----------------
documents and instruments referred to herein constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof, and any and
all other written or oral agreements relating to the subject matter hereof
existing between the parties hereto are expressly canceled.
7.14 Corporate Securities Law. 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 THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
7.15 Confidentiality. Each party hereto agrees that, except with the
---------------
prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Securities purchased hereunder. The provisions of this Section
7.14 shall be in addition to, and not in substitution for, the provisions of any
separate nondisclosure agreement executed by the parties hereto with respect to
the transactions contemplated hereby.
7.16 Exculpation Among Purchasers. Each Purchaser acknowledges that
----------------------------
it is not relying upon any person, firm or corporation, other than the Company
and its officers and that no Purchaser not the respective controlling persons,
officers, directors, partners, agents or employees of any Purchaser shall be
liable to any other Purchaser for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the purchase of the
Securities.
[Remainder of page intentionally left blank]
-17-
<PAGE>
The parties have executed this Series D Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
---------------------------------
Name: Andrea C. Reisman
Its: Chief Executive Officer
PURCHASERS:
ATTRACTOR OFFSHORE LTD.
By: Attractor Investment Management Inc.
Its: Investment Manager
By: /s/ Harvey Allison
---------------------------------
Name: Harvey Allison
Title: President
ATTRACTOR INSTITUTIONAL LP
By: Attractor Ventures LLC
Its: General Partner
By: /s/ Harvey Allison
---------------------------------
Name: Harvey Allison
Title: Managing Member
ATTRACTOR VENTURES LLC
By: /s/ Harvey Allison
---------------------------------
Name: Harvey Allison
Title: Managing Member
<PAGE>
ATTRACTOR LP
By: Attractor Ventures LLC
Its: General Partner
By: /s/ Harvey Allison
---------------------------------
Name: Harvey Allison
Title: Managing Member
ATTRACTOR QP LP
By: Attractor Ventures LLC
Its: General Partner
By: /s/ Harvey Allison
---------------------------------
Name: Harvey Allison
Title: Managing Member
Mailing Address:
c/o Attractor Investment Management Inc.
1110 Burlingame Avenue, Suite 211
Burlingame, CA 94010
Attention: Harvey Allison/Gigi Brisson
with a copy to:
Buchalter, Nemer, Fields & Younger
601 South Figueroa Street, Suite 2400
Los Angeles, CA 90017
Attention: Rick Cohen, Esq.
<PAGE>
TCV III (GP)
a Delaware General Partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
---------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
<PAGE>
Mailing Address:
Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jay C. Hoag
Phone: (650) 614-8210
Fax: (650) 614-8222
<PAGE>
PETCO ANIMAL SUPPLIES, INC.
By: /s/ Brian K. Devine
----------------------------------------------
Name: Brian K. Devine
Title: Chairman, President and Chief Executive
Officer
Mailing Address:
9125 Rehco Road
San Diego, CA 92121
<PAGE>
ARKARO HOLDING, B.V.
By: /s/ Maria C. van der Sluijs-Plantz
-------------------------------------
Name: Maria C. van der Sluijs-Plantz
Title: Managing Director
Mailing Address:
Locatellikade 1
Parnassustoren
1076 AZ Amsterdam
P.O. Box 75215
1070 AE Amsterdam
The Netherlands
Attention: Maria C. van der Sluijs-Plantz
<PAGE>
MARK COHON
By:/s/ Mark Cohon
---------------------------------
Mailing Address:
c/o Petopia.com, Inc.
1200 Folsom Street
San Francisco, CA 94103
<PAGE>
COMDISCO, INC.
a Delaware corporation
By:__________________________________
Name:
Title:
Mailing Address:
Comdisco, Inc.
6111 North River Road
Rosemont, IL 60018
Attn: Venture Group
<PAGE>
PET MOONSHOT INVESTORS LLC
a Delaware Limited Liability Company
By: /s/ Greg Katz
----------------------------------
Name: Greg Katz
Title:
Mailing Address:
40 West 57/th/ Street
New York, NY 10019
<PAGE>
TWB INVESTMENT PARTNERSHIP
By:______________________________________
Name:
Title:
Mailing Address:
TWB Investment Partnership
1201 Third Avenue
Seattle, WA 98101
<PAGE>
PRESCIENT TRUST
By: /s/ Eric R. Mathewson
--------------------------------------
Name: Eric R. Mathewson
Title: Trustee
Mailing Address:
Prescient Capital LLC
One Montgomery Street, Suite 3300
San Francisco, CA 94104
<PAGE>
BANCBOSTON CAPITAL INC.
By: /s/ Maia D. Heymann
--------------------------------------
Name: Maia D. Heymann
Title: Vice President
Mailing Address:
BancBoston Capital Inc.
175 Federal Street, 10/th/ Floor
Boston, MA 02110
Attn: Jeanne McGovern
with a copy to:
BancBoston Capital Inc.
435 Tasso Street, Suite 250
Palo Alto, CA 94301
Attn: Maia D. Heymann
<PAGE>
LINDE & CIE. SARL
By: /s/ Carl W. Linde
-------------------------------
Name: Carl W. Linde
Title: Director
Mailing Address:
Linde & Cie. SARL
Barbican Business Centre
132/140 Gowsell Road
London 7D1 ECY
United Kingdom
<PAGE>
EXHIBIT 10.18
PETOPIA.COM, INC.
AMENDMENT TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
--------------------------------------------------------
This Amendment to Series D Preferred Stock Purchase Agreement (the
"Amendment") is made as of January 21, 2000 by and between Petopia.com, Inc., a
---------
Delaware corporation (the "Company"), a majority of the Purchasers listed on
-------
Exhibit A to the Series D Preferred Stock Purchase Agreement dated as of
- ---------
November 29, 1999 (the "Purchase Agreement") and the purchasers listed on
------------------
Exhibit A attached hereto (the "Additional Purchasers").
- --------- ---------------------
WHEREAS, the Company and the "Purchasers" (as defined in the Purchase
Agreement) are parties to the Purchase Agreement pursuant to which each
Purchaser purchased shares of Series D Preferred Stock from the Company on the
terms and conditions set forth therein;
WHEREAS, the Company and a majority of the Purchasers wish to amend the
Purchase Agreement in accordance with Section 7.10 of the Purchase Agreement
(terms defined in the Purchase Agreement are used herein as therein defined);
WHEREAS, the Additional Purchasers desire to purchase and the Company
desires to sell up to 3,567,542 shares of the Company's Series D Preferred Stock
at the Subsequent Closing (as defined below);
NOW, THEREFORE, in consideration of the foregoing recitals (which are
hereby incorporated into and shall be deemed part of this Amendment) and of the
covenants and mutual agreements contained in this Amendment, each of the
Company, a majority of the Purchasers and the Additional Purchasers agrees as
follows:
Section 1. Amendments. The Company and a majority of the Purchasers
----------
hereby agree that the Purchase Agreement shall be amended as follows:
(A) Section 1.1(a) of the Purchase Agreement shall be amended by (i)
--------------
replacing "Closing" with "First Closing", (ii) adding "Fourth" before "Restated
------ --------
Certificate", and (iii) adding the following at the end of the subsection:
- -----------
"The Company shall also adopt and file with the Secretary of
State of the State of Delaware on or before the Subsequent Closing (as
defined below) the Fifth Amended and Restated Certificate of
Incorporation in the form attached hereto as Exhibit B-1 (the "Fifth
----------- -----
Restated Certificate" and together with the Fourth Restated
--------------------
Certificate, the "Restated Certificate")."
--------------------
(B) Section 1.1(b) of the Purchase Agreement shall be deleted in its
--------------
entirety and substituting the following therefor:
"(b) Subject to the terms and conditions of this Agreement, the
Purchasers agree to purchase and the Company agrees to sell and issue
to each Purchaser at the First and Subsequent Closings that number of
shares of Series D Preferred Stock set forth opposite each such
Purchaser's name on Exhibit A
---------
<PAGE>
attached hereto at a purchase price of $5.6061 per share (the
"Purchase Price"), provided that the purchase price shall be payable
-------------- --------
by National Broadcasting Company, Inc. ("NBC") in consideration of the
---
execution and delivery by NBC of the Letter Agreement dated as of the
date hereof regarding the granting by NBC of advertising credits to
the Company (the "Letter Agreement"). The shares of Series D Preferred
----------------
Stock issued to the Purchasers pursuant to this Agreement shall be
hereinafter referred to as the "Stock.""
-----
(C) Section 1.2 of the Purchase Agreement shall be deleted in its
-----------
entirety and substituting the following therefor:
"1.2 Closing; Delivery
-----------------
(a) The purchase and sale of the Stock shall take place at the
offices of Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo
Park, California, at 10:00 a.m., on November 29, 1999, or at such
other time and place as the Company and the Purchasers of not less
than 6,243,200 shares of the Stock mutually agree upon, orally or in
writing (which time and place are designated as the "First Closing").
-------------
The closings of the purchase and sale of up to 9,837,804 shares of
Stock in the aggregate (not including shares of Stock sold in the
First Closing, the "Additional Shares") hereunder (the "Subsequent
----------------- ----------
Closings" and together with the First Closing, the "Closing") shall be
-------- -------
held at the offices of Perkins Coie LLP on the date hereof. Any
Additional Shares may be sold only to the investors listed on Exhibit
-------
A-1.
---
(b) Subject to the terms of this Agreement, at the Closing, the
Company shall deliver to each Purchaser a certificate representing the
Stock being purchased by such Purchaser against payment of the
purchase price therefor by check payable to the Company, by wire
transfer to the Company's bank account, by cancellation of
indebtedness, or by any combination thereof. At the Subsequent
Closings, if any, a Supplemental Schedule of Purchasers shall be added
to this Agreement as Exhibit A-2 and the Company will deliver to each
-----------
additional Purchaser who shall have executed this Agreement (each an
"Additional Purchaser") a certificate or certificates representing the
---------------------
number of Additional Shares being purchased hereby against (i) payment
of the purchase price therefor by check payable to the Company, by
wire transfer to the Company's bank account, by cancellation of
indebtedness, or by any combination thereof, (ii) in the case of NBC,
by the execution and delivery of the Letter Agreement and (iii)
delivery of signature pages to this Agreement and each of the Related
Agreements (as defined below). In addition, at any Subsequent Closing
pursuant to which the Company shall have sold more than 8,918,856
shares of Stock, the Company shall issue and grant to each Purchaser
and Additional Purchaser a Series D Warrant, in accordance with the
terms and conditions of Section 6.3 hereof."
(D) The following shall be added to the Purchase Agreement as Section
2.2.5:
-2-
<PAGE>
"2.2.5 Capitalization. Immediately prior to the Subsequent Closing,
--------------
the authorized capital of the Company consists of:
(a) 49,180,000 shares of Preferred Stock, (i) 11,555,000 of
which shares have been designated Series A Preferred Stock, 9,755,000
of which are issued and outstanding and 1,800,000 of which have been
reserved for issuance upon exercise of outstanding warrants to
purchase shares of Series A Preferred Stock (the "Series A Warrants"),
-----------------
(ii) 8,000,000 of which have been designated Series B Preferred Stock,
7,736,345 of which are issued and outstanding, (iii) 12,940,620 of
which have been designated Series C Preferred Stock, 3,017,175 of
which are issued and outstanding, 4,803,458 of which have been
reserved for issuance to PETCO Animal Supplies, Inc. ("PETCO") upon
-----
the achievement of certain milestones (the "PETCO Shares"), and
------------
5,119,987 of which have been reserved for issuance upon exercise of
outstanding warrants to purchase shares of Series C Preferred Stock
(the "Series C Warrants"), (iv) 14,000,000 of which have been
-----------------
designated Series D Preferred Stock, 6,270,262 of which are issued and
outstanding and 918,948 of which have been reserved for issuance upon
exercise of warrants issued or issuable to the Purchasers pursuant to
Section 6.3 herein (the "Series D Warrants"), and (v) 2,330,000 of
-----------------
which shares have been designated Series E Preferred Stock, 2,007,637
of which are issued and outstanding, 76,617 of which have been
reserved for issuance upon exercise of warrants to purchase shares of
Series E Preferred Stock (the "ICOD Warrants"), and 180,000 of which
-------------
have been reserved for issuance upon exercise of warrants issued or
issuable to Greyrock Capital, a division of Banc of America Commercial
Finance Corporation (the "Greyrock Warrants" and, together with the
-----------------
ICOD Warrants, the "Series E Warrants"). The rights, privileges and
-----------------
preferences of the Series A, Series B, Series C, Series D and Series E
Preferred Stock are as stated in the Restated Certificate. All
issuances of shares of Series A, Series B, Series C, Series D and
Series E Preferred Stock referenced above, other than the PETCO
Shares, have been consummated and, except as described above, the
Company will not issue additional shares of Series A, Series B, Series
C, Series D or Series E Preferred Stock. The shares of Series A,
Series B, Series C, Series D and Series E Preferred Stock issued by
the Company were duly authorized, validly issued, fully paid,
nonassessable, free and clear of any liens or encumbrances (other than
those imposed by the purchasers thereof), and based in part on the
representations made by the purchasers thereof, were exempt from
registration under Section 5 of the Securities Act of 1933, as amended
and the California Corporate Securities Law of 1968, as amended. The
rights of PETCO as set forth in Section 6.6 of the Series C Preferred
Stock Purchase Agreement dated July 12, 1999 by and between the
Company and PETCO expired prior to any exercise thereof.
(b) 71,180,000 shares of Common Stock, 9,873,718 shares of
which are issued and outstanding. All of the outstanding shares of
Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, and were issued in compliance with all
applicable federal and state securities laws.
-3-
<PAGE>
(c) The Company has reserved 7,500,000 shares of Common Stock
for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Stock Plan duly adopted by the Board of
Directors and approved by the Company's stockholders (the "Stock
-----
Plan"), of which options to purchase 5,016,769 shares of Common Stock
----
are currently outstanding, 2,024,157 shares of Common Stock have been
issued and 459,074 shares are available for future issuance under the
Stock Plan. The Company has reserved (i) 11,555,000 shares of Common
Stock for issuance upon conversion of the Series A Preferred Stock,
(ii) 8,000,000 shares of Common Stock for issuance upon conversion of
the Series B Preferred Stock, (iii) 12,940,620 shares of Common Stock
for issuance upon conversion of the Series C Preferred Stock, (iv)
14,000,000 shares of Common Stock for issuance upon conversion of the
Series D Preferred Stock, (v) 2,330,000 shares of Common Stock for
issuance upon conversion of the Series E Preferred Stock, (vi) 585,000
shares of Common Stock for issuance upon the exercise of outstanding
warrants to purchase Common Stock issued or issuable to the founders
of Loveland Pet Products, Inc. (the "Loveland Warrants") and (vii)
-----------------
917,749 shares of Common Stock for issuance upon the exercise of
warrants to purchase Common Stock issued or issuable to NBC (the "NBC
---
Warrants").
--------
(d) Except for (i) the conversion privileges of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock, Series A Warrants,
Loveland Warrants, the Petco Shares, the Series C Warrants, the Series
D Warrants, the Series E Warrants and the NBC Warrants, (ii) the
rights of first refusal as set forth in the Investors' Rights
Agreement and the Co-Sale Agreement (each as defined below), (iii) the
rights to participate in the initial public offering as indicated in
Section 2.6 of the Investors' Rights Agreement (as defined below) and
in the IPO Allocation Agreement dated as of May 4, 1999 between the
Company and certain purchasers of Series A Preferred Stock (the "May
---
IPO Allocation Agreement"), and (iv) 7,500,000 shares of Common Stock
------------------------
reserved for issuance pursuant to the Stock Plan, there are, to our
knowledge, no options, warrants, conversion privileges or other rights
(or agreements for any such rights) outstanding to purchase or
otherwise obtain from the Company any of the Company's securities
except as set forth on the Schedule of Exceptions."
(E) Section 3.2 of the Purchase Agreement shall be amended to delete the
-----------
last sentence thereof.
(F) Section 6.3 of the Purchase Agreement shall be deleted in its
-----------
entirety and substituting the following therefor:
"6.3 Series D Warrants. If the Company sells more than
-----------------
8,918,856 shares of Stock (the number of any such shares, the "Excess
------
Shares"), then it will issue to each Purchaser and Additional
------
Purchaser warrants (the "Series D Warrants") to purchase additional
-----------------
shares of Stock, the exact aggregate number of which shall be equal to
the product of (x) a fraction, the numerator of which is the
-4-
<PAGE>
shares of Stock held by such Purchaser or Additional Purchaser (other
than Excess Shares) and the denominator of which is 8,918,856, and (y)
the aggregate number of Excess Shares.
The Series D Warrants, if any, shall be in the form attached
hereto as Exhibit J and shall terminate five years after the issuance
thereof, unless earlier exercised. The exercise price for the Series
D Warrants shall be equal to the Purchase Price hereunder. The
holders of the share of Stock issued pursuant to the exercise of the
Series D Warrants shall become parties to the Related Agreements upon
execution and delivery of the signature pages thereto."
(G) Section 7.15 of the Purchase Agreement shall be amended by adding the
------------
following at the end of such Section:
"Notwithstanding the foregoing, confidential information shall
not include any information that is: (i) in the public domain; (ii)
was already known to the receiving party or within the receiving
party's possession at the time of receipt thereof from the Company;
(iii) received by receiving party from a third party without
reasonable basis for receiving party to believe disclosure was made in
violation of a confidential agreement with the Company; (iv) approved
for disclosure by written authorization of the Company; (v)
independently developed by the receiving party, (vi) published or
otherwise made available to the public at the time of its receipt by
receiving party or subsequently became published or available to the
public other than by a breach of this Agreement; and/or (vii) required
to be disclosed by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand, or
similar process."
(H) Exhibit A-1 of the Purchase Agreement shall be amended to add the
-----------
following entity to the Schedule of Permitted Investors:
ValueVision International Inc.
Section 2. Additional Purchasers. Each of the Additional Purchasers
---------------------
listed on the attached Exhibit A shall become parties to the Purchase Agreement
---------
by executing this Amendment and by virtue of their inclusion on Exhibit A
---------
attached hereto, which Exhibit A shall be added to the Purchase Agreement as
---------
Exhibit A-2.
- -----------
Section 3. Fifth Restated Certificate. Exhibit B attached hereto shall be
-------------------------- ---------
added to the Purchase Agreement as Exhibit B-1.
-----------
Section 4. Series D Warrants. Exhibit C attached hereto shall be added to
----------------- ---------
the Purchase Agreement as Exhibit J. The Series D Warrants to be issued
---------
pursuant to Section 6.3 of the Purchase Agreement, as amended by this Amendment,
will be issued to the Purchasers and Additional Purchasers listed on Exhibit D
---------
attached hereto in the amounts set for opposite their names, which Exhibit D
---------
shall be added to the Purchase Agreement as Exhibit K.
---------
-5-
<PAGE>
Section 5. Governing Law. This Amendment 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 laws.
Section 6. Amendments. This Amendment may not be modified or amended
----------
except by written agreement signed by the Company and a majority of the holders
of the Series D Preferred Stock.
Section 7. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
[Remainder of page intentionally left blank]
-6-
<PAGE>
IN WITNESS WHEREOF, a majority of the Purchasers, the Additional Purchasers
and the Company have caused this Amendment to be duly executed as of the date
first above written.
COMPANY:
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
----------------------------
Name: Andrea C. Reisman
Title: Chief Executive Officer
PURCHASERS:
<PAGE>
TCV III (GP)
a Delaware General Partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
<PAGE>
Mailing Address:
Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jay C. Hoag
Phone: (650) 614-8210
Fax: (650) 614-8222
<PAGE>
PETCO ANIMAL SUPPLIES, INC.
By: /s/ Brian K. Devine
------------------------------------------
Name: Brian K. Devine
Title: Chairman, President and Chief Executive
Officer
Mailing Address:
9125 Rehco Road
San Diego, CA 92121
<PAGE>
ARKARO HOLDING, B.V.
By: /s/ Maria C. van der Sluijs-Plantz
-----------------------------------------------
Name: Maria C. van der Sluijs-Plantz
Title: Managing Director
Mailing Address:
Locatellikade 1
Parnassustoren
1076 AZ Amsterdam
P.O. Box 75215
1070 AE Amsterdam
The Netherlands
Attention: Maria C. van der Sluijs-Plantz
<PAGE>
ADDITIONAL PURCHASERS:
NATIONAL BROADCASTING COMPANY, INC.
a Delaware corporation
By: __________________________________________________
Name:
Title:
Mailing Address:
30 Rockefeller Plaza
New York, NY 10122
Attn: President, NBC Interactive Media
With a copy to: VP, Law, Corporate Transactions
VALUE VISION INTERNATIONAL INC.
a Minnesota corporation
By: ________________________________________________
Name:
Title:
Mailing Address:
6740 Shady Oak Road
Eden Prairie, MN 55344
Phone: (612) 947-5200
Fax: (612) 947-0188
with a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attn: Steven C. Kennedy
Phone: (612) 336-3600
Fax: (612) 336-2600
<PAGE>
EXHIBIT 10.19
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
WARRANT TO PURCHASE SERIES A PREFERRED STOCK
of
PETOPIA.COM, INC.
Void after May _, 2004
This Warrant is issued to _____________, or its registered assigns
("Holder") by Petopia.com, Inc., a Delaware corporation (the "Company"), on May
_, 1999 (the "Warrant Issue Date"). This Warrant is issued pursuant to the
terms of that certain Series A Preferred Stock Purchase Agreement dated as of
the date hereof (the "Purchase Agreement") in connection with the Company's
issuance to the Holder of ____________ shares of Series A Preferred Stock for
the principal amount of [______________________________] ($____).
1. Purchase Shares. Subject to the terms and conditions hereinafter set forth
---------------
and set forth in the Purchase Agreement, the Holder is entitled, upon surrender
of this Warrant at the principal office of the Company (or at such other place
as the Company shall notify the holder hereof in writing), to purchase from the
Company up to [______________________________________] (______) fully paid and
nonassessable shares of Series A Preferred Stock of the Company, as constituted
on the Warrant Issue Date (the "Preferred Stock"). The number of shares of
Preferred Stock issuable pursuant to this Section 1 (the "Shares") shall be
subject to adjustment pursuant to Section 8 hereof.
2. Exercise Price. The purchase price for the Shares shall be $1.75, as
--------------
adjusted from time to time pursuant to Section 8 hereof (the "Exercise Price").
3. Exercise Period. This Warrant shall be exercisable, in whole or in part,
---------------
during the term commencing on the Warrant Issue Date and ending at 5:00 p.m. on
May _, 2004.
4. Method of Exercise. While this Warrant remains outstanding and exercisable
------------------
in accordance with Section 3 above, the Holder may exercise, in whole or in
part, the purchase rights evidenced hereby. Such exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly executed copy of
the form of Notice of Exercise attached hereto, to the Secretary of the Company
at its principal offices; and
<PAGE>
(b) the payment to the Company of an amount equal to the aggregate
Exercise Price for the number of Shares being purchased.
5. Net Exercise. In lieu of exercising this Warrant pursuant to Section 4,
------------
the Holder may elect to receive, without the payment by the Holder of any
additional consideration, shares of Preferred Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with the Notice of Exercise, in
which event the Company shall issue to the holder hereof a number of shares of
Preferred Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Preferred Stock to be issued to the
Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Preferred Stock at
the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of Preferred
Stock (or, to the extent all such Preferred Stock has been converted into the
Company's Common Stock) as of a particular date shall be determined as follows:
(i) if traded on a securities exchange or through the Nasdaq National Market,
the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the thirty (30) day period ending three (3)
days prior to the net exercise election; (ii) if traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the net exercise; and (iii) if there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors of the Company; provided, that, if the Warrant is being
exercised upon the closing of the Company's first underwritten public offering
of common stock (the "IPO"), the value will be the initial "Price to Public" of
one share of such Preferred Stock (or Common Stock issuable upon conversion of
such Preferred Stock) specified in the final prospectus with respect to such
offering.
6. Certificates for Shares. Upon the exercise of the purchase rights
-----------------------
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within thirty (30) days of
the delivery of the subscription notice.
<PAGE>
7. Issuance of Shares. The Company covenants that the Shares, when issued
------------------
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof.
8. Adjustment of Exercise Price and Number of Shares. The number of and kind
-------------------------------------------------
of securities purchasable upon exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
----------------------------------------------
shall at any time prior to the expiration of this Warrant subdivide its
Preferred Stock, by split or otherwise, or combine its Preferred Stock, or
issue additional shares of its Preferred Stock or Common Stock as a
dividend with respect to any shares of its Preferred Stock, the number of
Shares issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend,
or proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the Exercise Price, but the aggregate
Exercise Price for the total number of Shares purchasable under this
Warrant (as adjusted) shall remain the same. Any adjustment under this
Section 8(a) shall become effective at the close of business on the date
the subdivision or combination becomes effective, or as of the record date
of such dividend, or in the event that no record date is fixed, upon the
making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case of
--------------------------------------------------
any reclassification, capital reorganization, or change in the Preferred
Stock of the Company (other than as a result of a subdivision, combination,
or stock dividend provided for in Section 8(a) above), then, as a condition
of such reclassification, reorganization, or change, lawful provision shall
be made, and duly executed documents evidencing the same from the Company
or its successor shall be delivered to the Holder, so that the Holder shall
have the right at any time prior to the expiration of this Warrant to
purchase, at a total price equal to that payable upon the exercise of this
Warrant, the kind and amount of shares of stock and other securities and
property receivable in connection with such reclassification,
reorganization, or change by a holder of the same number of shares of
Preferred Stock as were purchasable by the Holder immediately prior to such
reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the
Holder so that the provisions hereof shall thereafter be applicable with
respect to any shares of stock or other securities and property deliverable
upon exercise hereof, and appropriate adjustments shall be made to the
Exercise Price hereunder, provided the aggregate Exercise Price shall
remain the same.
9. No Fractional Shares or Scrip. No fractional shares or scrip representing
-----------------------------
fractional shares shall be issued upon the exercise of this Warrant, but in lieu
of such fractional shares the Company shall make a cash payment therefor on the
basis of the Exercise Price then in effect.
<PAGE>
10. No Stockholder Rights. Prior to exercise of this Warrant, the Holder shall
---------------------
not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 10 shall limit the right of the Holder to be provided
the Notices required under this Warrant or the Purchase Agreement.
11. Transfers of Warrant. Subject to compliance with applicable federal and
--------------------
state securities laws, this Warrant and all rights hereunder are transferable in
whole or in part by the Holder to any person or entity upon written notice to
the Company. The transfer shall be recorded on the books of the Company upon
the surrender of this Warrant, properly endorsed, to the Company at its
principal offices, and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer. In the event of a partial
transfer, the Company shall issue to the holders one or more appropriate new
warrants.
12. Successors and Assigns. The terms and provisions of this Warrant and the
----------------------
Purchase Agreement shall inure to the benefit of, and be binding upon, the
Company and the Holders hereof and their respective successors and assigns.
13. Amendments and Waivers. Any term of this Warrant may be amended and the
----------------------
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of a majority of shares of Preferred
Stock issued or issuable upon exercise of Warrants issued pursuant to the
Purchase Agreement. Any waiver or amendment effected in accordance with this
Section shall be binding upon each holder of any Shares purchased under this
Warrant at the time outstanding (including securities into which such Shares
have been converted), each future holder of all such Shares, and the Company.
14. Effect of Amendment or Waiver. The Holder acknowledges that by the
-----------------------------
operation of Section 13 hereof, the holders of a majority of shares of Preferred
Stock issued or issuable upon exercise of Warrants issued pursuant to the
Purchase Agreement will have the right and power to diminish or eliminate all
rights of such holder under this Warrant or under the Purchase Agreement.
15. Notices. All notices required under this Warrant shall be deemed to have
-------
been given or made for all purposes (i) upon personal delivery, (ii) upon
confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
16. Attorneys' Fees. If any action of law or equity is necessary to enforce or
---------------
interpret the terms of this Warrant, the prevailing party shall be entitled to
its reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which it may be entitled.
<PAGE>
17. Captions. The section and subsection headings of this Warrant are inserted
--------
for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
18. Governing Law. This Warrant shall be governed by the laws of the State of
-------------
California as applied to agreements among California residents made and to be
performed entirely within the State of California.
<PAGE>
IN WITNESS WHEREOF, Petopia.com, Inc. caused this Warrant to be
executed by an officer thereunto duly authorized.
PETOPIA.COM, INC.
By:____________________________
Name: Andrea C. Reisman
Title: Chief Executive Officer
<PAGE>
EXHIBIT 10.20
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
WARRANT TO PURCHASE SERIES C PREFERRED STOCK
of
PETOPIA.COM, INC.
Void after July __, 2004
This Warrant is issued to PETCO Animal Services, Inc. ("Petco"), or
its registered assigns ("Holder") by Petopia.com, Inc., a Delaware corporation
(the "Company"), on July 12, 1999 (the "Warrant Issue Date"). This Warrant is
issued pursuant to the terms of that certain Series C Preferred Stock Purchase
Agreement dated as of the date hereof (the "Purchase Agreement") in connection
with the Company's issuance to the Holder of 7,820,633 shares of Series C
Preferred Stock.
1. Purchase Shares. Subject to the terms and conditions hereinafter set forth
---------------
and set forth in the Purchase Agreement, the Holder is entitled, upon surrender
of this Warrant at the principal office of the Company (or at such other place
as the Company shall notify the holder hereof in writing), to purchase from the
Company [_____________________] (__________) fully paid and nonassessable shares
of Series C Preferred Stock of the Company, as constituted on the Warrant Issue
Date (the "Preferred Stock"). The number of shares of Preferred Stock issuable
pursuant to this Section 1 (the "Shares") shall be subject to adjustment
pursuant to Section 8 hereof.
2. Exercise Price. The purchase price for the Shares shall be equal to
--------------
[$___], as adjusted from time to time pursuant to Section 8 hereof (the
"Exercise Price").
3. Exercise Period. This Warrant shall be exercisable, in whole or in part,
---------------
commencing upon the earlier to occur of: (a) the closing of the Company's
initial public offering pursuant to a registration statement filed with the
Securities Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "IPO"); and (b) the date upon which the Company sells any shares of
its preferred stock to a third party at a purchase price per share equal to or
greater than the Exercise Price. The Warrant shall terminate and no longer be
exercisable upon the earlier to
<PAGE>
occur of (x) 5:00 p.m. on July __, 2004 and (y) a sale of all or substantially
all of the assets of the Company or the merger or consolidation of the Company
with or into any other corporation or entity, other than a wholly-owned
subsidiary of the Company, as a result of which the stockholders of the Company
immediately prior to such transaction hold less than fifty percent (50%) of the
voting power of the surviving corporation.
4. Method of Exercise. While this Warrant remains outstanding and exercisable
------------------
in accordance with Section 3 above, the Holder may exercise, in whole or in
part, the purchase rights evidenced hereby. Such exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly executed copy of the
form of Notice of Exercise attached hereto, to the Secretary of the Company at
its principal offices; and
(b) the payment to the Company of an amount equal to the aggregate Exercise
Price for the number of Shares being purchased.
5. Net Exercise. In lieu of exercising this Warrant pursuant to Section 4,
------------
the Holder may elect to receive, without the payment by the Holder of any
additional consideration, shares of Preferred Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with the Notice of Exercise, in
which event the Company shall issue to the holder hereof a number of shares of
Preferred Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Preferred Stock to be issued to the
Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Preferred Stock at
the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of Preferred
Stock (or, to the extent all such Preferred Stock has been converted into the
Company's Common Stock) as of a particular date shall be determined as follows:
(i) if traded on a securities exchange or through the Nasdaq National Market,
the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the thirty (30) day period ending three (3)
days prior to the net exercise election; (ii) if traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the net exercise; and (iii) if there is no active public market, the
value shall be the fair market value thereof, as determined in good faith by the
Board of Directors of the
<PAGE>
Company; provided, that, if the Warrant is being exercised upon the closing of
the Company's first underwritten public offering of common stock (the "IPO"),
the value will be the initial "Price to Public" of one share of such Preferred
Stock (or Common Stock issuable upon conversion of such Preferred Stock)
specified in the final prospectus with respect to such offering.
6. Certificates for Shares. Upon the exercise of the purchase rights
-----------------------
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within thirty (30) days of
the delivery of the subscription notice.
7. Issuance of Shares. The Company covenants that the Shares, when issued
------------------
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof.
8. Adjustment of Exercise Price and Number of Shares. The number of and kind
-------------------------------------------------
of securities purchasable upon exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
----------------------------------------------
shall at any time prior to the expiration of this Warrant subdivide its
Preferred Stock, by split or otherwise, or combine its Preferred Stock, or
issue additional shares of its Preferred Stock or Common Stock as a
dividend with respect to any shares of its Preferred Stock, the number of
Shares issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock dividend,
or proportionately decreased in the case of a combination. Appropriate
adjustments shall also be made to the Exercise Price, but the aggregate
Exercise Price for the total number of Shares purchasable under this
Warrant (as adjusted) shall remain the same. Any adjustment under this
Section 8(a) shall become effective at the close of business on the date
the subdivision or combination becomes effective, or as of the record date
of such dividend, or in the event that no record date is fixed, upon the
making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case of any
--------------------------------------------------
reclassification, capital reorganization, or change in the Preferred Stock
of the Company (other than as a result of a subdivision, combination, or
stock dividend provided for in Section 8(a) above), then, as a condition of
such reclassification, reorganization, or change, lawful provision shall be
made, and duly executed documents evidencing the same from the Company or
its successor shall be delivered to the Holder, so that the Holder shall
have the right at any time prior to the expiration of this Warrant to
purchase, at a total price equal to that payable upon the exercise of this
Warrant, the kind and amount of shares of stock and other securities and
property receivable in connection with such reclassification,
reorganization, or change by a holder of the same number of shares of
Preferred Stock as were purchasable by the Holder immediately prior to such
reclassification, reorganization, or change. In any such case appropriate
<PAGE>
provisions shall be made with respect to the rights and interest of the
Holder so that the provisions hereof shall thereafter be applicable with
respect to any shares of stock or other securities and property deliverable
upon exercise hereof, and appropriate adjustments shall be made to the
Exercise Price hereunder, provided the aggregate Exercise Price shall
remain the same.
9. No Fractional Shares or Scrip. No fractional shares or scrip representing
-----------------------------
fractional shares shall be issued upon the exercise of this Warrant, but in lieu
of such fractional shares the Company shall make a cash payment therefor on the
basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the Holder shall
---------------------
not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 10 shall limit the right of the Holder to be provided
the Notices required under this Warrant or the Purchase Agreement.
11. Transfers of Warrant. Subject to compliance with applicable federal and
--------------------
state securities laws, this Warrant and all rights hereunder are transferable in
whole or in part by the Holder to any person or entity upon written notice to
the Company. The transfer shall be recorded on the books of the Company upon
the surrender of this Warrant, properly endorsed, to the Company at its
principal offices, and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer. In the event of a partial
transfer, the Company shall issue to the holders one or more appropriate new
warrants.
12. Successors and Assigns. The terms and provisions of this Warrant and the
----------------------
Purchase Agreement shall inure to the benefit of, and be binding upon, the
Company and the Holders hereof and their respective successors and assigns.
13. Amendments and Waivers. Any term of this Warrant may be amended and the
----------------------
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of a majority of shares of Preferred
Stock issued or issuable upon exercise of Warrants issued pursuant to the
Purchase Agreement. Any waiver or amendment effected in accordance with this
Section shall be binding upon each holder of any Shares purchased under this
Warrant at the time outstanding (including securities into which such Shares
have been converted), each future holder of all such Shares, and the Company.
14. Effect of Amendment or Waiver. The Holder acknowledges that by the
-----------------------------
operation of Section 13 hereof, the holders of a majority of shares of Preferred
Stock issued or issuable upon exercise of Warrants issued pursuant to the
Purchase Agreement will have the right and power to diminish or eliminate all
rights of such holder under this Warrant or under the Purchase Agreement.
15. Notices. All notices required under this Warrant shall be deemed to have
-------
been given or made for all purposes (i) upon personal delivery, (ii) upon
confirmation receipt that the
<PAGE>
communication was successfully sent to the applicable number if sent by
facsimile; (iii) one day after being sent, when sent by professional overnight
courier service, or (iv) five days after posting when sent by registered or
certified mail. Notices to the Company shall be sent to the principal office of
the Company (or at such other place as the Company shall notify the Holder
hereof in writing). Notices to the Holder shall be sent to the address of the
Holder on the books of the Company (or at such other place as the Holder shall
notify the Company hereof in writing).
16. Attorneys' Fees. If any action of law or equity is necessary to enforce or
---------------
interpret the terms of this Warrant, the prevailing party shall be entitled to
its reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which it may be entitled.
17. Captions. The section and subsection headings of this Warrant are inserted
--------
for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
18. Governing Law. This Warrant shall be governed by the laws of the State of
-------------
California as applied to agreements among California residents made and to be
performed entirely within the State of California.
<PAGE>
IN WITNESS WHEREOF, Petopia.com, Inc. caused this Warrant to be
executed by an officer thereunto duly authorized.
PETOPIA.COM, INC.
By:__________________________________
Name: Andrea C. Reisman
Title: Chief Executive Officer
<PAGE>
EXHIBIT 10.21
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
WARRANT TO PURCHASE PREFERRED STOCK
of
PETOPIA.COM, INC.
Void after January 21, 2005
This Warrant is issued to ((Name)) ("Series D Purchaser"), or its
registered assigns ("Holder") by Petopia.com, Inc., a Delaware corporation (the
"Company"), on January 21, 2000 (the "Warrant Issue Date"). This Warrant is
issued pursuant to Section 6.3 of that certain Series D Preferred Stock Purchase
Agreement dated November 29, 1999, as amended as of the date hereof (the
"Purchase Agreement"). The Company is valuing the Warrant at the price of $0.01
per share for all purposes, including with respect to financial statements
and/or tax purposes.
1. Purchase Shares. Subject to the terms and conditions hereinafter set forth
---------------
and set forth in the Purchase Agreement, the Holder is entitled, upon surrender
of this Warrant at the principal office of the Company (or at such other place
as the Company shall notify the holder hereof in writing), to purchase from the
Company (((NumberofShares))) (((Shares))) fully paid and nonassessable shares of
Series D Preferred Stock of the Company, as constituted on the Warrant Issue
Date (the "Preferred Stock"). The number of shares of Preferred Stock issuable
pursuant to this Section 1 (the "Shares") shall be subject to adjustment
pursuant to Section 8 hereof.
2. Exercise Price. The purchase price for the Shares shall be equal to
--------------
$5.6061, as adjusted from time to time pursuant to Section 8 hereof (the
"Exercise Price").
3. Exercise Period. This Warrant shall be exercisable, in whole or in part,
---------------
during the term commencing on the Warrant Issue Date and ending at 5:00 p.m. on
January 21, 2005.
4. Method of Exercise. While this Warrant remains outstanding and exercisable
------------------
in accordance with Section 3 above, the Holder may exercise, in whole or in
part, the purchase rights evidenced hereby. Such exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly executed copy of
the form of Notice of Exercise attached hereto, to the Secretary of the Company
at its principal offices; and
<PAGE>
(b) the payment to the Company of an amount equal to the aggregate
Exercise Price for the number of Shares being purchased.
If the Warrant shall be exercised for less than the total number of shares of
Preferred Stock then issuable upon exercise, promptly after surrender of the
Warrant upon such exercise (but no later than twenty (20) days after such
surrender), the Company will execute and deliver a new Warrant, dated the date
hereof, evidencing the right of the Holder to the balance of the Preferred Stock
purchasable hereunder upon the same terms and conditions set forth herein.
Notwithstanding anything to the contrary contained herein, the Holder may elect
to receive a net issuance of Preferred Stock pursuant to Section 5 when
converting this Warrant in part.
5. Net Exercise. In lieu of exercising this Warrant pursuant to Section 4,
------------
the Holder may elect to receive, without the payment by the Holder of any
additional consideration, shares of Preferred Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with the Notice of Exercise, in
which event the Company shall issue to the holder hereof a number of shares of
Preferred Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Preferred Stock to be issued to the
Holder pursuant to this net exercise;
Y = The number of Shares in respect of which the net issue
election is made;
A = The fair market value of one share of the Preferred Stock at
the time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net
issuance).
For purposes of this Section 5, the fair market value of one share of Preferred
Stock (or, to the extent all such Preferred Stock has been converted into the
Company's Common Stock) as of a particular date shall be determined as follows:
(i) if traded on a securities exchange or through the Nasdaq National Market,
the value shall be deemed to be the closing price of the securities on such
exchange on the trading day immediately preceding the date of delivery of the
Notice of Exercise (it being understood that the original Warrant may be
surrendered on the subsequent day if such original Warrant is provided to an
overnight courier service (eg, Federal Express); (ii) if traded over-the-
counter, the value shall be deemed to be the average of the closing bid or sale
prices (whichever is applicable) on the trading day immediately preceding the
date of delivery of the Notice of Exercise (it being understood that the
original Warrant may be surrendered on the subsequent day if such original
Warrant is provided to an overnight courier service (eg, Federal Express); and
(iii) if there is no active public market for the Common Stock, the value shall
be the fair market value thereof, as determined in good faith by the Board of
Directors of the Company; provided, that, if the Warrant is being exercised upon
the closing of the Company's
<PAGE>
first underwritten public offering of common stock (the "IPO"), the value will
be the initial "Price to Public" of one share of such Preferred Stock (or Common
Stock issuable upon conversion of such Preferred Stock) specified in the final
prospectus with respect to such offering.
6. Certificates for Shares. Upon the exercise of the purchase rights
-----------------------
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within twenty (20) days of
the delivery of the Notice of Exercise.
7. Issuance of Shares. The Company covenants that the Shares, when issued
------------------
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof. The Company shall pay all taxes and any and all United
States federal, state and local taxes and other charges that may be payable in
connection with the preparation, issuance and delivery of the certificates
representing Preferred Stock issued hereunder.
8. Adjustment of Exercise Price and Number of Shares. The number of and kind
-------------------------------------------------
of securities purchasable upon exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the
----------------------------------------------
Company shall at any time prior to the expiration of this Warrant
subdivide its Preferred Stock, by split or otherwise, or combine its
Preferred Stock, or issue additional shares of its Preferred Stock or
Common Stock as a dividend with respect to any shares of its Preferred
Stock, the number of Shares issuable on the exercise of this Warrant
shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the
case of a combination. Appropriate adjustments shall also be made to
the Exercise Price, but the aggregate Exercise Price for the total
number of Shares purchasable under this Warrant (as adjusted) shall
remain the same. Any adjustment under this Section 8(a) shall become
effective at the close of business on the date the subdivision or
combination becomes effective, or as of the record date of such
dividend, or in the event that no record date is fixed, upon the
making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case
--------------------------------------------------
of any reclassification, capital reorganization, merger, consolidation
or other change in the Preferred Stock of the Company (other than as a
result of a subdivision, combination, or stock dividend provided for
in Section 8(a) above), then, as a condition of such reclassification,
reorganization, merger, consolidation or other change, lawful
provision shall be made, and duly executed documents evidencing the
same from the Company or its successor shall be delivered to the
Holder, so that the Holder shall have the right at any time prior to
the expiration of this Warrant to purchase, at a total price equal to
that payable upon the exercise of this Warrant, the kind and amount of
shares of stock and other securities and property receivable in
connection with such reclassification, reorganization, merger or
<PAGE>
change by a holder of the same number of shares of Preferred Stock as were
purchasable by the Holder immediately prior to such reclassification,
reorganization, merger or change. In any such case appropriate provisions
shall be made with respect to the rights and interest of the Holder so that
the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the Exercise Price
hereunder, provided the aggregate Exercise Price shall remain the same.
(c) No Impairment. The Company shall not, by amendment of its
-------------
Certificate of Incorporation or through a reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed under this Warrant by the Company, but shall at all times in
good faith assist in carrying out of all the provisions of this
Section 8 and in taking all such action as may be necessary or
appropriate to protect the Holder's rights under this Section 8
against impairment. If the Company takes any action affecting
Preferred Stock other than as described above that adversely affects
Holder's rights under this Warrant, the Exercise Price shall be
adjusted downward.
(d) Notice. Upon any adjustment of the Exercise Price and any
------
increase or decrease in the number of shares of Preferred Stock
purchasable upon the exercise or conversion of this Warrant, then, and
in each such case, the Company, as promptly as practicable thereafter,
shall give written notice thereof to the Holder of this Warrant at the
address of such Holder as shown on the books of the Company which
notice shall state the Exercise Price as adjusted and the increased or
decreased number of shares purchasable upon the exercise or conversion
of this Warrant, setting forth in reasonable detail the method of
calculation of each.
9. No Fractional Shares or Scrip. No fractional shares or scrip representing
-----------------------------
fractional shares shall be issued upon the exercise of this Warrant, but in lieu
of such fractional shares the Company shall make a cash payment therefor on the
basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the Holder shall
---------------------
not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 10 shall limit the right of the Holder to be provided
the Notices required under this Warrant or the Purchase Agreement.
11. Transfers of Warrant. This Warrant and all rights hereunder may not be
--------------------
transferred by Holder either in whole or in part; provided however, that subject
to compliance with applicable federal and state securities laws, and upon ten
written notice to the Company, Holder may transfer this Warrant in whole (i) to
a wholly-owned subsidiary of the Holder, (ii) to an entity or
<PAGE>
corporation that acquires all or substantially all of the assets of the Holder,
or (iii) to the surviving corporation of a merger or consolidation of the Holder
as a result of which the stockholders of the Holder immediately prior to such
transaction hold less than fifty percent (50%) of the voting power of the
surviving corporation. The transfer shall be recorded on the books of the
Company upon the surrender of this Warrant, properly endorsed, to the Company at
its principal offices, and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. Successors and Assigns. The terms and provisions of this Warrant and the
----------------------
Purchase Agreement shall inure to the benefit of, and be binding upon, the
Company and the Holders hereof and their respective successors and assigns.
13. Amendments and Waivers. Any term of this Warrant may be amended and the
----------------------
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of a majority of shares of Preferred
Stock issued or issuable upon exercise of Warrants issued pursuant to the
Purchase Agreement. Any waiver or amendment effected in accordance with this
Section shall be binding upon each holder of any Shares purchased under this
Warrant at the time outstanding (including securities into which such Shares
have been converted), each future holder of all such Shares, and the Company.
14. Effect of Amendment or Waiver. The Holder acknowledges that by the
-----------------------------
operation of Section 13 hereof, the holders of a majority of shares of Preferred
Stock issued or issuable upon exercise of Warrants issued pursuant to the
Purchase Agreement will have the right and power to diminish or eliminate all
rights of such holder under this Warrant or under the Purchase Agreement.
15. Notices. All notices required under this Warrant shall be deemed to have
-------
been given or made for all purposes (i) upon personal delivery, (ii) upon
confirmation receipt (or oral confirmation) that the communication was
successfully sent to the applicable number if sent by facsimile; (iii) one day
after being sent, when sent by professional overnight courier service, or (iv)
five days after posting when sent by registered or certified mail. Notices to
the Company shall be sent to the principal office of the Company (or at such
other place as the Company shall notify the Holder hereof in writing). Notices
to the Holder shall be sent to the address of the Holder on the books of the
Company (or at such other place as the Holder shall notify the Company hereof in
writing).
16. Reservation of Stock. On and after the Warrant Issuance Date, the Company
--------------------
will reserve from its authorized and unissued Preferred Stock a sufficient
number of shares to provide for the issuance of Preferred Stock upon the
exercise of this Warrant and will reserve form its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the conversion of the Preferred Stock represented by this Warrant.
Issuance of this Warrant shall constitute full authority to the Company's
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Preferred Stock
issuable upon the exercise or conversion of this Warrant.
<PAGE>
17. Captions. The section and subsection headings of this Warrant are inserted
--------
for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
18. Representation and Warranties. The Company hereby makes all the
-----------------------------
representations and warranties set forth in Section 2 of the Series D Preferred
Stock Purchase Agreement dated November 29, 1999, as amended on the date hereof,
by and among the Company, the Holder and certain other investors, except as set
forth on a Schedule of Exceptions attached thereto as Exhibit C.
---------
19. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
-------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and dated as of such cancellation or
delivery, in lieu of this Warrant.
20. Saturdays, Sundays, Holidays, etc. 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 San Francisco,
California, then such action may be taken or such right may be exercised on the
next succeeding day not a legal holiday in San Francisco, California.
21. Governing Law. This Warrant shall be governed by the laws of the State of
-------------
California as applied to agreements among California residents made and to be
performed entirely within the State of California.
[Remainder of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, Petopia.com, Inc. caused this Warrant to be
executed by an officer thereunto duly authorized.
PETOPIA.COM, INC.
By:__________________________________
Name: Andrea C. Reisman
Title: Chief Executive Officer
<PAGE>
EXHIBIT 10.22
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
WARRANT TO PURCHASE COMMON STOCK
of
PETOPIA.COM, INC.
Void after January 21, 2005
This Warrant is issued to NBC-PETO Holding, Inc. ("NBC") ("Holder") by
Petopia.com, Inc., a Delaware corporation (the "Company"), on January 21, 2000
(the "Warrant Issue Date"). This Warrant is issued in consideration of NBC's
execution and delivery of that certain Letter Agreement, dated as of the date
hereof by and between the Company and NBC (the "Letter Agreement").
1. Purchase Shares. Subject to the terms and conditions hereinafter set
---------------
forth, the Holder is entitled, upon surrender of this Warrant at the principal
office of the Company (or at such other place as the Company shall notify the
holder hereof in writing), to purchase from the Company Nine Hundred Seventeen
Thousand Seven Hundred Forty Nine (917,749) fully paid and nonassessable shares
of Common Stock of the Company, as constituted on the Warrant Issue Date (the
"Common Stock"). The number of shares of Common Stock issuable pursuant to this
Section 1 (the "Shares") shall be subject to adjustment pursuant to Section 8
hereof.
2. Exercise Price. The purchase price for the Shares shall be equal to $7.50,
--------------
as adjusted from time to time pursuant to Section 8 hereof (the "Exercise
Price"). The purchase price shall be payable in cash.
3. Exercise Period. This Warrant shall be exercisable, in whole or in part,
---------------
during the term commencing on the Warrant Issue Date and ending at 5:00 p.m. on
January 21, 2005 (the "Expiration Date").
---------------
4. Method of Exercise. While this Warrant remains outstanding and exercisable
------------------
in accordance with Section 3 above, the Holder may exercise, in whole or in
part, the purchase rights evidenced hereby. Such exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly executed copy of
the form of Notice of Exercise attached hereto, on or prior to the Expiration
Date, to the Secretary of the Company at its principal offices; and
<PAGE>
(b) the payment to the Company of an amount equal to the aggregate
Exercise Price for the number of Shares being purchased immediately following
the later of (i) delivery of the Notice of Exercise or (ii) termination or
expiration of any waiting period under the HSR Act (as defined below), if
applicable.
If the Warrant shall be exercised for less than the total number of shares of
Common Stock then issuable upon exercise, promptly after surrender of the
Warrant upon such exercise (but no later than twenty (20) days after such
surrender), the Company will execute and deliver a new Warrant, dated the date
hereof, evidencing the right of the Holder to the balance of the Common Stock
purchasable hereunder upon the same terms and conditions set forth herein.
Notwithstanding anything to the contrary contained herein, the Holder may elect
to receive a net issuance of Common Stock pursuant to Section 5 when converting
this Warrant in part.
Notwithstanding anything to the contrary contained herein, following NBC's
delivery of the Notice of Exercise to the Company on or prior to the Expiration
Date, NBC and the Company party shall use their reasonable commercial efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the delivery of the Common Stock,
to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, including, without limitation and to the
extent applicable, an appropriate filing of a Notification and Report Form
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") with respect to the transactions contemplated hereby, and to
remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Warrant; provided that neither NBC, the Company nor any of their Affiliates
shall be required to make any disposition, including, without limitation, any
disposition of, or any agreement to hold separate, any subsidiary, asset or
business, and neither NBC, the Company nor any of their Affiliates shall be
required to make any payment of money (other than the payment of filing fees and
legal expenses) nor shall any party or its Affiliates be required to comply with
any condition or undertaking or take any action which, individually or in the
aggregate, would, in the case of NBC, materially and adversely affect the
economic benefits to NBC of this Warrant or in the case of the Company,
materially and adversely affect the business of the Company.
5. Net Exercise. In lieu of exercising this Warrant pursuant to Section 4,
------------
the Holder may elect to receive, without the payment by the Holder of any
additional consideration, shares of Common Stock equal to the value of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant at
the principal office of the Company together with the Notice of Exercise, in
which event the Company shall issue to the holder hereof a number of shares of
Common Stock computed using the following formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common Stock to be issued to the Holder
pursuant to this net exercise;
2
<PAGE>
Y = The number of Shares in respect of which the net issue election
is made;
A = The fair market value of one share of the Common Stock at the
time the net issue election is made;
B = The Exercise Price (as adjusted to the date of the net issuance).
For purposes of this Section 5, the fair market value of one share of Common
Stock as of a particular date shall be determined as follows: (i) if traded on
a securities exchange or through the Nasdaq National Market, the value shall be
deemed to be the closing price of the securities on such exchange on the trading
day immediately preceding the date of delivery of the Notice of Exercise (it
being understood that the original Warrant may be surrendered on the subsequent
day if such original Warrant is provided to an overnight courier service (eg,
Federal Express) on the date of delivery of such Notice); (ii) if traded over-
the-counter, the value shall be deemed to be the average of the closing bid or
sale prices (whichever is applicable) on the trading day immediately preceding
the date of delivery of the Notice of Exercise (it being understood that the
original Warrant may be surrendered on the subsequent day if such original
Warrant is provided to an overnight courier service (eg, Federal Express) on the
date of delivery of such Notice); and (iii) if there is no public market for the
Common Stock, the value shall be the fair market value thereof, as determined in
good faith by the Board of Directors of the Company. Notwithstanding the
foregoing, if the Warrant is being exercised upon the closing of the Company's
initial underwritten public offering of common stock (the "IPO"), the value will
be the initial "Price to Public" of one share of such Common Stock specified in
the final prospectus with respect to such offering.
6. Certificates for Shares. Upon the exercise of the purchase rights
-----------------------
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter (with appropriate
restrictive legends, if applicable), and in any event within the later of (a)
twenty (20) days of the delivery of the Notice of Exercise or (b) three (3) days
after the expiration or termination of any waiting period under the HSR Act.
7. Issuance of Shares. The Company covenants that the Shares, when issued
------------------
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof. The Company shall pay all taxes and any and all United
States federal, state and local taxes and other charges that may be payable in
connection with the preparation, issuance and delivery of the certificates
representing Common Stock issued hereunder.
8. Adjustment of Exercise Price and Number of Shares. The number of and kind
-------------------------------------------------
of securities purchasable upon exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
----------------------------------------------
shall at any time prior to the expiration of this Warrant subdivide its
Common Stock, by split or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock as a dividend with respect to any
shares of its
3
<PAGE>
Common Stock, the number of Shares issuable on the exercise of this Warrant
shall forthwith be proportionately increased in the case of a subdivision
or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the Exercise
Price, but the aggregate Exercise Price for the total number of Shares
purchasable under this Warrant (as adjusted) shall remain the same. Any
adjustment under this Section 8(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or
as of the record date of such dividend, or in the event that no record date
is fixed, upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case of
--------------------------------------------------
any reclassification, capital reorganization, merger, consolidation or
other change in the Common Stock of the Company (other than as a result of
a subdivision, combination or stock dividend provided for in Section 8(a)
above), then, as a condition of such reclassification, reorganization,
merger, consolidation or other change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its
successor shall be delivered to the Holder, so that the Holder shall have
the right at any time prior to the expiration of this Warrant to purchase,
at a total price equal to that payable upon the exercise of this Warrant,
the kind and amount of shares of stock and other securities and property
receivable in connection with such reclassification, reorganization, merger
or change by a holder of the same number of shares of Common Stock as were
purchasable by the Holder immediately prior to such reclassification,
reorganization, merger or change. In any such case appropriate provisions
shall be made with respect to the rights and interest of the Holder so that
the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the Exercise Price
hereunder, provided the aggregate Exercise Price shall remain the same.
(c) No Impairment. The Company shall not, by amendment of its
-------------
Certificate of Incorporation or through a reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed under this
Warrant by the Company, but shall at all times in good faith assist in
carrying out of all the provisions of this Section 8 and in taking all such
action as may be necessary or appropriate to protect the Holder's rights
under this Section 8 against impairment. If the Company takes any action
affecting Common Stock other than as described above that adversely affects
Holder's rights under this Warrant, the Exercise Price shall be adjusted
downward.
4
<PAGE>
(d) Notice. Upon any adjustment of the Exercise Price and any
------
increase or decrease in the number of shares of Common Stock purchasable
upon the exercise or conversion of this Warrant, then, and in each such
case, the Company, as promptly as practicable thereafter, shall give
written notice thereof to the Holder of this Warrant at the address of such
Holder as shown on the books of the Company which notice shall state the
Exercise Price as adjusted and the increased or decreased number of shares
purchasable upon the exercise or conversion of this Warrant, setting forth
in reasonable detail the method of calculation of each.
9. No Fractional Shares or Scrip. No fractional shares or scrip representing
-----------------------------
fractional shares shall be issued upon the exercise of this Warrant, but in lieu
of such fractional shares the Company shall make a cash payment therefor on the
basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the Holder shall
---------------------
not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 10 shall limit the right of the Holder to be provided
the Notices required under this Warrant.
11. Transfers of Warrant. This Warrant and all rights hereunder may not be
--------------------
transferred by Holder either in whole or in part; provided, however, that
subject to compliance with applicable federal and state securities laws, and
upon written notice to the Company, Holder may transfer this Warrant in whole
(i) to a wholly-owned subsidiary of the Holder, (ii) to an entity or corporation
that acquires all or substantially all of the assets of the Holder, or (iii) to
the surviving corporation of a merger or consolidation of the Holder as a result
of which the stockholders of the Holder immediately prior to such transaction
hold less than fifty percent (50%) of the voting power of the surviving
corporation. The transfer shall be recorded on the books of the Company upon
the surrender of this Warrant, properly endorsed, to the Company at its
principal offices, and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. Successors and Assigns. The terms and provisions of this Warrant shall
----------------------
inure to the benefit of, and be binding upon, the Company and the Holders hereof
and their respective successors and assigns.
13. Amendments and Waivers. Any term of this Warrant may be amended and the
----------------------
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the Holder. Any waiver or amendment effected in
accordance with this Section shall be binding upon each holder of any Shares
purchased under this Warrant at the time outstanding (including securities into
which such Shares have been converted), each future holder of all such Shares,
and the Company.
5
<PAGE>
14. Notices. All notices required under this Warrant shall be deemed to have
-------
been given or made for all purposes (i) upon personal delivery, (ii) upon
confirmation receipt (or oral confirmation) that the communication was
successfully sent to the applicable number if sent by facsimile; (iii) one day
after being sent, when sent by professional overnight courier service, or (iv)
five days after posting when sent by registered or certified mail. Notices to
the Company shall be sent to the principal office of the Company (or at such
other place as the Company shall notify the Holder hereof in writing). Notices
to the Holder shall be sent to the address of the Holder on the books of the
Company (or at such other place as the Holder shall notify the Company hereof in
writing).
15. Reservation of Stock. On and after the Warrant Issuance Date, 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. Issuance of this Warrant shall constitute full authority to the
Company's officers who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common Stock
issuable upon the exercise or conversion of this Warrant.
16. Captions. The section and subsection headings of this Warrant are inserted
--------
for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
17. Representation and Warranties. The Company hereby makes all the
-----------------------------
representations and warranties set forth in Section 2 of the Series D Preferred
Stock Purchase Agreement dated November 29, 1999, as amended on the date hereof,
by and among the Company, the Holder and certain other investors, except as set
forth on a Schedule of Exceptions attached thereto as Exhibit C.
---------
18. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the
-------------------------------------------------
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor and dated as of such cancellation or
delivery, in lieu of this Warrant.
19. Saturdays, Sundays, Holidays, etc. 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 San Francisco,
California, then such action may be taken or such right may be exercised on the
next succeeding day not a legal holiday in San Francisco, California.
20. Governing Law. This Warrant shall be governed by the laws of the State of
-------------
California as applied to agreements among California residents made and to be
performed entirely within the State of California.
6
<PAGE>
IN WITNESS WHEREOF, Petopia.com, Inc. caused this Warrant to be
executed by an officer thereunto duly authorized.
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
---------------------------------
Name: Andrea C. Reisman
Title: Chief Executive Officer
<PAGE>
EXHIBIT 10.23
EXPLANATORY ADDENDUM
TO STOCK PURCHASE WARRANT SERIES B
NO. B-___
January 18, 2000
In connection with the merger (the "Merger") of C/R Catalog Corp. (the
"Company") with and into ICOD Acquisition Corp. ("Petopia Sub"), a Delaware
corporation and wholly owned subsidiary of Petopia.com, Inc., a Delaware
corporation ("Petopia"), pursuant to an Agreement and Plan of Merger, dated
December 29, 1999 (the "Merger Agreement"), by and among Petopia, Petopia Sub
and the Company, this warrant has become exercisable at a price based on
Petopia's Series E Preferred Stock.
Accordingly, this warrant for the purchase of the Company's Common Stock
has become a warrant for the purchase of the consideration paid and payable by
Petopia in the Merger. The consideration in the Merger included cash, a
promissory note and shares of Petopia Series E Preferred Stock. Upon your full
exercise of this warrant, you will be entitled to receive:
1. Up to ______ shares of Petopia Series E Preferred Stock;
2. $____________, and
3. Up to $____________ (in promissory note if you exercise prior to June
18, 2000, or cash if you exercise thereafter).
Note that Item I may be decreased because certain of the shares subject to this
warrant are also subject to the Escrow and Indemnity Agreement pursuant to which
certain warrant shares may be "reclaimed" by Petopia upon the occurrence of
indemnifiable breaches by the Company of its representations and warranties in
the Merger Agreement.
Item 3 will be decreased by any legal and accounting expenses that the Company
has 'incurred beyond amounts that Petopia agreed to pay pursuant to the Merger
Agreement.
Your per share exercise price will be the stated value per share of Petopia
Series E Preferred Stock ($5.6061 per share).
PETOPIA.COM, INC,
<PAGE>
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF REGISTRATION OR DELIVERY OF AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER ALL
APPLICABLE SECURITIES LAWS IS AVAILABLE.
C/R CATALOG CORP.
Stock Purchase Warrant Series B
Expiring October 29, 2004
No. B-___ October 29, 1999
C/R CATALOG CORP., a Delaware corporation (the "Company"), for value
received, hereby certifies that ________________, is entitled, subject to the
conditions, restrictions and limitations set forth herein, to purchase from the
Company, in whole or in part, at any time following any Exercise Event (as
hereinafter defined) and prior to 5:00 p.m. New York time on October 29, 2004
(the "Expiration Date"), up to a maximum of _______ duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock (the "Issuable
Common Stock"), par value $.01 per share (the "Common Stock"), of the Company at
the market value, which is determined by the applicable Exercise Event as
defined herein (the "Purchase Price Per Share"), all subject to the terms,
conditions, restrictions and limitations set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants Series B (the
"Warrants", such term to include all Warrants issued in substitution therefor)
originally issued by the Company to purchase an aggregate of a maximum of
165,002 shares of Common Stock, or Other Securities (as hereafter defined), of
the Company, subject to adjustment as provided in Section 1.1 and Section 2.
Certain capitalized terms used in this Warrant are defined in Section 6 hereof;
references to an "Exhibit" are, unless other-wise specified, to one of the
Exhibits attached to this Warrant and references to a "Section" are, unless
otherwise specified, to one of the Sections of this Warrant.
SECTION 1. EXERCISE OF WARRANT.
-------------------
Section 1.1 Manner of Exercise. This Warrant may be exercised by the
------------------
holder hereof, in whole or in part, at any time and from time to time, following
an Exercise Event during normal business hours on any Business Day prior to 5:00
p.m., New York, New York time on the Expiration Date by surrender of this
Warrant to the Company at the office of the Company pursuant to Section 9,
accompanied by a subscription in substantially the form annexed hereto duly
executed by such holder and by payment by immediately available funds or
personal check payable to the order of the Company, in the amount obtained by
multiplying (a) the number of shares of Issuable Common Stock, as may be
adjusted below, designated in such subscription by (b) the Purchase Price Per
Share, whereupon such holder shall be entitled to receive the number
<PAGE>
of duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock. For purposes of this Warrant, an Exercise Event is defined as the
first to occur of any of the following events:
(i) venture capital funding (or other equity based financing) is obtained
which results in (a) gross cash proceeds received by the Company of not less
than one million dollars ($1,000,000) (referred to as "Capital Funding") and (b)
a valuation of the Company (the "Valuation Sum"), determined by the Capital
Funding which such determination shall be binding upon the holder of this
Warrant, equal to or greater than fifteen million dollars ($15,000,000) without
taking into account the proceeds of the Capital Funding; or
(ii) an initial registered public offering of the Company's Common Stock;
or
(iii) (a) a bona fide sale to a third Person in a single or series of
related transactions by the shareholders of the Company of more than fifty
percent (50%) of the voting stock of the Company; (b) a merger or consolidation
in which the Company is a party wherein the shareholders of the Company
immediately before the transaction do not retain immediately after the
transaction, in substantially the same proportions as their ownership of shares
of the Company's voting stock immediately before the transaction, direct or
indirect beneficial ownership of more than fifty percent (50%) of the total
combined voting power of the outstanding voting stock of the Company or the
Person or Persons to which the assets of the Company were transferred, as the
case may be; or (c) the sale, exchange, or transfer of all or substantially all
of the assets of the Company.
Provided, however, in the event that the Valuation Sum defined in Section
- ------------------
1.1(i)(b) is greater than ten million dollars ($10,000,000), but less than
fifteen million dollars ($15,000,000), this Warrant shall be exercisable to
purchase that number of shares of Common Stock equal to the product of (w) the
Valuation Sum minus $10,000,000, divided by $5,000,000, and multiplied by (x)
the Issuable Common Stock,
Section 1.2 When Exercise Effective. Each exercise of this Warrant shall
-----------------------
be deemed to have been effected immediately prior to the close of business on
the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such exercise as provided in Section 1.3 shall be deemed
to become the holder or holders of record thereof.
Section 1.3 Delivery of Stock Certificates, etc. As soon as practicable
------------------------------------
after the exercise of this Warrant, in whole or in part, and in any event within
ten Business Days thereafter (except as provided in Section 1.7 below), the
Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the holder hereof
or, subject to Section 3.3, as such holder (upon payment, by such holder of any
applicable transfer taxes) may direct, a certificate or certificates (bearing
the restrictive legend set forth in Section 3) for the number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
to which such holder shall be entitled upon such exercise.
-2-
<PAGE>
Section 1.4 Maintenance of Shares. The Company will at all times maintain
---------------------
a sufficient number of authorized shares of Common Stock, free of liens and
preemptive rights or other options to purchase, to provide for the exercise of
this Warrant.
Section 1.5 Replacement Warrants. If this Warrant should be exercised in
--------------------
part only, the Company shall, upon surrender of this Warrant, execute and
deliver a new Warrant evidencing the rights of the holder thereof to purchase
the balance of the shares of Issuable Common Stock purchasable hereunder.
Section 1.6 Other Securities. In the event of a Capital Funding, the
----------------
holder hereof shall have the right to convert this Warrant (in lieu of the
conversion to Issuable Common Stock hereunder) into the kind of stock or
securities (the "Other Securities"), provided that such Other Securities have a
feature allowing conversion to Common Stock, issued in connection with such
Capital Funding, equal in number to (a) the total number of shares of Issuable
Common Stock issuable hereunder or (b) if the Other Securities are convertible
into Common Stock at a conversion ratio other than 1:1 as of the original date
of issuance of the Other Securities, then the number of Other Securities that,
on an as-converted to Common Stock basis (at the conversion rate existing on the
original date of issuance of such Other Securities), is equal to the total
number of shares of Issuable Common Stock issuable upon conversion of this
Warrant, at the most favorable price and favorable terms as such Other
Securities issued to the Persons investing in the Capital Funding, unless a
majority of the holders of these Warrants waive their rights under this Section
1.6, which shall be effective to all holders of these Warrants.
In the event this Warrant becomes exercisable for Other Securities, then
any references herein to Issuable Common Stock shall refer to the Other
Securities.
Section 1.7 Cashless Exercise. The holder of this Warrant shall have the
-----------------
right upon the exercise of this warrant to surrender for cancellation a portion
of this Warrant to the Company for the number of shares (the "Surrendered
Shares") specified in the holder's subscription delivered to the Company
pursuant to Section 1.1, by delivery to the Company with such subscription
written instructions from such holder to apply the "Appreciated Value" (as
defined below) of the Surrendered Shares to payment of the Warrant Price for
shares subject to this Warrant that were not surrendered for cancellation. The
term "Appreciated Value" shall mean the excess of (a) the fair market value; of
one share of Issuable Common Stock, as determined in good faith by the Board of
Directors of the Company, or the closing price of the Common Stock if publicly
traded, at the time of exercise under this Section 1.7, over (b) the Purchase
Price Per Share. Upon any exercise pursuant to this Section 1.7, the Company
shall deliver stock certificates as provided in Section 1.3 within ten Business
Days after determination of the Appreciated Value.
Section 1.8 Automatic Exercise. If this Warrant shall not have been
------------------
exercised in full on or before the Expiration Date, then this Warrant shall be
automatically exercised, without further action on the part of the holder
hereof, in full (and the holder hereof shall be deemed to be a holder of the
Issuable Common Stock issued upon such automatic exercise) on and as of the day
of the Expiration Date, unless at any time on or before such Expiration Date,
the holder hereof shall notify the Company in writing that no such automatic
exercise is to occur. Payment
-3-
<PAGE>
of the exercise price due in connection with any such automatic exercise
pursuant to this Section 1.8 shall be made by application of the cashless
exercise feature set forth in Section 1.7. As promptly as practicable following
such automatic exercise, and in any event within the time period provided for in
Section 1.7, the Company shall cause to be issued and delivered to the holder
hereof a certificate registered in the name of such holder representing the
shares of Issuable Common Stock available for issuance in connection with such
automatic exercise of this Warrant minus the number of shares of Issuable Common
Stock applied in payment of the exercise price in accordance with Section 1.7.
SECTION 2 ADJUSTMENT, DILUTION OR IMPAIRMENT.
----------------------------------
Section 2.1 Reclassification; Merger. In the event, while this Warrant
------------------------
shall remain outstanding, there shall be any consolidation or merger of the
Company with another corporation (other than a merger with another corporation
in which the Company is a continuing corporation and which does not result in
any reclassification or change of outstanding securities issuable upon exercise
of this Warrant), or a sale to another corporation of all or substantially all
of the property of the Company (otherwise than for a consideration which, apart
from the assumption of liabilities, consists entirely of cash), or any
transaction in which in excess of 50% of the Company's voting power is
transferred pursuant to a bona fide sale, or a reclassification of the Common
Stock of the Company into securities including other than Common Stock, the
holder of this Warrant shall thereafter have the right to convert this Warrant
into the kind and amount of shares of stock and other securities and property
receivable upon such consolidation, sale, merger or reclassification by a holder
of the number of shares of Common Stock into which this Warrant could have been
converted immediately prior to such consolidation, merger or reclassification.
The instruments effecting such consolidation, sale, merger or reclassification,
and, where appropriate, the certificate of incorporation of the surviving or
resulting or purchasing corporation shall provide for such conversion rights and
for adjustments which shall be as nearly as equivalent as practical to the
adjustments provided for in this Section 2, and the provisions of this paragraph
2.1 shall similarly apply to successive consolidations, mergers, sales or
reclassifications. In case securities or property other than Common Stock shall
be issuable or deliverable upon conversion as aforesaid, then all references to
Common Stock in this Section 2.1 shall be deemed to apply, so far as appropriate
and as nearly as may be, to such other securities or property.
Section 2.2 Subdivision or Combination of Issuable Common Stock. If the
---------------------------------------------------
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Common Stock, the Purchase Price Per Share shall be
adjusted (to the nearest $.01) and proportionately increased in the case of a
subdivision or decreased in the case of a combination from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Purchase Price Per Share in effect
immediately prior to such date of determination by a fraction (i) the numerator
of which shall be the total number of shares of stock outstanding immediately
prior to such dividend or distribution, and (ii) the denominator of which shall
be the total number of shares of stock outstanding immediately after such
dividend or distribution.
-4-
<PAGE>
Section 2.3 Stock Dividends. If the Company at any time while this
---------------
Warrant is outstanding and unexpired shall pay a dividend with respect to stock
payable in, or make any other distribution with respect to Common Stock (except
any distribution specifically provided for in the foregoing Section 2.1 and 2.2
or in accordance with an Exercise Event) of, Common Stock, then the Purchase
Price Per Share shall be adjusted (to the nearest $.01), from and after the date
of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Purchase Price Per
Share in effect immediately prior to such date of determination by a fraction
(i) the numerator of which shall be the total number of shares of stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of stock outstanding
immediately after such dividend or distribution.
Section 2.4 Adjustment of Number of Shares of Issuable Common Stock. Upon
-------------------------------------------------------
each adjustment in either Section 2.2 or 2.3, the number of shares of stock
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of shares of Issuable Common Stock
purchasable hereunder immediately prior to such adjustment by a fraction (i) the
numerator of which shall be the Purchase Price Per Share immediately prior to
such adjustment, and (ii) the denominator of which shall be the Purchase Price
Per Share immediately after the adjustment pursuant to Section 2.2 or 2.3.
Section 2.5 Fractional Shares. No fractional shares of Issuable Common
-----------------
Stock will be issued in connection with any exercise hereunder, and all
fractional shares shall be rounded up to the nearest whole share.
SECTION 3 RESTRICTIVE LEGENDS; RESTRICTIONS ON TRANSFER; STOCKHOLDERS' AGREEMENT
----------------------------------------------------------------------
Section 3.1 Restrictive Legends. Each Warrant originally issued pursuant
-------------------
to the Agreement and each Warrant issued upon direct or indirect transfer or in
substitution for any Warrant pursuant to Section 4 shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE, AND THE UNDERLYING SHARES ARE SUBJECT TO A
SHAREHOLDER AGREEMENT DATED JULY 2,1999, AS AMENDED, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
REGISTRATION OR DELIVERY OF AN OPINION OF COUNSEL OR OTHER
EVIDENCE SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM
REGISTRATION UNDER ALL APPLICABLE SECURITIES LAWS IS
AVAILABLE."
Unless at any time shares of Common Stock to be represented by certificates
issued hereunder are registered under the Securities Act, each certificate for
Common Stock issued upon the exercise of any Warrant, and each certificate
issued upon the direct or indirect transfer of any
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<PAGE>
such Common Stock, shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF REGISTRATION OR DELIVERY OF AN OPINION OF COUNSEL OR
OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM
REGISTRATION UNDER ALL APPLICABLE SECURITIES LAWS IS AVAILABLE."
Section 3.3 Restrictions on Transfer. A holder of a Warrant may not
------------------------
transfer a Warrant unless the transfer is exempt from the registration
requirements of the Securities Act and all applicable state securities laws and
the transfer would not adversely affect the exemption from any such registration
requirements relied upon by the Company in the original issuance of the
Warrants. A holder of a Warrant agrees, prior to any transfer or attempted
transfer of such Warrant, to give written notice to the Company of such holder's
intention to effect such transfer not less than 10 Business Days prior to the
date of such transfer. Each such notice shall describe the manner and
circumstances of the proposed transfer in sufficient detail and shall contain an
undertaking by the person giving such notice to furnish such other information
as may be reasonably required to enable counsel to the Company to determine
whether an opinion of counsel with regard to the availability of an exemption
from such registration will be required to be provided with regard to such
proposed transfer. If an opinion of counsel or other evidence to the effect
that the proposed transfer of such Warrant may be effected without registration
under the Securities Act or any state securities laws is determined to be
required, the Company will, as promptly as practicable, so inform the proposed
transferor. If, upon provision of such opinion or other evidence, such opinion
of counsel or other evidence is acceptable to counsel for the Company in its
reasonable discretion, the Company shall, as promptly as practicable, so notify
the holder of such Warrant or in writing and such holder shall thereupon be
entitled to transfer such Warrant in accordance with the terms of the notice
delivered by such holder to the Company. Provided, however, that no opinion of
counsel shall be necessary with respect to transfers made to existing
shareholders of the Company and notice thereof shall be provided to the Company
as soon as reasonably practicable.
If such opinion of counsel or other evidence is not acceptable to counsel
for the Company in its reasonable discretion, the Company shall, as promptly as
practicable, so notify the holder of such Wan-ant (such notice to include the
reasons for the Company's determination that such opinion is not acceptable),
and the Company shall not be obligated to effect such transfer of the Warrants
except pursuant to an offering registered under the Securities Act and any
applicable state securities laws.
SECTION 4 OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS.
------------------------------------------------
Section 4.1 Ownership of Warrants. The Company may treat the person in
---------------------
whose name any Warrant is registered on the register kept at the principal
office of the Company as the owner and holder thereof for all purposes,
notwithstanding any notice to the contrary, except that,
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<PAGE>
if and when any Warrant is properly assigned in blank, the Company may (but
shall not be obligated to) treat the bearer thereof as the owner of such Warrant
for all purposes, notwithstanding any notice to the contrary. Subject to Section
3, a Warrant, if properly assigned, may be exercised by a new holder without
first having a new Warrant issued.
Section 4.2 Office; Transfer and Exchange of Warrants. The Company will
-----------------------------------------
maintain an office where notices, presentations and demands in respect of this
Warrant may be made upon it. Such office shall be maintained at the principal
office of the Company in New York, New York, as set forth in Section 9 hereof
until such time as the Company shall give the holders of the Warrants at least
ten Business Days prior written notice if it shall determine to change the
location of the office designated pursuant to this Section.
Upon the surrender of any Warrant, properly endorsed, for registration
of transfer or for exchange at the office or agency of the Company maintained
pursuant to Section 4.2, the Company at its expense will (subject to compliance
with Section 3, if applicable) execute and deliver to or upon the order of the
holder thereof a new Warrant or Warrants of like tenor, in the name of such
holder or as such holder (upon payment by such holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
or Warrants so surrendered.
Section 4.3 Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and upon delivery of indemnity reasonably satisfactory to the Company in
form and amount or, in the case of any such mutilation, upon surrender of such
Warrant for cancellation at the office or agency of the Company maintained
pursuant to Section 4.2, the Company at its expense will execute and deliver, in
lieu thereof, a new Warrant of like tenor.
SECTION 5 TERMINATION
-----------
At 5:00 p.m., New York, New York time on October 29, 2004, this Warrant
shall terminate and expire and no longer be exercisable.
SECTION 6 DEFINITIONS
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or any other day on
------------
which commercial banks are authorized by law to be closed in New York, New York.
Common Stock: the meaning specified in the opening paragraphs of this
------------
Warrant, such term to include any stock into which such Common Stock shall have
been changed or any stock resulting from any reclassification of such Common
Stock.
Company: the meaning specified in the opening paragraph of this Warrant,
-------
including any corporation that shall succeed to or assume the obligations of the
Company hereunder.
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<PAGE>
Person: a corporation, association, partnership, organization, business,
------
individual, government or political subdivision thereof or a governmental
agency.
Securities Act: the Securities Act of 1933, as amended, or any similar
--------------
Federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Transfer: any sale, assignment, pledge or other disposition of any
--------
security, or of any interest therein, that could constitute a "sale" as that
term is defined in Section 2(3) of the Securities Act.
Warrants: the meaning specified in the opening paragraphs of this Warrant.
--------
SECTION 7 REMEDIES.
--------
The Company stipulates that the remedies at law of the holder of this
Warrant in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that, to the extent permitted by applicable law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
SECTION 8 NO RIGHTS OR LIABILITIES AS STOCKHOLDER
---------------------------------------
Nothing contained in this Warrant shall be construed as conferring upon the
holder hereof any rights as a stockholder of the Company or as imposing any
obligation on such holder to purchase any securities or as imposing any
liabilities on such holder as a stockholder of the Company, whether such
obligation or liabilities are asserted by the Company or by creditors of the
Company.
SECTION 9 NOTICES
-------
All notices and other communications provided for herein shall be delivered
by first class mail or overnight delivery, postage prepaid, addressed or by
telegraph or telecopy with receipt confirmed (a) if to any holder of any
Warrant, at the registered address of such holder as set forth in the register
kept at the principal office of the Company or at such other address as any
holder may notify the Company in writing, or (b) if to the Company, at its
principal office, 151 W. 25th Street, New York, NY 10001, telecopy at 212-242-
2816 or at the address of such other principal office of the Company as the
Company shall have furnished to each holder of any Warrants in writing with ten
(10) Business Days prior notice; provided, however, that the exercise of any
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Warrant shall be effective in the manner provided in Section 1.
SECTION 10 MISCELLANEOUS
-------------
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. Any
provision of this Warrant prohibited or unenforceable in
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<PAGE>
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the Company
waives any provision of law which shall render any provision hereof prohibited
or unenforceable in any respect. This Warrant shall be governed by the laws of
the State of Delaware. The headings of this Warrant are inserted for convenience
only and shall not be deemed to constitute a part hereof.
-9-
<PAGE>
C/R CATALOG CORP.
By:
-------------------------------
Scott Vertrees, President
Certain shares of Series E Preferred Stock, par value $0.0001 per share, of
Petopia.com, Inc. (''Petopia'') to be issued upon exercise of this Common
Stock Purchase Warrant may be subject to the terms and conditions of a
certain Escrow and Indemnity Agreement by and among Petopia and the
stockholders and warrant holders listed therein. Copies of such Agreement
may be obtained upon written request to the Secretary of Petopia at 1200
Folsom Street, San Francisco, CA 94103.
-10-
<PAGE>
EXHIBIT 10.24
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
____________________________________
WARRANT TO PURCHASE STOCK
Warrant to Purchase 180,000 Issue Date: January 31, 2000
Shares of the Series E Preferred Expiration Date: January 31, 2005
Stock of PETOPIA.COM, INC. Initial Exercise Price: $5.6061 per share
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, GREYROCK CAPITAL, A DIVISION OF BANC OF AMERICA
COMMERCIAL FINANCE CORPORATION ("Holder") is entitled to purchase the number of
fully paid and non-assessable shares of the class of securities (the "Shares")
of the corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of
this Warrant, subject to the provisions and upon the terms and conditions set
forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly
executed Notice of Exercise in substantially the form attached as Appendix 1 to
the principal office of the Company at any time prior to the earlier of (i)
January 31, 2005, or (ii) the date that is three (3) years after the closing of
the Company's initial public offering of common stock pursuant to a registration
statement on Form S-1 (or successor form). Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate Fair
Market Value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the Fair
Market Value of one Share. The Fair Market Value of the Shares shall be
determined pursuant Section 1.4.
1.3 [Intentionally Deleted]
1.4 Fair Market Value. The current "Fair Market Value" of the Shares or other
securities otherwise issuable upon exercise of this Warrant (collectively for
the purposes of this Section 1.4, the "Securities") on any date shall be:
(a) If the securities are not registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Fair Market Value of the Securities
shall be determined by the Board of Directors of the Company in its reasonable
good faith judgment. The foregoing notwithstanding, if Holder advises the Board
of Directors in writing that Holder disagrees with such determination, then the
Company and Holder shall promptly agree upon a reputable independent appraiser
experienced in valuing securities. In the event that the Company and the Holder
are unable to agree upon an independent appraiser within ten (10) business days
of the date on which a proposed candidate for independent appraiser is first
submitted by the Company or the Holder, then at the written request of either
the Company or the Holder, the President of the American Arbitration Association
shall designate the independent appraiser. The determination of such appraiser
shall be final and binding upon the parties, and the Company and the Holder
shall share equally the fees and expenses of such appraiser;
<PAGE>
Greyrock Capital Warrant to Purchase Stock
- --------------------------------------------------------------------------------
(b) if the Securities are registered under the Exchange Act (i) if
such Securities are listed or admitted to trading on any securities exchange,
the closing price, regular way, on such day on the principal exchange on which
such Securities are traded, (ii) if such Securities are not then listed or
admitted to trading on any securities exchange, the last reported sale price on
such day, or (iii) if neither clause (i) or (ii) is applicable, the average of
the reported high bid and low asked prices on such day, as reported by a
reputable quotation service designated by the Company.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder exercises
or converts this Warrant, the Company shall deliver to Holder certificates for
the Shares acquired and, if this Warrant has not been fully exercised or
converted and has not expired, a new Warrant representing the Shares not so
acquired.
1.6 Replacement of Warrants. 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 an indemnity agreement
reasonably satisfactory in form and amount 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.
1.7 Repurchase on Sale, Merger or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant, "Acquisition" means any
sale, license, or other disposition of all or substantially all of the assets of
the Company, or any reorganization, consolidation, or merger of the Company
where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2. Assumption of Warrant. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3. Nonassumption. If upon the closing of any Acquisition the successor
entity does not assume the obligations of this Warrant and Holder has not
otherwise exercised this Warrant in full, then the unexercised portion of this
Warrant shall be deemed to have been automatically converted pursuant to Section
1.2 and thereafter Holder shall participate in the acquisition on the same terms
as other holders of the same class of securities of the Company.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend
on its common stock (or the Shares if the Shares are securities other than
common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to
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<PAGE>
Greyrock Capital Warrant to Purchase Stock
- --------------------------------------------------------------------------------
Holder a new Warrant for such new securities or other property. The new Warrant
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 Adjustments For Combinations, Etc. If the outstanding Shares are combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares, the Warrant Price shall be proportionately increased.
2.4 Adjustments for Diluting Issuances. The number of shares of common stock
issuable upon conversion of the Shares, shall be subject to adjustment, from
time to time in the manner set forth in the Company's Certificate of
Incorporation, as amended and restated.
2.5 No Impairment. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon exercise or
conversion of the Warrant and the number of Shares to be issued shall be rounded
down to the nearest whole Share. If a fractional share interest arises upon any
exercise or conversion of the Warrant, the Company shall eliminate such
fractional share interest by paying Holder amount computed by multiplying the
fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the Warrant Price,
the Company at its expense shall promptly compute such adjustment, and furnish
Holder with a certificate of its Chief Financial Officer setting forth such
adjustment and the facts upon which such adjustment is based. The Company shall,
upon written request, furnish Holder a certificate setting forth the Warrant
Price in effect upon the date thereof and the series of adjustments leading to
such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations, Warranties and Covenants. The Company hereby represents,
warrants and covenants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant is
not greater than (i) the price per share at which the Shares were last issued in
an arms length transaction in which at least $500,000 of the Shares were sold
and (ii) the fair market value of the Shares as of the date of this Warrant.
(b) The Company will reserve from its authorized and unissued Series E
Preferred Stock a sufficient number of shares to provide for the issuance of
Series E Preferred Stock upon the exercise of this Warrant (and shares of its
common stock for issuance on conversion of such Series E Preferred Stock) and,
from time to time, will take all steps necessary to amend its Certificate of
Incorporation to provide sufficient reserves of shares of Series E Preferred
Stock issuable upon exercise of this Warrant (and shares of its common stock for
issuance on conversion of such Series E Preferred Stock). All Shares which may
be issued upon the exercise of the purchase right represented by this Warrant,
and all securities, if any, issuable upon conversion of the Shares, shall, upon
issuance, be duly authorized, validly issued, fully paid and non-assessable, and
free of any liens and encumbrances except for restrictions on transfer provided
for herein or under applicable federal and state securities laws.
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Greyrock Capital Warrant to Purchase Stock
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(c) The capitalization of the Company at January 31, 2000, is as follows:
(i) Common Stock. 71,180,000 shares of Common Stock (the "Common Stock"),
-------------
9,873,718 of which are issued and outstanding, 585,000 of which have been
reserved for issuance upon the exercise of warrants to purchase Common Stock
issued or issuable to the founders of Loveland Pet Products, Inc. (the "Loveland
Warrants") and 917,749 of which have been reserved for issuance upon the
exercise of warrants to purchase Common Stock issued to National Broadcasting
Company, Inc. (the "NBC Warrants"). The Company has reserved (A) 11,555,000
shares of Common Stock for issuance upon conversion of the Series A Preferred
Stock; (B) 8,000,000 shares of Common Stock for issuance upon conversion of the
Series B Preferred Stock; (C) 12,940,620 shares of Common Stock for issuance
upon conversion of the Series C Preferred Stock; (D) 14,000,000 shares of Common
Stock for issuance upon conversion of the Series D Preferred Stock; and (E)
2,330,000 shares of Common Stock for issuance upon conversion of the Series E
Preferred Stock.
(ii) Preferred Stock. 49,180,000 shares of Preferred Stock (the "Preferred
----------------
Stock"): (A) 11,555,000 of which have been designated Series A Preferred Stock,
9,755,000 of which are issued and outstanding and 1,800,000 of which have been
reserved for issuance upon exercise of warrants to purchase Series A Preferred
Stock (the "Series A Warrants"); (B) 8,000,000 of which have been designated
Series B Preferred Stock, 7,736,345 of which are issued and outstanding; (C)
12,940,620 of which have been designated Series C Preferred Stock, 3,017,175 of
which are issued and outstanding, 4,803,458 of which have been reserved for
issuance to PETCO Animal Supplies, Inc. ("PETCO") upon the achievement of
certain milestones (the "PETCO Shares") and 5,119,987 of which have been
reserved for issuance upon exercise of warrants to purchase shares of Series C
Preferred Stock (the "Series C Warrants"); (D) 14,000,000 shares of which have
been designated Series D Preferred Stock, 9,837,804 of which are issued and
outstanding and 918,948 of which have been reserved for issuance upon exercise
of warrants to purchase shares of Series D Preferred Stock (the "Series D
Warrants"); and (E) 2,330,000 shares of which have been designated Series E
Preferred Stock, 2,007,637 of which are issued and outstanding, 76,617 of which
have been reserved for issuance upon exercise of warrants to purchase shares of
Series E Preferred Stock (the "ICOD Warrants") and 180,000 of which have been
reserved for issuance upon exercise of this Warrant (together with the ICOD
Warrants, the "Series E Warrants").
(iii) 1999 Stock Plan. The Company has reserved 7,500,000 shares of Common
----------------
Stock for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Stock Plan duly adopted by the Board of Directors
and approved by the Company's stockholders (the "Stock Plan"), of which options
to purchase 5,016,769 shares of Common Stock are currently outstanding,
2,024,157 shares of Common Stock are issued and outstanding and 459,074 shares
are available for future issuance under the Stock Plan.
3.2 Notice Of Certain Events. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of Series E Preferred
Stock any additional shares of stock of any class or series or other rights; (c)
to effect any reclassification or recapitalization of common stock; or (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up then, in connection with each such event, the Company shall
give Holder (1) at least 15 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; and (2) in the case of the matters referred to
in (c) and (d) above at least 15 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event).
3.4 Registration Under Securities Act of 1933, As Amended. The Company agrees
that the Shares shall be included within the definition of "Registrable
Securities" under the Company's Fourth Amended and Restated Investors' Rights
Agreement attached hereto as Exhibit A.
ARTICLE 4. MISCELLANEOUS.
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<PAGE>
Greyrock Capital Warrant to Purchase Stock
- --------------------------------------------------------------------------------
4.1 Term. This Warrant is exercisable, in whole or in part, at any time and
from time to time on or before the earlier of (i) January 31, 2005, or (ii) the
date that is three (3) years after the closing of the Company's initial public
offering of common stock pursuant to a registration statement on Form S-1 (or
successor form).
4.2 Legends. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares
issuable upon exercise of this Warrant (and the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if reasonably requested by the Company).
4.4 Transfer Procedure. Subject to the provisions of Section 4.2 and 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
The Company shall have the right to refuse to transfer any portion of this
Warrant and the Shares issuable upon exercise of this Warrant (including
securities issuable, directly or indirectly, upon conversion of the Shares) to
any person who directly competes with the Company provided, however, that
-------- -------
nothing in the foregoing sentence shall prevent Holder from transferring shares
of the Company's securities after the Company's initial public offering.
4.5 Notices. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties concerning
the terms and provisions of this Warrant, the party prevailing in such dispute
shall be entitled to collect from the other party all costs incurred in such
dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
PETOPIA.COM, INC.
By /s/
--------------------------------------------------
Chairman of the Board, President or Vice President
By
__________________________________________________
Secretary or Ass't Secretary
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<PAGE>
EXHIBIT 10.29
PETOPIA.COM, INC.
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
January 18, 2000
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1. Registration Rights......................................................................... 2
1.1 Definitions........................................................................ 2
1.2 Request for Registration........................................................... 4
1.3 Company Registration............................................................... 5
1.4 Form S-3 Registration.............................................................. 5
1.5 Obligations of the Company......................................................... 6
1.6 Furnish Information................................................................ 8
1.7 Expenses of Registration........................................................... 8
1.8 Underwriting Requirements.......................................................... 9
1.9 Delay of Registration.............................................................. 9
1.10 Indemnification.................................................................... 9
1.11 Reports Under Securities Exchange Act of 1934...................................... 12
1.12 Assignment of Registration Rights.................................................. 12
1.13 Limitations on Subsequent Registration Rights...................................... 13
1.14 "Market Stand-Off" Agreement 13
1.15 Termination of Registration Rights................................................. 13
2. Covenants of the Company.................................................................... 14
2.1 Delivery of Year-End Financial Statements.......................................... 14
2.2 Delivery of Additional Financial Information....................................... 14
2.3 Inspection......................................................................... 14
2.4 Right of First Offer............................................................... 14
2.5 Board Observer Rights.............................................................. 16
2.6 IPO Participation Rights........................................................... 16
2.7 Termination of Covenants........................................................... 17
3. Miscellaneous............................................................................... 18
3.1 Successors and Assigns............................................................. 18
3.2 Amendments and Waivers............................................................. 18
3.3 Notices............................................................................ 19
3.4 Severability....................................................................... 19
3.5 Governing Law...................................................................... 19
3.6 Counterparts....................................................................... 19
3.7 Titles and Subtitles............................................................... 19
3.8 Aggregation of Stock............................................................... 19
3.9 Entire Agreement: Amendments and Waivers........................................... 19
</TABLE>
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<PAGE>
PETOPIA.COM, INC.
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-------------------------------------------------------
This Fourth Amended and Restated Investors' Rights Agreement (the
"Agreement") is made and entered into as of January 18, 2000, by and among
---------
Petopia.com, Inc., a Delaware corporation (the "Company"), the undersigned
-------
holders of the capital stock of the Company, and those other persons and
entities who have or shall have executed this Agreement and whose names appear
on the Schedule of Investors' Rights Holders attached hereto as Exhibit A
---------
(collectively, the "Investors"), as such Schedule may be amended from time to
---------
time pursuant to Section 1.13 hereof.
RECITALS
--------
A. The Company has issued and sold shares of its Series A, Series B,
Series C and Series D Preferred Stock to certain persons and entities whose
names appear on the Schedule of Investors' Rights Holders attached hereto as
Exhibit A, and in consideration thereof, has granted to such Investors and
- ---------
certain other stockholders certain rights pursuant to a Third Amended and
Restated Investors' Rights Agreement dated as of November 29, 1999 (the
"November 1999 Agreement").
-----------------------
B. In connection with that certain Amendment to Series D Stock Purchase
Agreement dated as of January 21, 2000, the Company will sell shares of Series D
Preferred Stock to additional investors (the "Additional Investors"). In
--------------------
connection with that certain Agreement and Plan of Merger, dated as of December
29, 1999, by and among the Company, ICOD Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of the Company ("Petopia Sub"), and C/R
-----------
Catalog Corp., a Delaware corporation ("ICOD"), pursuant to which ICOD will be
----
merged with and into Petopia Sub (the "Merger"), the Company will issue shares
------
of the Company's Series E Preferred Stock to the stockholders of ICOD (the
"Series E Investors"). A condition to the consummation of the Merger is that
------------------
the Company, the Founders and the Investors enter into this Agreement in order
to provide the Series E Investors with, among other things, rights comparable to
those granted to the Investors in the November 1999 Agreement. Accordingly, the
Company, the Founders, and the Investors desire to amend and restate the
November 1999 Agreement, and add the Additional Investors and the Series E
Investors as parties to this Agreement. For purposes of this Agreement, the term
"Investors" shall include the Additional Investors and the Series E Investors.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties hereto agree to amend and
restate the November 1999 Agreement as follows:
<PAGE>
AGREEMENT
---------
1. Registration Rights. The Company, the Founders and the Investors
-------------------
covenant and agree as follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The terms "register," "registered," and "registration" refer
-------- ---------- ------------
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration or ordering of effectiveness of such
--------------
registration statement or document;
(b) The term "Registrable Securities" means (i) the shares of
----------------------
Common Stock issuable or issued upon conversion of the Series A Preferred Stock,
the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, and the Series E Preferred Stock (including the shares of
Series A Preferred Stock issuable or issued upon the exercise of warrants to
purchase shares of Series A Preferred Stock, the shares of Series C Preferred
Stock issuable or issued upon the exercise of warrants to purchase shares of
Series C Preferred Stock, the shares of Series D Preferred Stock issuable or
issued upon the exercise of warrants to purchase shares of Series D Preferred
Stock and the shares of Series E Preferred Stock issuable or issued upon the
exercise of warrants to purchase shares of Series E Preferred Stock issuable or
issued to Greyrock Capital, a division of Banc of America Commercial Finance
Corporation) (collectively, the "Preferred Stock"), (ii) the shares of Common
---------------
Stock issuable or issued upon the exercise of warrants to purchase shares of
Common Stock issuable or issued to National Broadcasting Company, Inc., (iii)
the shares of Common Stock issued to the Founders (the "Founders' Stock"),
---------------
provided, however, that for the purposes of Section 1.2, 1.4 or 1.13 the
- -------- -------
Founders' Stock shall not be deemed Registrable Securities and the Founders
shall not be deemed Holders, (iv) the shares of Common Stock issuable or issued
to Roger Johannigman and Robert Johannigman (each, a "Loveland Affiliate" and
------------------
together, the "Loveland Affiliates"), provided, however, that for the purposes
------------------- -------- -------
of Section 1.2, 1.4 or 1.13, shares of Common Stock held by the Loveland
Affiliates shall not be deemed Registrable Securities and the Loveland
Affiliates shall not be deemed Holders, and (v) any other shares of Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, the
shares listed in (i), (ii) and (iii); provided, however, that the foregoing
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definition shall exclude in all cases any Registrable Securities sold by a
person in a transaction in which his or her rights under this Agreement are not
assigned. Notwithstanding the foregoing, Common Stock or other securities shall
only be treated as Registrable Securities if and so long as they have not been
(A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions, and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale;
(c) The number of shares of "Registrable Securities then
---------------------------
outstanding" shall be determined by the number of shares of Common Stock
- -----------
outstanding which are, and the
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<PAGE>
number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are, Registrable Securities;
(d) The term "Holder" means any person owning or having the
------
right to acquire Registrable Securities or any transferee or assignee thereof in
accordance with Section 1.12 of this Agreement;
(e) The term "Form S-3" means such form under the Securities Act
--------
as in effect on the date hereof or any successor form under the Securities Act;
(f) The term "SEC" means the Securities and Exchange Commission;
---
and
(g) The term "Qualified IPO" means a firm commitment
-------------
underwritten public offering of the Company's Common Stock pursuant to an
effective registration statement under the Securities Act, at an offering price
of not less than $8.40915 per share (as adjusted for stock splits, stock
dividends, recapitalization and the like) with aggregate gross proceeds to the
Company of not less than $20,000,000 (net of underwriting discounts and
commissions).
(h) The term "Founders" means the individuals and entities
--------
listed under the caption "Founders" on Exhibit A hereto.
---------
(i) The term "Affiliated Entity" means an entity that is a
-----------------
partner or retired partner of any Holder that is a partnership; a member of any
Holder that is a limited liability company; a stockholder of any Holder that is
a corporation; an entity that controls, is controlled by or is under common
control (including related funds under common investment management) with any
Holder; a spouse, ancestor, lineal descendant or sibling of any Holder that is a
natural person; or a trust established for the benefit of any Holder that is a
natural person, or for the benefit of a spouse, ancestor, lineal descendant or
sibling of any such Holder.
1.2 Request for Registration.
------------------------
(a) If at any time after six (6) months following the closing of
a firm commitment underwritten public offering of the Company's Common Stock
pursuant to an effective registration statement under the Securities Act (an
"IPO"), the Company shall receive a written request from the Holders of at least
---
a majority of the Registrable Securities then outstanding that the Company file
a registration statement under the Securities Act covering the registration of
at least 30% of the Registrable Securities then outstanding, the anticipated
aggregate offering price, net of underwriting discounts and commissions, of
which would equal or exceed $5,000,000, then the Company shall, within ten (10)
days of the receipt thereof, give written notice of such request to all Holders
and shall use commercially reasonable efforts to effect as soon as practicable,
and in any event within sixty (60) days of the receipt of such request, the
registration under the Securities Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 3.3.
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<PAGE>
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
------------------
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.5(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company then owned by each Holder; provided,
--------
however, that the number of shares of Registrable Securities to be included in
- -------
such underwriting shall not be reduced unless all other securities are first
entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than one hundred twenty (120) days after receipt of the
request of the Initiating Holders; provided, however, that the Company may not
-------- -------
utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective; provided however, that if after eighteen (18) months
-------- -------
following the closing of the Company's IPO, Form S-3 is not available for
offerings by the Holders pursuant to a request made pursuant to Section 1.4
below, the Company shall be obligated to effect no more than three (3)
registrations pursuant to this Section 1.2;
(ii) During the period starting with the date thirty (30)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date ninety (90) days after the effective date of any registration
pertaining to securities of the Company,
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<PAGE>
subject to Section 1.3 hereof; provided that the Company is actively employing
in good faith all reasonable efforts to cause such registration statement to
become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.4 below.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock under the Securities Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan or a transaction
covered by Rule 145 under the Securities Act, a registration in which the only
stock being registered is Common Stock issuable upon conversion of debt
securities which are also being registered, or any registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 3.3, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders of a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
- -------- -------
registration, qualification or compliance, pursuant to this Section 1.4: (i) if
Form S-3 is not available for such offering by the Holders; (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (iii) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty
-5-
<PAGE>
(60) days after receipt of the request of the Holder or Holders under this
Section 1.4; provided, however, that the Company shall not utilize this right
-------- -------
more than once in any twelve (12) month period; (iv) if the Company has, within
the twelve (12) month period preceding the date of such request, already
effected two (2) registrations on Form S-3 for the Holders pursuant to this
Section 1.4; (v) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance; or (vi)
during the period ending six (6) months after the effective date of a
registration statement subject to Section 1.3.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 1.2 or 1.3, respectively.
1.5 Obligations of the Company. Whenever required under this Section
--------------------------
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best 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 until the distribution described in the
registration statement has been completed. The Company shall not be required to
file, cause to become effective or maintain the effectiveness of any
registration statement that contemplates a distribution of securities on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act.
(b) Prepare and file with the SEC 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 to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
- --------
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the
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<PAGE>
managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.
(f) 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.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) 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.
(i) Use its best efforts to furnish, at the request of any
Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) 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, and to the Holders requesting registration of Registrable Securities and
(ii) 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 to the Holders
requesting registration of Registrable Securities.
1.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities. The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement
if, as a result of the application of the preceding sentence, the number of
shares or the anticipated aggregate offering price of the Registrable Securities
to be included in the registration does not equal or exceed the number of shares
or the anticipated aggregate offering price required to originally trigger the
Company's obligation to initiate such registration as specified in subsection
1.2(a) or subsection 1.4(b)(ii), whichever is applicable.
1.7 Expenses of Registration.
------------------------
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<PAGE>
(a) Demand Registration. All expenses other than underwriting
-------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders (not to exceed $20,000)
selected by them with the approval of the Company, which approval shall not be
unreasonably withheld, shall be borne by the Company; provided, however, that
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the Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2; provided, however, that if at the time of such withdrawal, the
-------- -------
Holders have learned of a material adverse change in the condition, business or
prospects of the Company from that known to the Holders at the time of their
request and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2.
(b) Company Registration. All expenses other than underwriting
--------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications of Registrable Securities pursuant to Section 1.3 for each Holder
(which right may be assigned as provided in Section 1.12), including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders (not to exceed $20,000) selected by them with the approval of the
Company, which approval shall not be unreasonably withheld, shall be borne by
the Company.
(c) Registration on Form S-3. All expenses incurred in
------------------------
connection with a registration requested pursuant to Section 1.4, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees and the reasonable fees and disbursements of one counsel for
the selling Holder or Holders (not to exceed $20,000) selected by them with the
approval of the Company, which approval shall not be unreasonably withheld, and
counsel for the Company, and any underwriters' discounts or commissions
associated with Registrable Securities, shall be borne by the Company.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters
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<PAGE>
determine in their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to be
included therein owned by each selling shareholder or in such other proportions
as shall mutually be agreed to by such selling shareholders) but in no event
shall (i) the amount of securities of the selling Holders included in the
offering be reduced below thirty percent (30%) of the total amount of securities
included in such offering, unless such offering is the IPO, in which case the
selling shareholders may be excluded if the underwriters make the determination
described above or (ii) any securities held by the Founders and by the Loveland
Affiliates be included if any securities held by any selling Holder (other than
the Founders or Loveland Affiliates) are excluded. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder which is a
Holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
-------
shareholder," and any pro-rata reduction with respect to such "selling
- -----------
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against any losses, claims,
------------
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
---------
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) 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, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law; and the Company will pay to
each such Holder, underwriter or controlling person, as incurred, 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 indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be
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<PAGE>
unreasonably withheld), nor shall the Company be liable to any Holder,
underwriter or controlling person for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
-------- -------
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that in no event shall any indemnity under this subsection
--------
1.10(b) exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
-------- -------
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss,
-10-
<PAGE>
liability, claim, damage or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions that resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations; provided, that in no event
--------
shall any contribution by a Holder under this Subsection 1.10(d) exceed the net
proceeds from the offering received by such Holder. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) 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.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public so long as the
Company remains subject to the periodic reporting requirements under Sections 13
or 15(d) of the Exchange Act;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied
-11-
<PAGE>
with the reporting requirements of SEC Rule 144 (at any time after ninety (90)
days after the effective date of the first registration statement filed by the
Company), the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee (i) of not less than 100,000 shares of Registrable Securities (as
adjusted for stock splits, stock dividends, recapitalization and the like), or
(ii) that is an Affiliated Entity of such Holder, provided the Company is,
--------
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
--------
further, that such assignment shall be effective only if (i) the transferee
- -------
agrees to be bound by the terms hereof and (ii) immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act.
1.13 Limitations on Subsequent Registration Rights. The parties
---------------------------------------------
hereto agree that additional holders may be added as parties to this Agreement
with respect to any or all securities of the Company held by them; provided,
--------
however, that from and after the date of this Agreement, the Company shall not
- -------
without the prior written consent of (i) the Holders of a majority of the
Registrable Securities then outstanding, and (ii) the Holders of a majority of
the Registrable Securities issuable or issued upon conversion of the Series D
Preferred Stock, enter into any agreement with any holder or prospective holder
of any securities of the Company providing for the grant to such holder of
registration rights superior to or on a parity with those granted herein. Any
additional parties shall execute a counterpart of this Agreement, and upon
execution by such additional parties and by the Company, shall be considered
Holders for purposes of this Agreement, and shall be added to the Schedule of
Investors' Rights Holders.
1.14 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
---------------------------
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the effective date of
the first registration statement of the Company filed under the Securities Act
to effect an IPO (up to, but not exceeding, one hundred twenty (120) days), 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
Registrable Securities of the Company held by it at any time during such period
except Common Stock included in such registration; provided, however, that (i)
-------- -------
the directors and officers of the Company and holders of at least one percent
(1%) of the Company's securities agree to the Market Stand Off; and (ii) such
Market Stand Off Agreement shall provide that any discretionary waiver or
termination of the restrictions of such agreements by the Company or
representatives of the underwriter shall apply to all persons subject to such
agreements pro-rata based on the number of shares subject to such agreements.
-12-
<PAGE>
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period, and each Holder agrees that, if so requested, such
Holder will execute an agreement in the form provided by the underwriter
containing terms which are essentially consistent with the provisions of this
Section 1.14.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms 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.
1.15 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after the earlier of (i)
five (5) years following the closing of an IPO, or (ii) such time as Rule 144 or
another similar exemption under the Securities Act is available for the sale of
all of such Holder's shares (including any affiliates of such Holder) during a
three (3)-month period without registration.
2. Covenants of the Company.
------------------------
2.1 Delivery of Year-End Financial Statements. The Company shall
-----------------------------------------
deliver to each Holder and Founder as soon as practicable, but in any event
within ninety (90) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the Company and
statement of stockholder's equity as of the end of such year, and a statement of
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP"), and audited and certified by an independent public accounting firm of
----
nationally recognized standing selected by the Company.
2.2 Delivery of Additional Financial Information. The Company shall
--------------------------------------------
deliver to each Holder holding not less than 100,000 shares of Registrable
Securities (as adjusted for stock splits, recapitalizations and the like) (and
to each non-employee Founder and the Loveland Affiliates, the items described in
Sections 2.2(b) and (c) only):
(a) as soon as practicable, but in no event more than fifteen
(15) days after the end of each preceding month, unaudited monthly financial
statements for and as of the end of such month, in reasonable detail;
(b) within forty-five (45) days of the end of each fiscal
quarter, unaudited quarterly financial statements for and as of the end of such
fiscal quarter, in reasonable detail;
(c) within ninety (90) days of the end of each fiscal year,
audited annual financial statements for and as of the end of such fiscal year;
and
-13-
<PAGE>
(d) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, an annual budget and operating plan for
the next fiscal year, prepared on a monthly basis.
2.3 Inspection. The Company shall permit each Holder holding at
----------
least 100,000 shares of Registrable Securities (as adjusted for stock splits,
recapitalizations and the like), at such Holder's expense, to visit and inspect
the Company's properties, to examine its books of account and records and to
discuss the Company's affairs, finances and accounts with its officers, all at
such reasonable times as may be requested by the Holder; provided, however, that
-------- -------
the Company shall not be obligated pursuant to this Section 2.3 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information, unless the Holder requesting such access signs
a confidentiality agreement reasonably acceptable to the Company and the Holder.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this Section 2.4, the Company hereby grants to each Holder holding
at least 100,000 shares of Registrable Securities (as adjusted for stock splits,
recapitalizations and the like) a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). A Holder who
chooses to exercise the right of first offer may designate as purchasers under
such right itself or its Affiliated Entities in such proportions as it deems
appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
------
each Holder in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to each Holder stating (i) its bona fide intention to offer such
------
Shares, (ii) the number of such Shares to be offered, and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) Within fifteen (15) calendar days after delivery of the
Notice, the Holder may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to (i) that portion of such Shares which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Holder bears to the total number of shares of
Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities) (the "Pro-Rata Share") and (ii) any such
--------------
Shares not subscribed for by any other Holder.
(c) The Company may, during the forty-five (45)-day period
following the expiration of the period provided in subsection 2.4(b) hereof,
offer the remaining unsubscribed portion of the Shares to any person or persons
at a price not less than, and upon terms no more favorable to the offeree than
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Shares within such period, or if such agreement is not
consummated within 60 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Holder in accordance herewith.
-14-
<PAGE>
(d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale of Common Stock (or options therefor) to
employees, consultants and directors, pursuant to plans or agreements approved
by the Board of Directors, (ii) to the issuance of securities in connection with
an IPO (except as otherwise provided in Section 2.6 herein), (iii) to the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities, provided that such convertible or exercisable securities
have already been offered to the Holders pursuant to the provisions of this
Section 2.4, if such securities are not exempt pursuant to this Section 2.4(d),
(iv) to the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise, (v) to the issuance of
securities to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings, or similar transactions, provided
that such issuance has been approved by the Board of Directors, (vi) to the
issuance or sale of Registrable Securities pursuant to the Purchase Agreement,
(vii) to the issuance of securities that, with unanimous approval of the Board
of Directors of the Company, are not offered to any existing stockholder of the
Company, or (viii) to the issuance of shares of Series C Preferred Stock to
PETCO Animal Supplies, Inc. and/or its employees pursuant to an Alliance
Agreement with the Company.
2.5 Board Observer Rights. For so long as 500,000 shares of Series D
---------------------
Preferred Stock remain outstanding, the Company shall permit Attractor
Investment Management Inc. ("Attractor") to designate one observer who is an
---------
employee of Attractor (the "Series D Observer"), who initially shall be Harvey
-----------------
Allison, to be present at all meetings of the Company's Board of Directors, or
any committee thereof which represents at least a majority of the members of the
Board of Directors, and to give the Series D Observer notice of such meetings at
the same time notice is provided or delivered to members of the Board of
Directors. Board of Directors' materials that are sent to the directors prior
to a meeting of the Board of Directors shall be sent simultaneously by the
Company to the Series D Observer; provided, however, that the Company may
-------- -------
exclude from the materials sent to the Series D Observer any materials that the
Company believes relate directly and substantially to any matter in which
Attractor has a business or financial interest.
In addition, if the Company receives advice from legal counsel that
discussing a specified matter in the presence of a person who is not a member of
the Board of Directors, or sending specified Board of Directors' materials to
such person, might result in the Company's loss of attorney-client privilege
with respect to a specified matter, the Company may exclude the Series D
Observer from a meeting or exclude such Board of Directors' materials from the
materials sent to the Series D Observer, or both, provided that the Company
shall promptly notify the Series D Observer that any exclusion from a meeting or
materials distributed to directors was effected to preserve its attorney-client
privilege or avoid conflicts of interest. Insofar as any possibility of
conflict of interest may arise with respect to the Series D Observer, all duties
and obligations that a member of the Board of Directors may have by virtue of
the law with respect to such conflict of interest shall apply to the Series D
Observer. Attractor and each of its officers, directors, employees and agents,
including the Series D Observer, agrees to maintain the confidentiality of any
information of the Company obtained by them.
-15-
<PAGE>
2.6 Series D IPO Participation Rights. Subject to this Section 2.6
---------------------------------
and to the extent permissible under the federal securities laws, the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD")
----
and all other applicable laws, rules and regulations, the Company shall use its
best efforts to cause the managing underwriter(s) of an IPO to offer to each
holder of at least 100,000 shares of Series D Preferred Stock or Common Stock
issued on conversion thereof (each a "Qualified Series D Holder") the right to
-------------------------
purchase its Pro-Rata Number of IPO Shares by delivering to each Qualified
Series D Holder a written solicitation of interest (a "Solicitation of
---------------
Interest") promptly after the filing of the registration statement relating to
- --------
the IPO (or if later, an amendment thereto) which Solicitation of Interest shall
contain an estimated price range for the shares to be offered in the IPO. The
Solicitation of Interest shall contain a copy of the registration statement as
filed with the SEC. For the purpose of this Section 2.6, a Qualified Series D
Holder's "Pro-Rata Number" of IPO Shares shall be that number of shares of
---------------
capital stock of the Company determined by multiplying the number of IPO Shares
by a fraction, the numerator of which is the number of shares of Registrable
Securities issuable or issued upon conversion of the Series D Preferred Stock
then held by such Qualified Series D Holder, and the denominator of which is the
number of shares of Registrable Securities issuable or issued upon conversion of
the Series D Preferred Stock then held by all Qualified Series D Holders. If a
Qualified Series D Holder wishes to purchase IPO Shares, it shall promptly
respond to such offer within the time frame reasonably requested by the managing
underwriter(s) but not less than one (1) business day. The term "IPO Shares"
----------
shall mean that number of shares equal to five percent (5%) of the primary
shares to be sold by the Company in the IPO, at the gross price per share
negotiated by the Company with the managing underwriter(s) as reflected on the
final prospectus.
To the extent that one or more of the Qualified Series D Holders does
not offer to purchase its full Pro-Rata Number of IPO Shares, the Company shall
use its best efforts to cause the managing underwriter(s) to offer to each fully
participating Qualified Series D Holder that portion of any remaining IPO Shares
(the "Unsubscribed IPO Shares")determined by multiplying the number of
Unsubscribed IPO Shares by a fraction, the numerator of which is the number of
shares of Registrable Securities issuable or issued upon conversion of the
Series D Preferred Stock then held by such fully participating Qualified Series
D Holder, and the denominator of which is the number of shares of Registrable
Securities issuable or issued upon conversion of the Series D Preferred Stock
then held by all fully participating Qualified Series D Holders. Each Qualified
Series D Holder shall have the right to apportion its participation in the IPO
among any of its Affiliated Entities.
The Company's sale of IPO Shares to any Qualified Series D Holder
shall occur only at such time as the sale is confirmed under applicable
securities laws (the "Sale Date"). Each Qualified Series D Holder shall have
---------
the unconditional right to withdraw its expression of interest in its Pro Rata
Number of IPO Shares on or before the Sale Date.
Notwithstanding any other provision in this Section 2.6 or that
certain Letter Agreement regarding the Right to Participate in Initial Public
Offering by and among the Company and certain holders of the Company's Series A
Preferred Stock dated as of May 3, 1999, (the "Series A Allocation Agreement"),
-----------------------------
if the managing underwriter(s) determines, in its sole discretion, that it is
necessary to the success of the IPO, it shall have the right to reduce the
-16-
<PAGE>
number of shares issued to the participating Qualified Series D Holders and the
parties to the Series A Allocation Agreement (the "Series A Participants");
---------------------
provided, however, that the managing underwriter(s) shall set forth its reasons
- -------- -------
in writing to the participating Qualified Series D Holders and Series A
Participants for so reducing the number of IPO Shares no later than five (5)
business days prior to the effectiveness of the final registration statement
covering the IPO; and provided, further, that the number of shares actually
-------- -------
offered to each participating Qualified Series D Holder and Series A Participant
shall be equal to the number of shares which would otherwise have been offered
to such Qualified Series D Holder or Series A Participant multiplied by a
fraction, the numerator of which shall be the aggregate number of shares
actually offered by the managing underwriter to all Qualified Series D Holders
and Series A Participants, and the denominator of which shall be equal to the
number of IPO Shares plus the number of shares which would otherwise have been
offered to the Series A Participants pursuant to the Series A Allocation
Agreement.
2.7 Termination of Covenants. The covenants set forth in Sections
------------------------
2.1 through 2.4 and 2.6 shall terminate as to each Holder and be of no further
force or effect upon the earliest to occur of (i) immediately prior to the
consummation of a Qualified IPO, (ii) the date on which the Company first
becomes subject to filing reports under Section 13 or 15(d) of the Exchange Act,
(iii) the date on which quotations for the Common Stock of the Company are
reported on the automated quotation system of the National Association of
Securities Dealers, Inc. or on an equivalent quotation system or shares of the
Common Stock of the Company are listed on a national securities exchange
registered under the Exchange Act, and (iv) a sale of all or substantially all
of the assets of the Company or the merger or consolidation of the Company with
or into any other corporation or entity, other than a wholly-owned subsidiary of
the Company, or the sale of the outstanding stock of the Company, or as a result
of which the stockholders of the Company immediately prior to such transaction
hold less than 50% of the voting power of the surviving corporation.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided in this
----------------------
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective permitted successors and assigns of the
parties (including transferees of any of the Preferred Stock or any Common Stock
issued upon conversion thereof). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding (not including the
Founders' Stock and stock held by the Loveland Affiliates or any permitted
transferees thereof); provided that if such amendment has the effect of
--------
affecting the Founders, the Loveland Affiliates, or the Holders of Registrable
Securities issuable or issued upon conversion of the Series D Preferred Stock,
as the case may be, (i) in a manner different than the other Holders, and (ii)
in a manner adverse to the interests of the Founders, the Loveland Affiliates,
or the Holders of Registrable Securities issuable or issued
-17-
<PAGE>
upon conversion of the Series D Preferred Stock, as the case may be, then such
amendment shall require the consent of the Holder or Holders of a majority of
the Founders' Stock, the Holder or Holders of a majority of the stock held by
the Loveland Affiliates, or the Holder or Holders of a majority of the
Registrable Securities issuable or issued upon conversion of the Series D
Preferred Stock, as the case may be; and provided further that if such amendment
----------------
has the effect of terminating the rights under Sections 1 or 2.4 hereof with
respect to the Registrable Securities issuable or issued upon conversion of the
Series D Preferred Stock, then such amendment shall require the separate consent
of the Holder or Holders of a majority of the Registrable Securities issuable or
issued upon conversion of the Series D Preferred Stock, voting together as a
separate class. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, the
Founders, the Loveland Affiliates and the Company.
3.3 Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, addressed to the
party to be notified at such party's address as set forth on the signature page
or Exhibit A hereto, or to the address of record provided to the Company by each
---------
party hereto with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York,
NY 10005, Attn: W. Leslie Duffy, Esq., and if to the Company, with a copy to
Perkins Coie LLP, 135 Commonwealth Drive, Suite 250, Menlo Park, CA 94025-1105,
Fax (650) 752-6050, Attn: Mark S. Albert, Esq.
3.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded, and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
3.5 Governing Law. This Agreement and all acts and transactions
-------------
pursuant 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 laws.
3.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.7 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.
3.8 Aggregation of Stock. For the purpose of determining the
--------------------
availability of any rights under any section of this Agreement, the number of
shares held by Affiliated Entities of the same party shall be aggregated
together; provided that all such Affiliated Entities that would not qualify
individually for such rights shall have a single attorney-in-fact for the
purpose of exercising any rights, receiving notices or taking any action under
this Agreement.
-18-
<PAGE>
3.9 Entire Agreement. This Agreement and the documents and
-----------------
instruments referred to herein constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof, and any and all other
written or oral agreements relating to the subject matter hereof existing
between the parties hereto are expressly canceled.
-19-
<PAGE>
The parties have executed this Fourth Amended and Restated Investors'
Rights Agreement as of the date first above written.
COMPANY
PETOPIA.COM, INC.
By: /s/ Andrea C. Reisman
----------------------------------------
Name: Andrea C. Reisman
Title: Chief Executive Officer
INVESTORS:
TCV III (GP)
a Delaware General Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
----------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
----------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
----------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
TCV III STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
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Name: Robert C. Bensky
Title: Chief Financial Officer
Mailing Address:
Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Fax: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jay C. Hoag
Phone: (650) 614-8210
Fax: (650) 614-8222
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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ARKARO HOLDING, B.V.
By: __________________________________
Name:
Title:
Mailing Address:
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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PETCO ANIMAL SUPPLIES, INC.
By: /s/ Brian K. Devine
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Name: Brian K. Devine
Title: Chairman, President and Chief Executive
Officer
Mailing Address:
9125 Rehco Road
San Diego, CA 92121
Phone: (619) 453-7845
Fax: (619) 677-3033
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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NATIONAL BROADCASTING COMPANY, INC.
a Delaware corporation
By:_________________________________________
Name:
Title:
Mailing Address:
30 Rockefeller Plaza
New York, NY 10122
Attn: President, NBC Interactive Media
With a copy to: VP, Law, Corporate Transactions
VALUEVISION INTERNATIONAL INC.
a Minnesota corporation
By:_________________________________________
Name:
Title:
Mailing Address:
6740 Shady Oak Road
Eden Prairie, MN 55344
Phone: (612) 947-5200
Fax: (612) 947-0188
with a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attention: Steven C. Kennedy
Phone: (612) 336-3600
Fax: (612) 336-2600
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GREYROCK CAPITAL, a division of
BANC OF AMERICA COMMERCIAL FINANCE
CORPORATION
By:_________________________________________
Name:
Title:
Mailing Address:
10880 Wilshire Boulevard, Suite 1850
Los Angeles, CA 90024
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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CLIFCOR CAPITAL, LLC
By:_________________________________________
Name:
Title:
Mailing Address:
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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By: /s/ Scott Vertrees
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Scott Vertrees, as attorney in fact on behalf of
ANN COUNTS
151 W. 25/th/ Street, 12/th/ Floor
New York, NY 10001
Phone: (212) 242-2060
Fax: (212) 242-2816
WILLIAM RAUHAUSER
151 West 25/th/
New York, NY 10001
Phone: (212) 242-2060
Fax: (212) 242-2816
JOHN E. FLATLEY
230 Pembroke Drive
Lake Forest, IL 60045
W.W. MCGLOTHLIN
P.O. Box 266
Oakwood, VA 24631
JAMES O'MALLEY
P.O. Box 63
Mt. Eden, KY 40046
Phone: (502) 738-5041
Fax: (502) 738-5041
HELEN COUNTS
1334 Augusta
Bluefield, W.VA 24701
Phone: (304) 325-6823
BASCOM B. MATNEY
4841 N. 25th Road
Arlington, VA 22207
Phone: (703) 527-6846
Fax: (703) 525-8473
RONELLE L. ROTTERMAN-MATNEY
4841 N. 25th Road
Arlington, VA 22207
Phone: (703) 527-6846
Fax: (703) 525-8473
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ROBERT N. BECK
901 Rolling Lane
McHenry, IL 60050
Phone: (815) 385-7951
Fax: (815) 385-2054
ROBERT N. BECK, AS TRUSTEE UNDER
THE ROBERT N. BECK LIVING TRUST
UTD 10/31/94
901 Rolling Lane
McHenry, IL 60050
Phone: (815) 385-7951
Fax: (815) 385-2054
GEORGENA M. BECK, AS TRUSTEE
UNDER THE GEORGENA M. BECK
LIVING TRUST UTD 10/31/94
901 Rolling Lane
McHenry, IL 60050
Phone: (815) 385-7951
Fax: (815) 385-2054
PETE BALTAXE
2425 Buchanan Street, #201
San Francisco, CA 94115
DOUG BERTOZZI
1641 Sixth Avenue, #3
Belmont, CA 94002-3846
IAN CHAPLIN
716 La Canada
La Jolla, CA 92037
JAMIE CHENG
3967 Nobel Drive, #254
San Diego, CA 92122-5737
MICHAEL DUNN
4 Digby Street
San Francisco, CA 94131
SCOTT GALLOWAY
42 West 15/th/ Street
New York, NY 10013
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GEOFFREY HALE
721 Forest Avenue
Palo Alto, CA 94301
CONNIE HALLQUIST
124 West 60/th/ Street
Apt. 41B
New York, NY 10023
CLIFFORD LINDSAY
9160 Regents Road, Apt. E
La Jolla, CA 92037
LEE LODES
118 Elsie Street
San Francisco, CA 94110
JAWAD MOHAMMED
4444 W. Point Loma Boulevard, #23
San Diego, CA 92107
JAROM SMITH
475 Beaumont Glen
Apt. 231
Escondido, CA 92026
JASON STAVERS
2232 North Point, #10
San Francisco, CA 94123
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FOUNDERS:
/s/ Andrea C. Reisman
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Andrea C. Reisman
/s/ David Fraze
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David Fraze
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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Exhibit 10.30
COMMERCIAL LEASE
THIS LEASE is made as of the date specified in the Basic Lease Information,
by and between TRANOD, a California general partnership, ("Landlord") and
PETOPIA.COM ("Tenant").
ARTICLE 1
Premises
1.1 Subject to the reservation specified in Paragraph 1.2, and subject to all
recorded easements, covenants, encumbrances and conditions, Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, for the term and
subject to the covenants hereinafter set forth, the Premises and the
Building situated thereon.
ARTICLE 2
Term
2.1 The term of this Lease shall be the term specified in the Basic Lease
Information. The term shall commence on the Commencement Date specified in
the Basic Lease Information (the "Commencement Date") and, unless sooner
terminated as hereinafter provided, shall end on the expiration date
specified in the Basic Lease Information (the "Expiration Date").
Notwithstanding the foregoing, the term of this Lease shall not commence
until Landlord substantially completes the ground floor improvements and
delivers to Tenant the ground floor space of the Building for Tenant's
temporary use and occupation during the construction of improvements on the
second floor of the Building. If Landlord, for any reason whatsoever, is
not able to deliver possession of the ground floor on the Commencement Date
this Lease shall not be void or voidable and Landlord shall not be liable
to Tenant for any loss or damage resulting therefrom, but the Commencement
Date shall be postponed until the date on which Landlord delivers
possession of the ground floor, provided, however, if Landlord does not
substantially complete Landlord's work as described in paragraph 23.1
hereof, then Tenant shall have the right to terminate this Lease. Any delay
in delivery of possession shall not operate to extend the term hereof.
2.2 If any part of the Premises is suitable for occupancy by Tenant prior to
the scheduled Commencement Date, Tenant may take early occupancy of that
part of the Premises prior to the scheduled Commencement Date, but the term
of this Lease shall not commence until the scheduled Commencement Date. If
Tenant takes early occupancy of part of the Premises under this paragraph
2.2, Tenant's early occupancy shall be subject to all of the covenants in
this Lease, which shall be binding on and apply to Tenant during the early
occupancy except that Tenant will be relieved of any obligation to pay to
Landlord the Base Rent payable under paragraph 3.1 hereof. Instead, Tenant
shall pay to Landlord a fee to be agreed upon as between Tenant and
Landlord prior to early occupancy. Tenant shall give Landlord written
notice of Tenant's request to take early occupancy of any part of the
premises; the notice shall specify the requested date of early occupancy
and the part of the Premises to be
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occupied.
ARTICLE 3
Rent
3.1 During the term of this Lease, with the exception of the period of
construction of the Landlord and Tenant Improvements, Tenant shall pay to
Landlord the base monthly rent specified in the Basic Lease Information
(the "Base Rent"), subject to increase as provided in paragraph 3.2. Tenant
shall pay Landlord a reduced monthly rent in the sum of until substantial
completion of the Landlord and Tenant Improvements specified in Exhibits
"C" and "D" and the delivery of the entire Premises to Tenant.
3.2 The Base Rent shall be increased on the first day of the 13/th/ month of
the term of this Lease, and on each anniversary thereafter (the "Rental
Adjustment Date") by 2.5 percent per annum.
3.3 Throughout the term of this Lease, Tenant shall pay, as additional rent,
all amounts of money and charges required to be paid by Tenant under this
Lease, whether or not those amounts of money or charges are designated
"additional rent." As used in this Lease, "rent" shall mean any sum payable
by Tenant to Landlord under this Lease.
3.4 It is the intention of Landlord and Tenant that the Base Rent (including
annual increases) payable by Tenant to Landlord during the entire term of
this Lease shall be absolutely net of all Operating Expenses, Property
Taxes and Insurance Expenses. The provisions of this Lease for payment by
Tenant of all Operating Expenses and all Property Taxes and Insurance
Expenses are intended to pass on to Tenant and to reimburse Landlord for
other costs associated with the Building or the Premises. Landlord and
Tenant agree that statements in this Lease to the effect the Landlord is to
perform certain of its obligations hereunder at its own or sole cost or
expense shall not be interpreted as excluding any cost or expense from
Operating Expenses, Property Taxes, or Insurance Expenses if the cost or
expense is an Operating Expense, Property Tax, or Insurance Expense
pursuant to this Lease.
3.5 Tenant shall pay all Base Rent and additional monthly rent to Landlord, in
advance, on or before the first day of each and every calendar month during
the term of this Lease. Tenant shall pay all rent to Landlord without
notice, demand, deduction or offset, in lawful money of the United States
of America, at the address of Landlord specified in the Basic Lease
Information, or to any other person or at any other place that Landlord may
from time to time designate in writing.
ARTICLE 4
Operating Expenses, Insurance Expenses and Property Taxes
4.1 Tenant shall pay all "Operating Expenses" related to the Building or the
Premises commencing upon the date that Landlord delivers possession of the
ground floor to Tenant. As used in this Lease, "Operating Expenses" means
all costs and expenses incurred in connection with the ownership,
management, operation, maintenance or repair of the
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Building or the Premises (excluding Insurance Expenses, which are specified
below in paragraph 4.3) or in connection with providing services in
accordance with this Lease, including the following: expenses relating to
the operation, maintenance or repair of the Building or the Premises; water
and sewer charges or fees; license, permit and inspection fees;
electricity, water, air conditioning, gas fuel, steam, heat, light, power
and other utilities; sales, use and excise taxes on goods and services
purchased for the Building or the Premises; telephone, delivery, postage,
stationery supplies and other expenses relating to the Building or the
Premises; repairs to and maintenance of the Building, including Building
systems and accessories thereto and repair and replacement of worn-out or
broken equipment, facilities, parts and installations, and the replacement
of major Building systems if required by the Tenant during the term of the
Lease; janitorial, window cleaning, security, guard, extermination, water
treatment, garbage and waste disposal, rubbish removal, plumbing and other
services.
Additionally, Operating Expenses shall not include the following:
(i) Any Landlord bad debt loss, rent loss, or reserves for bad debts or
rent loss;
(ii) Reserves of any kind;
(iii) Costs relating to compliance with earthquake retrofit ordinances
enacted prior to Commencement Date and which is exclusive of any
retrofitting of the Base Building;
(iv) Costs incurred due to default by Landlord of the terms and
conditions of this Lease;
(v) Interest on debt or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying leases or lease
for the Premises or the Building;
(vi) Landlord's general overhead or general administrative expenses not
specifically incurred in the operation of the Building, except for
allocated overhead costs to cover accounting, audit, management and
related costs;
(vii) Rentals and other related expenses incurred in leasing permanent
air-conditioning systems, elevators or other building equipment
ordinarily considered to be of a capital nature, except temporary
equipment which is used in providing janitorial, maintenance or
engineering services and which is not permanently affixed to the
Building;
(viii) All items and services for which Tenant reimburses Landlord or pays
to other persons;
(ix) Advertising and promotional expenditures associated with obtaining
tenants for the Building, or not having a reasonably foreseeable
benefit for Tenant except for such expenses that are incurred as a
result of the Tenant's default or early termination of the Lease;
(x) Wages, salaries, commissions or other compensation paid to employees
above the level
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of overall manager of the Building;
(xi) Charitable contributions made by Landlord;
(xii) Purchase costs of paintings, sculptures or other art work purchased
for display in the Building;
(xiii) Environmental or hazardous waste clean-up costs incurred by Landlord
with respect to the Building except any such costs attributed to
contamination caused by Tenant.
4.2 Tenant shall pay all Property Taxes relating to the Premises or the
Building. As used in this Lease, "Property Taxes" shall mean all taxes,
assessments, excises, levies, fees and charges (and any tax, assessment,
excise, levy, fee or charge levied wholly or partly in lieu thereof or as a
substitute therefor or as an addition thereto) of every kind and
description, general or special, ordinary or extraordinary, foreseen or
unforeseen, secured or unsecured, whether or not now customary or within
the contemplation of Landlord and Tenant, that are levied, assessed,
charged, confirmed or imposed by any public or government authority on or
against, or otherwise with respect to, the Building or any part thereof or
any personal property used in connection with the Building. Property Taxes
shall not include net income (measured by the income of Landlord from all
sources or from sources other than solely rent), franchise, excess profit
taxes, gift taxes, documentary transfer inheritance or capital stock taxes
of Landlord, unless levied or assessed against Landlord in whole or in part
in lieu of, as a substitute for, or as an addition to any Property Taxes.
Notwithstanding the foregoing, Tenant shall not be responsible for paying
any increase in real property tax specified in tax assessor's records and
worksheets as being caused by any sale, transfer, or exchange of the
Building or any part thereof.
4.3 Tenant shall pay all Insurance Expenses relating to the Premises or the
Building. As used in this Lease, "Insurance Expenses" shall mean cost of
acquiring liability, property, and other insurance on the Building and/or
the Premises as the Landlord may, in Landlord's reasonable discretion, deem
appropriate; provided, however, that "Insurance Expenses" shall not include
the cost of acquiring earthquake or flood insurance on the Building and/or
the Premises.
4.4 Landlord shall provide reasonable notice to Tenant of the nature and amount
of any Operating Expenses, Property Taxes, and/or Insurance Expenses that
are incurred by or billed to Landlord. Tenant shall provide Landlord with
either direct payment or proof of payment of any invoice or bill for
Operating Expenses within thirty (30) days of Landlord's notice. If at any
time during the term of this Lease, Tenant fails to pay the Operating
Expenses, Insurance Expenses and/or Property Taxes as required hereunder,
Landlord may make that payment, and Tenant shall immediately reimburse
Landlord. Tenant shall have the right to inspect, copy and review
Landlord's books and records with respect to Operating Expenses. In the
event that any review of Operating Expenses made at Tenant's request by
independent accountants, selected by Tenant and reasonably satisfactory to
Landlord, shall result in a decrease of the amount of Operating Expenses
for any year of 5% or more, Landlord shall pay the cost of such review.
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ARTICLE 5
Use
5.1 The Premises shall be used for office, multimedia, software engineering,
consulting, customer service, sales and administration thereto and no other
purpose without the Landlord's prior written consent, which shall not be
unreasonably withheld. Tenant shall have exclusive signage rights for the
entire Premises. Tenant shall not do, nor permit to be done, in, on or
about the Premises, nor bring or keep or permit to be brought or kept
therein, anything which is prohibited by or will in any way conflict with
any law, ordinance, rule, regulation or order now in force or which may
hereafter be enacted, or which is prohibited by any insurance policy
carried by Landlord for the Building, or will in any way increase the
existing rate of, cause a cancellation of, or affect any insurance for the
Building. Tenant shall not bring or keep, nor permit to be brought or kept,
in the Premises or the Building any toxic or hazardous substance, material
or waste or any other contaminant or pollutant. Tenant shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of Landlord or other tenants of the
Building, or injure or annoy them. Tenant shall not use nor allow the
Premises to be used for any improper, immoral, unlawful or objectionable
activity, nor shall Tenant cause, maintain or permit any nuisance in, on or
about the premises or commit or suffer to be committed any waste in, on or
about the Premises. Tenant may bring pets into the Building and the
Premises subject to such reasonable rules and regulations as Landlord may
establish.
ARTICLE 6
No Services, Warranties or Representations
6.1 Landlord shall supply no services to the Building or the Premises. Tenant
shall take the Premises in their "AS IS" condition. Except for the work of
the Landlord described on Exhibit C, Tenant hereby acknowledges and agrees
that the lease of the Premises and the Building is made on an "AS IS" basis
and that the Landlord has not made, and does not make, any representation,
warranties or guarantees of any kind or character whatsoever, whether
express or implied, oral or written, concerning or with respect to the
Premises or the Building; except as set forth in paragraph 6.2.
6.2 Landlord represents that (i) it is the sole owner of the Building, (ii) it
has the power and authority to execute and deliver this Lease and that this
Lease is binding upon Landlord in accordance with its terms, (iii) the
Premises, in the state existing on the Commencement Date, but without
regard to alterations or improvements made by Tenant or the use for which
Tenant will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or
ordinance in effect on the Commencement Date, including, without
limitation, the federal Americans With Disabilities Act and regulations
thereunder, (iv) there is no pending litigation relating to the Premises or
the Building, (v) there are no known defects in the Premises or the
Building, (vi) all equipment and building systems in the Premises and the
Building are in good operating condition and repair as of the Commencement
Date, (vii) the Premises and the Building are in compliance with all laws
relating to the storage, use and disposal of hazardous materials, and
(viii) the
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Premises and the Building are free of any asbestos-containing materials.
ARTICLE 7
Maintenance and Repairs
7.1 Landlord shall make necessary repairs to the roof and exterior structural
elements of the Building, including the Base Building mechanical (heating,
ventilating and air conditioning) and electrical systems. Tenant shall, at
all times during the term of this Lease and at Tenant's sole cost and
expense, maintain and repair the Building interior and every part thereof
and all equipment, fixtures and improvements therein. Tenant shall maintain
the mechanical (heating, ventilating and air conditioning) and electrical
systems of the Building and keep them clean and in good order and operating
condition. Subject to paragraph 8.2 hereof, Tenant shall, at the end of the
term of this Lease, surrender to Landlord the Premises and all alterations,
additions, fixtures and improvements therein or thereto in the same
condition as when received, ordinary wear and tear and damage thereto by
fire or other casualty excepted.
ARTICLE 8
Alterations
8.1 Except as shown on Exhibit D, Tenant shall not make any alterations,
additions or improvements in or to the Premises or any part thereof, or
attach any fixtures or equipment thereto, without Landlord's prior written
consent which consent shall not be unreasonably withheld or delayed.
Notwithstanding the preceding sentence, Tenant may make alterations,
additions or improvements without Landlord's consent if the total cost of
those alterations, additions or improvements is no more than Five Thousand
Dollars ($5,000.00) per occurrence and the alterations, additions or
improvements will not affect in any way the structural, exterior or roof
elements of the Building or the elevator, mechanical, electrical, plumbing
or life safety systems of the Building. Tenant shall give prior written
notice of any such allowed alterations, additions or improvements to
Landlord. All alterations, additions and improvements in or to the Premises
to which Landlord consents shall be made by Landlord at Tenant's sole cost
and expense. Tenant shall give written notice to Landlord of the date on
which construction of any work will be commenced at least five (5) days
prior to that date. Tenant shall keep the Premises and the Building free
from mechanics' liens and all other liens arising out of any work
performed, labor supplied, materials furnished or other obligations
incurred by Tenant. Tenant shall promptly and fully pay and discharge all
claims on which any such lien could be based or shall provide a bond or
other adequate security therefor. Landlord shall have the right to post and
keep posted on the Premises any notices that may be provided by law or
which Landlord may deem to be proper for the protection of Landlord, the
Premises and the Building from liens, and, upon thirty (30) days' prior
written notice to Tenant, to take any other action Landlord deems necessary
to remove or discharge liens or encumbrances at the expense of Tenant.
8.2 All alterations, additions, fixtures and improvements shall become part of
the Building and Landlord's property. All movable furniture, equipment,
trade fixtures, computers, office
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machines and other personal property shall remain the property of Tenant.
Upon termination of this Lease, Tenant shall, at Tenant's expense, remove
all such movable furniture, equipment, trade fixtures, computers, office
machines and other personal property from the Building and repair all
damage caused by the removal. Termination of this Lease shall not affect
the obligations of Tenant pursuant to this paragraph 8.2 to be performed
after termination.
ARTICLE 9
Insurance
9.1 Landlord shall not be liable to Tenant for any damage to or loss or theft
of any property or for any bodily or personal injury, illness or death of
any person in, on or about the Premises or the Building arising at any time
and from any cause whatsoever, except to the extent caused by the
negligence or willful misconduct of Landlord. Tenant waives all claims
against Landlord arising from any liability described in this paragraph
9.1, except to the extent caused by the negligence or willful misconduct of
Landlord.
9.2 Tenant shall indemnify and defend Landlord against and hold Landlord
harmless from all claims, demands, liabilities, damages, losses, costs and
expenses, including reasonable attorneys' fees and disbursements, arising
from or related to any use or occupancy of the Premises, or the Building,
or any condition of the Premises, or any default in the performance of
Tenant's obligations, or any damage to any property (including property or
employees and invitees of Tenant) or any bodily or personal injury, illness
or death of any person (including employees and invitees of Tenant)
occurring in, on or about the Premises or any part thereof arising at any
time and from any cause whatsoever (except to the extent caused by the
negligence or willful misconduct of Landlord) or occurring in, on or about
any part of the Building other than the Premises when the damage, bodily or
personal injury, illness or death is caused by any act or omission of
Tenant or its agents, officers, employees, contractors, invitees or
licensees. This paragraph 9.2 shall survive the termination of this Lease
with respect to any damage, bodily or personal injury, illness or death
occurring prior to termination.
9.3 Landlord shall indemnify and defend Tenant against and hold Tenant harmless
from all claims, demands, liabilities, damages, losses, costs and expenses,
including reasonable attorney's fees and disbursements, arising from or
related to (i) Landlord's negligence or willful misconduct, or (ii) any
default in the performance of Landlord's obligations under this Lease. This
paragraph 9.3 shall survive the termination of this Lease with respect to
any damage, bodily or personal injury, illness or death occurring prior to
termination.
9.4 Landlord shall indemnify, defend and hold harmless Tenant and any and all
officers, directors, employees, shareholders, agents or affiliates of
Tenant from and against any and all direct and indirect, actual and
consequential costs, expenses, losses, demands, claims, liabilities,
judgments, causes of action, proceedings or hearings which arise from the
use, disposal, emission, discharge, injection, spill, escape, leak, release
or threatened release of any hazardous material in the Building or the
Premises on or before the Commencement
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Date, or brought onto the Premises or the Building by or for Landlord or by
anyone under Landlord's control.
9.5 Tenant shall procure and maintain, at its own expense, with companies
satisfactory to Landlord in its reasonable discretion, the following
insurance coverage:
a. All Risk Property insurance which insures the Building and Tenant's
Property on site from fire and vandalism on a replacement basis, with
business interruption coverage equal to at least one year's rent.
b. Workers' Compensation and Employers' Liability Insurance as required by
California law, affording 30 days' notice of cancellation to the Owner.
The Employers' liability coverage shall have the limits required by law.
c. General Liability Insurance on an "occurrence" basis, having a limit of
not less than $1,000,000 for bodily injury and not less than $1,000,000
for property damage liability, including:
(1) Premises and Operations coverage with X, C and U exclusions deleted,
if applicable;
(2) Products and Completed Operations coverage;
(3) Broad Form Property Damage coverage, including completed operations;
(4) Blanket Contractual coverage (specifically covering this Lease);
(5) Personal Injury coverage;
(6) An endorsement affording 30 days' notice of cancellation to Landlord
in the event of cancellation or material reduction in coverage;
(7) An endorsement providing that the insurance as afforded is primary,
and any other insurance maintained by Landlord is excess and
noncontributing with the insurance required hereunder;
(8) Business interruption insurance, in an amount equal to at least one
year's rent.
d. Business Auto Liability in the amount of $1,000,000 combined single
limit for bodily injury and/or property damage liability including:
(1) Owned autos and trucks;
(2) Hired or borrowed autos and trucks;
(3) Non-owned autos and trucks;
(4) An endorsement affording 30 days' notice of cancellation to Landlord
in the event of cancellation or material reduction in coverage.
e. Excess or Umbrella Bodily Injury and/or Property Damage Liability
Insurance with limits not less than $1,000,000 per occurrence for bodily
injury and/or property damage liability, listing the above-described
General Liability, Employers' Liability and Comprehensive Auto Liability
as underlying policies and including:
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(1) A Broad-as-Primary endorsement;
(2) An endorsement naming Landlord as an additional insured;
(3) An endorsement affording 30 days' notice of cancellation to Landlord
in the event of cancellation or material reduction in coverage;
(4) An endorsement providing that the insurance as afforded is primary,
and any other insurance maintained by Landlord is excess and
noncontributing with the insurance required hereunder.
Tenant shall, at Tenants' sole cost and expense, be responsible for
insuring Tenant's furniture, equipment, fixtures, computers, office
machines, automobiles and vehicles, and all other personal property.
9.6 All insurance required under this Article 9 and all renewals thereof shall
be issued by good and responsible companies qualified to do and doing
business in the State of California. Each policy shall expressly provide
that the policy shall not be canceled or altered without thirty (30) days'
prior written notice to Landlord and shall remain in effect notwithstanding
any cancellation or alteration until notice has been given to Landlord and
the thirty-day period has expired. All liability insurance under this
Article 9 shall name Landlord, and any other parties designated by
Landlord, as an additional insured, shall be primary and noncontributing
with any insurance that may be carried by Landlord, shall afford coverage
for all claims based on any act, omission, event or condition that occurred
or arose (or the onset of which occurred or arose) during the policy
period, and shall expressly provide that Landlord, although named as an
insured, shall nevertheless be entitled to recover under the policy for any
loss, injury or damage to the Landlord. Upon the issuance thereof, Tenant
shall deliver each policy or a certified copy and a certificate thereof to
Landlord for retention by Landlord. If Tenant fails to insure or fails to
furnish to Landlord upon thirty (30) days' written notice to do so any
policy or certified copy and certificate thereof as required, Landlord
shall have the right from time to time to effect such insurance for the
benefit of Tenant or Landlord or both of them, and all premiums paid
therefor by Landlord shall be payable by Tenant as additional rent on
demand.
9.7 Tenant waives on behalf of all insurers under all policies of property,
liability and other insurance (excluding workers' compensation) now or
hereafter carried by Tenant insuring or covering the Premises, or any
portion or any contents thereof, or any operations therein, all rights of
subrogation that any insurer might otherwise, if at all, have to any claims
of Tenant against Landlord. Landlord waives on behalf of all insurers under
all policies of property, liability and other insurance (excluding workers'
compensation) now or hereafter carried by Landlord insuring or covering the
Building or any portion or any contents thereof, or any operations therein,
all rights of subrogation that any insurer might otherwise, if at all, have
to any claims of Landlord against Tenant. Tenant shall, prior to or
immediately after the date of this Lease, procure from each of the insurers
under all policies of property, liability and other insurance (excluding
workers' compensation) now or hereafter carried by Tenant insuring or
covering the Premises, or any portion or any contents thereof, or any
operations therein, a waiver of all rights of subrogation that the insurer
might otherwise, if
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at all, have to any claims of Tenant against Landlord as required by this
paragraph 9.5.
ARTICLE 10
Compliance with Legal Requirements
10.1 Tenant shall, at Tenant's sole cost and expense, promptly comply with all
laws, ordinances, rules, regulations, orders and other requirements of any
government or public authority now in force or which may hereafter be in
force, with all requirements of any board of fire underwriters or other
similar body now or hereafter constituted, and with all directions and
certificates of occupancy issued pursuant to any law by any governmental
agency or officer, insofar as any of them relate to or are required by the
condition, use or occupancy of the Premises or the operation, use or
maintenance of any personal property, fixtures, machinery, equipment or
improvements in the Premises, or the Building. Tenant shall not be required
to make structural changes or to make improvements required by the ADA
unless such structural changes or such improvements required by the ADA are
related to or required by Tenant's acts or particular use of the Premises
or by improvements made by or for Tenant. Similarly, Tenant shall not be
required to make changes to the electrical, water, HVAC or other utility
systems of the Building unless such changes are related to or required by
Tenant's acts or particular use of the Premises or by improvements made by
or for Tenant.
ARTICLE 11
Assignment or Sublease
11.1 Tenant shall not, directly or indirectly, without the prior written consent
of Landlord (which consent shall not be unreasonably withheld), assign this
Lease or any interest herein or sublease the Premises or any part thereof,
or permit the use or occupancy of the Premises by any person or entity
other than Tenant. Tenant shall not, directly or indirectly, without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed, pledge, mortgage or hypothecate this Lease or any
interest herein. This Lease shall not, nor shall any interest herein, be
assignable as to the interest of Tenant involuntarily or by operation of
Law without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed. Any of the foregoing acts without
prior written consent of Landlord shall be void and shall, at the option of
Landlord, constitute a default that entitles Landlord to terminate this
Lease. Without limiting or excluding other reasons for withholding
Landlord's consent Landlord shall have the right to withhold consent if it
is not demonstrated to the satisfaction of Landlord that the proposed
assignee or subtenant is financially able to perform all of the obligations
of Tenant under this Lease (as evidenced by financial statements and
business and credit references acceptable to Landlord). Tenant agrees that
the instrument by which any assignment or sublease to which Landlord
consents is accomplished shall expressly provide that the assignee or
subtenant will perform all of the covenants to be performed by Tenant under
this Lease (in the case of a sublease, only insofar as such covenants
relate to the portion of the Premises subject to the sublease) as and when
performance is due after the effective date of the assignment or sublease
and that Landlord will have the right to enforce those covenants directly
against the assignee or subtenant. Any purported assignment or sublease
without an instrument containing the foregoing provisions
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shall be void. Tenant shall in all cases remain liable for the performance
by any assignee or subtenant of all covenants and obligations of this
Lease. Notwithstanding anything in this Article 11 or elsewhere in this
Lease to the contrary, Tenant may assign or sublet the Premises, or any
portion thereof, without consent, to any entity which controls, is
controlled by or is under common control with Tenant, or to any entity
resulting from the merger, initial public offering or consolidation with
Tenant, or to any person or entity which acquires all the assets of Tenant
as a going concern of the business that is being conducted on the Premises,
provided that before such assignment or sublet shall be effective said
entity shall assume, in full, the obligations of Tenant under this Lease.
11.2 If Tenant wishes to assign this Lease or sublease all or any part of the
Premises, Tenant shall give written notice to Landlord identifying the
intended assignee or subtenant by name and address and specifying all of
the terms of the intended assignment or sublease. Tenant shall give
Landlord any additional information concerning the intended assignee or
subtenant (including complete financial statements and a business history)
or the intended assignment or sublease (including true copies thereof) as
Landlord reasonably requests. For a period of fifteen (15) days after
written notice is given by Tenant, Landlord shall have the right, by giving
written notice to Tenant, (a) to consent in writing to the intended
assignment or sublease, unless Landlord determines not to consent, or (b)
to enter into an assignment of this Lease or a sublease of the Premises, as
the case may be, with Tenant upon the terms set forth in such written
notice, or (c) in the case of an assignment of this Lease or sublease of
the entire Premises for substantially the balance of the term of this
Lease, to terminate this Lease, effective as of the date on which the
intended assignment or sublease would have been effective if Landlord had
not exercised this termination right. If Landlord does not exercise any of
the rights set forth in the preceding sentence by giving written notice to
Tenant within fifteen (15) days, Landlord shall be deemed to consent in
writing to the intended assignment or sublease. If Landlord elects to enter
into an assignment of this Lease or a sublease of the Premises or to
terminate this Lease, Landlord may enter into a new lease or agreement
covering the Premises or any portion thereof with the intended assignee or
subtenant on any terms to which Landlord and the assignee or subtenant may
agree, or enter into a new lease or agreement covering the Premises or any
portion thereof with any other person or entity. In such event, Tenant
shall not be entitled to any portion of the profit, if any, that Landlord
may realize on account of the new lease or agreement. If Landlord elects to
terminate this Lease, then from and after the date of termination, Landlord
and Tenant each shall have nor further obligation to the other under this
Lease with respect to the Premises except for matters occurring or
obligations arising hereunder prior to the date of termination.
11.3 If Landlord consents in writing (or is deemed to consent in writing in
accordance with paragraph 11.2), Tenant may complete the intended
assignment or sublease subject to the following covenants: (a) the
assignment or sublease shall be on the same terms as set forth in the
written notice given by Tenant to Landlord, (b) no assignment or sublease
shall be valid and no assignee or subtenant shall take possession of the
Premises or any part thereof until an executed duplicate original of the
assignment or sublease, in compliance with paragraph 11.1 hereof, has been
delivered to Landlord, (c) no assignee or subtenant shall
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have a right further to assign or sublease, and (d) one-half of all
"Excess Rent" (as hereinafter defined) derived from the assignment or
sublease is paid to Landlord. Tenant shall pay Excess Rent to Landlord
immediately as and when it is received by Tenant. As used in this paragraph
11.3, "Excess Rent" shall mean the amount by which the total money and
other economic consideration to be paid by the assignee or subtenant as a
result of an assignment or sublease, whether denominated rent or otherwise,
after a deduction has been made for Tenant's real estate leasing
commissions and tenant improvement costs, exceeds, in the aggregate, the
total amount of rent that Tenant is obligated to pay to Landlord under this
Lease.
11.4 No assignment or sublease whatsoever shall release Tenant from Tenant's
obligations and liabilities under this Lease or alter the primary liability
of Tenant to pay all rent and to perform all obligations to be paid and
performed by Tenant. The acceptance of rent by Landlord from any other
person or entity shall not be deemed to be a waiver by Landlord of any
provision of this Lease. Consent to one assignment or sublease shall not be
deemed consent to any subsequent assignment or sublease. If any assignee,
subtenant or successor of Tenant defaults in the performance of any
obligation to be performed by Tenant under this Lease, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies
against the assignee, subtenant or successor.
11.5 If Tenant requests the consent or approval of Landlord to any assignment,
sublease or other action by Tenant, Tenant shall pay to Landlord on demand,
as additional rent, all costs and expenses, including reasonable attorneys'
fees and disbursements, incurred by Landlord in connection therewith.
ARTICLE 12
Entry by Landlord
12.1 Landlord shall have the right to enter the Premises and/or the Building at
any time upon prior notice and accompanied by a representative of Tenant to
(a) inspect the premises, (b) exhibit the Premises to prospective
purchasers, lenders or tenants, (c) determine whether Tenant is performing
all of Tenant's obligations, and (d) post notices of non-responsibility.
Except for damages caused by Landlord's negligence or willful misconduct,
Tenant waives all claims for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet
enjoyment of the Premises or any other loss occasioned by Landlord's entry.
Tenant shall provide to Landlord, and Landlord shall at all times have, a
key to unlock all doors to the Premises, and Landlord shall have the right
to use any and all means which Landlord may deem proper to open doors in an
emergency to obtain entry to the Premises and/or the Building. Any such
entry by Landlord shall not under any circumstances be construed or deemed
to be a forcible or unlawful entry into or a detainer of the Premises or an
eviction, actual or constructive, of Tenant from the Premises, or any
portion thereof
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ARTICLE 13
Events of Default and Remedies
13.1 The occurrence of any one or more of the following events ("Event of
Default") shall constitute a breach of this Lease by Tenant:
a. Tenant fails to pay any Base Rent, and that failure continues for more
than five (5) business days after Tenant's receipt of written notice
from Landlord pursuant to the notice provisions herein.
b. Tenant fails to pay any additional rent or other amount of money or
charge payable by Tenant hereunder as and when it becomes due and
payable, and that failure continues for more than ten (10) business days
after Tenant's receipt of written notice from Landlord pursuant to the
notice provisions herein.
c. Tenant fails to perform or breaches any other agreement or covenant of
this Lease to be performed or observed by Tenant as and when performance
or observance is due, and that failure to breach continues for more than
thirty (30) days after Landlord gives written notice thereof to Tenant.
If, by the nature of the agreement or covenant, the failure or breach
cannot reasonably be cured within a period of thirty (30) days, an Event
of Default shall not exist as long as Tenant commences with due
diligence and dispatch the curing of the failure or breach within the
period of thirty (30) days and, having so commenced, thereafter
prosecutes with diligence and dispatch and completes the curing of the
failure or breach.
d. Tenant (1) files, or consents by answer or otherwise to the filing
against it of a petition for relief or reorganization or arrangement or
any other petition in bankruptcy or for liquidation or to take advantage
of any bankruptcy, insolvency or other debtors' relief law of any
jurisdiction, (2) makes an assignment for the benefit of its creditors,
(3) consents to the appointment of a custodian, receiver, trustee or
other officer with similar powers of Tenant or of any substantial part
of Tenant's property, or (4) takes action for the purpose of any of the
foregoing.
e. Without consent by Tenant, a court or government authority enters an
order, and the order is not vacated within thirty (30) days, (1)
appointing a custodian, receiver, trustee or other officer with similar
powers with respect to Tenant or with respect to any substantial part of
Tenant's property, or (2) constituting an order for relief or approving
a petition for relief or reorganization or arrangement or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy, insolvency or other debtors' relief law of any jurisdiction,
or (3) ordering the dissolution, winding-up or liquidation of Tenant.
f. This Lease or any estate of Tenant hereunder is levied upon under any
attachment or execution, and the attachment or execution is not vacated
within sixty (60) days or Tenant does not provide a bond or other
adequate security therefor.
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g. Tenant intentionally abandons the Premises.
13.2 If an Event of Default occurs, Landlord shall have the right at any time to
give a written termination notice to Tenant and, on the date specified in
the notice, Tenants' right to possession shall terminate and this Lease
shall terminate. Upon termination, Landlord shall have the right to recover
from Tenant:
a. The worth at the time of award of all unpaid rent that had been earned
at the time of termination;
b. The worth at the time of award of the amount by which all unpaid rent
that would have been earned after termination until the time of award
exceeds the amount of rental loss that Tenant proves could have been
reasonably avoided;
c. The worth at the time of award of the amount by which all unpaid rent
for the balance of the term of this Lease after the time of award
exceeds the amount of rental loss that Tenant proves could be reasonably
avoided; and
d. All other amounts necessary to compensate Landlord for all detriment
proximately caused by Tenant's failure to perform all of Tenant's
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom. The "worth at the time of award" of
the amounts referred to in clauses a. and b. above shall be computed by
allowing interest at the lesser of the maximum annual interest rate
allowed by law for business loans (not primarily for personal, family or
household purposes) not exempt from the usury law at the time of
termination or twelve percent (12%) per annum. The "worth at the time of
award" of the amount referred to in clause c. above shall be computed by
discounting the amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of award plus one percent (11%). For the
purpose of determining unpaid rent under clauses a., b. and c. above,
the rent reserved in this Lease shall be deemed to be the total rent
payable by Tenant under Articles 3, 4 and 5 hereof.
13.3 Even though Tenant has breached this Lease, this Lease shall continue in
effect for so long as Landlord does not terminate Tenant's right to
possession, and Landlord shall have the right to enforce all of its rights
and remedies under this Lease, including the right to recover all rent as
it becomes due under this Lease. Acts of maintenance or preservation or
efforts to re-let the Premises or the appointment of a receiver upon
initiative of Landlord to protect Landlord's interest under this Lease
shall not constitute a termination of Tenant's right to possession unless
written notice of termination is given by Landlord to Tenant.
13.4 The remedies provided for in this Lease are in addition to all other
remedies available to Landlord at law or in equity by statute or otherwise.
13.5 All agreements and covenants to be performed or observed by Tenant under
this Lease shall be at Tenant's sole cost and expense and without any
abatement of rent. If Tenant fails to
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pay any sum of money to be paid by Tenant or to perform any other act to be
performed by Tenant under this Lease, Landlord shall have the right, but
shall not be obligated, upon thirty (30) days prior written notice to
Tenant and without waiving or releasing Tenant from any obligations of
Tenant, to make any such payment or to perform any such other act on behalf
of Tenant in accordance with this Lease. All sums so paid by Landlord and
all necessary incidental costs shall be deemed additional rent hereunder
and shall be payable by Tenant to Landlord on demand, together with
interest from the date of expenditure by Landlord to the date of repayment
by Tenant at the lesser of the maximum annual interest rate allowed by law
for business loans (not primarily for personal, family or household
purposes) not exempt from the usury law at the date of expenditure or
twelve percent (12%) per annum. Landlord shall have, in addition to all
other rights and remedies of Landlord, the same rights and remedies in the
event of the nonpayment of these sums plus interest by Tenant as in the
case of default by Tenant in the payment of rent.
13.6 If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any movable furniture, equipment, trade
fixtures or personal property belonging to Tenant and left in the Premises
shall be deemed to have been abandoned, at the option of Landlord, and
Landlord shall have the right, upon thirty (30) days prior written notice
to Tenant, to sell or otherwise dispose of the abandoned personal property
in any commercially reasonable manner.
13.7 Landlord shall be in default of this Lease if it fails or refuses to
perform any provision of this Lease that it is obligated to perform if the
failure to perform is not cured within thirty (30) days after Landlord's
receipt of notice of the default pursuant to the notice provisions in this
Lease. If the default cannot be reasonably cured within thirty (30) days,
Landlord shall not be in default of this Lease if Landlord commences to
cure the default within the thirty (30) day period and diligently and in
good faith continues to cure the default. Tenant, at any time after
Landlord commits a default, can cure the default at Landlord's cost. If
Tenant at any time, by reason of Landlord's default, pays any sum or does
any act that requires the payment of any sum, the sum paid by Tenant shall
be due immediately from Landlord to Tenant at the time the sum is paid. If
Landlord fails to reimburse Tenant as required by this paragraph, Tenant
shall have the right to withhold from future rent due the sum Tenant has
paid until Tenant is reimbursed in full for said sum.
ARTICLE 14
Damage or Destruction
14.1 If the Building or the Premises, or any part thereof, is damaged by fire or
other casualty before the Commencement Date or during the term of this
Lease, and this Lease is not terminated pursuant to paragraph 14.2 hereof,
Landlord shall repair the damage and restore the Building and the Premises
to substantially the same condition in which the Building and the Premises
existed before the occurrence of the fire or other casualty and this Lease
shall, subject to this paragraph 14.1, remain in full force and effect. If
the fire or other casualty damages the Premises or the Building necessary
for Tenant's use and occupancy of the Premises and if the damage is not the
result of the negligence or willful misconduct of
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Tenant or Tenant's agents, officers, employees, contractors, licensees or
invitees, then, during the period the Premises are rendered unusable by the
damage, Tenant shall be entitled to a reduction in Base Rent in the
proportion that the area of the Premises rendered unusable bears to the
total area of the Premises. Landlord shall not be obligated to repair any
damage to, or to make any replacement of, any movable furniture, equipment,
trade fixtures or personal property in the Premises. Tenant shall, at
Tenant's sole cost and expense, repair and replace all such movable
furniture, equipment trade fixtures and personal property. Tenant hereby
waives California Civil Code sections 1932(2) and 1933(4).
14.2 If the Building or the Premises, or any part thereof, is damaged by fire or
other casualty before the Commencement Date or during the term of this
Lease and (a) the fire or other casualty occurs during the last twelve (12)
months of the term of this Lease and the repair and restoration work to be
performed by Landlord in accordance with paragraph 14.1 cannot, as
reasonably estimated by Landlord, be completed within two (2) months after
the occurrence of the fire or other casualty, or (b) the insurance proceeds
received by Landlord in respect of the damage are not adequate to pay the
entire cost, as reasonably estimated by Landlord, of the repair and
restoration work to be performed by Landlord in accordance with paragraph
14.1, and Tenant does not elect in its sole discretion to pay the
difference thereof or (c) the repair and restoration work to be performed
by Landlord in accordance with paragraph 14.1 hereof cannot, as reasonably
estimated by Landlord, be completed within six (6) months after the
occurrence of the fire or other casualty, then Landlord shall have the
right, by giving written notice to Tenant within sixty (60) days after the
occurrence of the fire or other casualty, to terminate this Lease as of the
date of the notice. In such event, Rent shall abate as of the date of such
casualty in the proportion that the area of the Premises rendered unusable
bears to the total area of the Premises. If Landlord does not exercise the
right to terminate this Lease in accordance with this paragraph, Landlord
shall repair the damage and restore the Building and the Premises in
accordance with paragraph 16.1 hereof and this Lease shall remain in full
force and effect. A total destruction of the Building shall automatically
terminate this Lease effective as of the date of the total destruction.
ARTICLE 15
Eminent Domain
15.1 If any part, but less than all, of the Premises is taken by exercise of the
power of eminent domain before the Commencement Date, Landlord or Tenant
may terminate this Lease upon notice to the other within thirty (30) days
after the date of taking and before the Commencement Date. If any part, but
less than all, of the Premises is taken during the term of this Lease, and
if the remaining portion of the Premises is not reasonably suitable for
Tenant's purposes, Tenant may terminate this Lease, by giving written
notice to Landlord within thirty (30) days after the date of the taking. If
either Landlord or Tenant exercises its right to terminate this Lease in
accordance with this paragraph, this Lease shall terminate as of the date
of the taking. If neither Landlord nor Tenant exercises its right to
terminate this Lease in accordance with this paragraph, this Lease shall
terminate as to the portion of the Premises taken as of the date of taking
and shall remain in full force and effect as to the portion of the Premises
not taken, and the Base Rent shall be reduced as of the date of taking
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in the proportion that the area of the Premises taken bears to the total
area of the Premises. If all of the Premises is taken by exercise of the
power of eminent domain before the Commencement Date or during the term of
this Lease, this Lease shall terminate as of the date of the taking.
15.2 If all or any part of the Premises is taken by exercise of the power of
eminent domain, all awards, compensation, damages, income, rent and
interest payable in connection with the taking shall, except as expressly
set forth in this paragraph, be paid to and become the property of
Landlord, and Tenant hereby assigns to Landlord all of the foregoing
monies. Tenant shall have the right to claim and receive directly from the
entity exercising the power of eminent domain only the share of any award
determined to be owing to Tenant for the taking of improvements installed
in the taken portion of the Premises by Tenant at Tenant's sole cost and
expense, based on the unamortized cost actually paid by Tenant for the
improvements, for the taking of Tenant's movable furniture, equipment trade
fixtures and personal property, for loss of goodwill, for interference with
or interruption of Tenant's business, or for removal and relocation
expenses.
15.3 Notwithstanding paragraphs 15.1 and 15.2 hereof to the contrary, if the use
of all or any part of the Premises is taken by exercise of the power of
eminent domain during the term of this Lease on a temporary basis for a
period less than the term of this Lease remaining after the taking, this
Lease shall continue in full force and effect, Tenant shall continue to pay
all of the rent and to perform all of the covenants of Tenant in accordance
with this Lease, to the extent reasonably practicable under the
circumstances, and the, condemnation proceeds in respect of the temporary
taking shall be paid to Tenant; provided, however, that Rent shall abate in
the proportion that the area of the Premises so taken bears to the total
area of the Premises to the extent any condemnation proceedings are not
specifically earmarked therefore.
15.4 As used in this Article 15, a "taking" means the acquisition of all or part
of the Premises for a public use by exercise of the power of eminent domain
or by a transfer in lieu thereof. A taking shall be considered to occur as
of the earlier of the date on which possession of the Premises (or portion
thereof) by the entity exercising the power of eminent domain is authorized
as stated in an order for possession, or the date on which title to the
Premises (or portion thereof) vests in the entity exercising the power of
eminent domain. Tenant hereby waives California Code of Civil Procedure
sections 1265.110 through 1265.160.
ARTICLE 16
Subordination, Merger and Sale
16.1 This Lease shall be subject and subordinate at all times to the lien of all
mortgages and deeds of trust securing any amount or amounts whatsoever that
may now exist or hereafter be placed on or against the Building or on or
against Landlord's interest or estate therein, all without the necessity of
having further instruments executed by Tenant to effect the subordination.
Notwithstanding the foregoing, in the event of a foreclosure of any such
mortgage or deed of trust or of any other action or proceeding for the
enforcement thereof,
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or of any sale thereunder, this Lease shall not be terminated or
extinguished, nor shall the rights and possession of Tenant hereunder be
disturbed, if no Event of Default then exists under this Lease, and Tenant
shall attorn to the person who acquires Landlord's interest hereunder
through any such mortgage or deed of trust. Tenant agrees to execute,
acknowledge and deliver upon demand any further instruments evidencing
subordination of this Lease to the lien of all such mortgages and deeds of
trust that may reasonably be required by Landlord, but Tenants' covenant to
subordinate this Lease to mortgages or deeds of trust hereafter executed is
conditioned upon the inclusion of the commitments specified in the
preceding sentence in each such senior mortgage or deed of trust, or in a
separate subordination agreement. Landlord shall obtain from the holder of
each current mortgage, deed of trust and ground lease, a non-disturbance
agreement in recordable form, providing that in the event of any
foreclosure or termination, or transfer in lieu of any of the foregoing, or
the exercise of any other remedy under such mortgage, deed of trust or
ground lease that: (a) Tenant's use, possession and enjoyment of the
Premises shall not be disturbed and this Lease shall continue in full force
and effect as long as Tenant is not in default, and (b) this Lease shall
automatically become a lease directly between any successor to Landlord's
interest and Tenant.
16.2 The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or
operate as an assignment to Landlord of any or all subleases or
subtenancies.
16.3 If the original Landlord hereunder, or any successor owner of the Building,
sells or conveys the Building, all liabilities and obligations on the part
of the original Landlord, or the successor owner, under this Lease accruing
after the sale or conveyance shall terminate and the original Landlord, or
the successor owner, shall automatically be released therefrom, and
thereupon all of Landlord's liabilities and obligations shall be binding
upon the new owner. Tenant agrees to attorn to the new owner.
ARTICLE 17
Estoppel Certificate
17.1 At any time and from time to time, Tenant shall, within ten (10) days after
written request by Landlord, execute, acknowledge and deliver to Landlord a
certificate certifying: (a) that this Lease is unmodified and in full force
and effect (or, if there have been modifications, that this Lease is in
full force and effect as modified, and stating the date and nature of each
modification); (b) the Commencement Date and the Expiration Date determined
in accordance with Article 2 hereof and the date, if any, to which all rent
and other sums payable hereunder have been paid; (c) that no notice has
been received by Tenant of any default by Tenant hereunder that has not
been cured, except as to defaults specified in the certificate; (d) that
Landlord is not in default under this Lease, except as to defaults
specified in the certificate; and (e) any other matters that may be
reasonably requested by Landlord or any actual or prospective purchaser or
mortgage lender. Any such certificate may be relied upon by Landlord and
any actual or prospective purchaser or mortgage lender of the Building
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or any part thereof At any time and from time to time, Tenant shall, within
ten (10) days after written request by Landlord, deliver to Landlord copies
of current financial statements (including, without limitation, a balance
sheet, an income statement, and an accumulated retained earnings
statement), annual reports, and other financial and operating information
and data of Tenant prepared by Tenant in the course of Tenant's business as
reasonably requested by Landlord. Unless available to the public, Landlord
shall disclose Tenant's financial statements, annual reports and other
information or data only to actual or prospective purchasers or mortgage
lenders of the Building or any part thereof, and otherwise keep them
confidential unless other disclosure is required by law.
ARTICLE 18
Holding Over
18.1 If, without objection by Landlord, Tenant holds possession of the Premises
after expiration of the term of this Lease, Tenant shall become a tenant
from month to month upon the terms herein specified but at a Base Rent
equal to One Hundred Fifty Percent (150%) of the Base Rent in effect at the
expiration of the term of this Lease pursuant to Article 3 hereof, payable
in advance on or before the first day of each month. The month-to-month
tenancy may be terminated by either Landlord or Tenant upon thirty (30)
days' written notice of termination to the other at any time.
ARTICLE 19
Security Deposit
19.1 Upon signing this Lease, Tenant shall pay to Landlord the sum of
(the"Deposit"). The Deposit shall be held by Landlord as security for the
performance by Tenant of all of the covenants of this Lease to be performed
by Tenant, and Tenant shall be entitled to interest thereon. If Tenant
fails to perform any of the covenants of this Lease to be performed by
Tenant, then Landlord shall have the right, but no obligation, to apply the
Deposit, or so much thereof as may be necessary, to cure any failure by
Tenant. If Landlord applies the Deposit or any part thereof to cure any
failure by Tenant, then Tenant shall immediately pay to Landlord the sum
necessary to restore the Deposit to the full amount required by this
paragraph. Any remaining portion of the Deposit shall be returned to Tenant
upon termination of this Lease. Upon termination of the original Landlord's
or any successor owner's interest in the Premises or the Building, the
original Landlord or the successor owner shall be released from further
liability with respect to the Deposit upon the original Landlord's or
successor owner's compliance with California Civil Code section 1950.7.
ARTICLE 20
Letter of Credit
20.1 Tenant shall, on execution of this Lease, deliver to Landlord and cause to
be in effect during the Lease term, an unconditional, irrevocable Letter of
Credit in the amount equal to nine (9) months of the Base Rent. The Letter
of Credit shall be issued by a Letter of Credit bank selected by Tenant and
acceptable to Landlord. A Letter of Credit bank is a bank that
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accepts deposits, maintains accounts, has a local San Francisco office that
will negotiate a letter of credit, and the deposits of which are insured by
the Federal Deposit Insurance Corporation. Tenant shall pay all expenses,
points, or fees incurred by Tenant in obtaining the Letter of Credit.
20.2 The amount of the Letter of Credit shall be reduced by twenty percent (20%)
on each rental adjustment date. The replacement Letter of Credit shall be
effective at least thirty (30) days before expiration of the Letter of
Credit that it replaces. Each replacement Letter of Credit shall be issued
by a Letter of Credit bank acceptable to Landlord and shall otherwise
comply with the requirements of this Article 20.
20.3 Landlord shall hold the Letter of Credit as security for the performance of
Tenant's obligations under this Lease. If, after notice and failure to cure
within the applicable period, Tenant defaults on any provision of this
Lease, Landlord may, without prejudice to any other remedy it has, draw on
that portion of the Letter of Credit necessary to:
a) Pay any rent or other sum in default;
b) Pay or reimburse Landlord for any amount that Landlord may spend or
become obligated to spend in exercise Landlord's rights under Article
13; or
c) Compensate Landlord for any expense, loss or damage that Landlord may
suffer because of Tenant's default.
If Tenant fails to renew or replace the Letter of Credit at least thirty
(30) days before its expiration, Landlord may, without prejudice to any
other remedy it has, draw on all of the Letter of Credit.
ARTICLE 21
Waiver
21.1 The waiver by Landlord or Tenant of any breach of any covenant in this
Lease shall not be deemed to be a waiver of any subsequent breach of the
same or any other covenant in this Lease, nor shall any custom or practice
which may grow up between Landlord and Tenant in the administration of this
Lease be construed to waive or to lessen the right of Landlord or Tenant to
insist upon performance by Landlord or Tenant in strict accordance with
this Lease. The subsequent acceptance of rent hereunder by Landlord or the
payment of rent by Tenant shall not waive any preceding breach by Tenant of
any covenant in this Lease, nor cure any Event of Default, nor waive any
forfeiture of this Lease or unlawful detainer action, other than the
failure of Tenant to pay the particular rent so accepted, regardless of
Landlord's or Tenant's knowledge of the preceding breach at the time of
acceptance or payment of that rent.
ARTICLE 22
Notices
22.1 All requests, approvals, consents, notices and other communications given
by Landlord or
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Tenant under this Lease shall be properly given only if made in writing and
either deposited in the United States mail, postage prepaid, certified with
return receipt requested, or delivered by hand (which may be through a
messenger or recognized delivery or courier service) and addressed, if to
Landlord, at the address of Landlord specified in the Basic Lease
Information, or at another place as Landlord may from, time to time
designate in a written notice to Tenant, or if to Tenant before the
Commencement Date, at the address of Tenant specified in the Basic Lease
Information, and after the Commencement Date at the Premises, or at another
place as Tenant may from time to time designate in a written notice to
Landlord. All requests, approvals, consents, notices and other
communications shall be effective on the date of receipt as evidenced by
the certified mail receipt if mailed, or on the date of delivery if hand-
delivered.
ARTICLE 23
Improvements
23.1 Landlord shall, at Landlord's sole cost and expense, make the improvements
to the Building which are specified in Exhibit "C" attached hereto. It is
expected that Landlord will substantially complete the construction of the
improvements specified in Exhibit "C" and Exhibit "D" attached hereto by
November 1, 1999. The term "substantial completion," shall be as defined by
the American Institute of Architects ("AIA") in AIA Document C704, a copy
of which is attached hereto as Exhibit "E." If the improvements are not
substantially completed by November 1, 1999 Tenant shall have the right to
terminate this Lease by giving Landlord written notice of election to
cancel the Lease within ten (10) days after November 1, 1999.
Notwithstanding the foregoing, the date of completion of the Landlord's
construction shall not affect the Tenant's obligation to pay rent as set
forth in paragraph 3.1.
23.2 Tenant shall be entitled to a tenant improvement allowance (the "Tenant
Improvement Allowance) in the amount of $20 for each of the 21,504 rentable
square feet of the Building for the costs relating to the design and
construction of Tenant's improvements which are permanently affixed to the
Premises (the "Tenant Improvements"). In no event shall Landlord be
obligated to make disbursements for Tenant Improvements in a total amount
which exceeds the Tenant Improvement Allowance. If upon completion of the
work specified in Exhibits C and D the entire Tenant Improvement Allowance
is not exhausted, the remaining balance shall be paid to Tenant in the form
of a Base Rent credit in an equivalent amount.
23.3 The Tenant Improvement Allowance shall be disbursed by Landlord for costs
related to the construction of the Tenant Improvements. The Tenant
Improvements are specified in Exhibit D. The costs of the Tenant
Improvements covered by the Tenant Improvement Allowance shall include:
a) Professional fees for architects and engineers and the costs of
documents and materials supplied by Landlord and Landlord's consultant
in connection with the preparation and review of construction drawings
for Tenant Improvements specified in Exhibit D;
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b) The cost of any changes to the construction drawings or Tenant
Improvements required by Code;
c) Any overhead costs associated with the construction of the Tenant
Improvements such as equipment rental, utilities and off-site parking
charges.
23.4 Landlord has established specifications for the Building standard
components to be used in construction of the Tenant Improvements in the
Building which specifications shall be supplied to Tenant by Landlord. The
quality of Tenant Improvements shall be equal to or of greater quality than
the quality of the specifications, provided that Landlord may, at
Landlord's reasonable discretion, require the Tenant Improvements to comply
with certain specifications. Landlord may make reasonable changes to the
specifications from time to time.
23.5 Landlord shall retain the architect to prepare construction drawings.
Landlord shall retain the engineer to prepare all plans and engineering
drawings related to the Tenant Improvements. The plans and drawings to be
prepared by Architect and Engineer shall be known collectively as the
"Construction Drawings." All Construction Drawings shall reflect the design
and specifications requested by Tenant and shall be subject to Landlord's
and Tenant's reasonable approval. Landlord's review of the Construction
Drawings shall be for its sole purpose and shall not imply Landlord's
review of the same, or obligate Landlord to review the same, for quality,
design, code compliance or other like matters. Landlord shall not be
responsible for any omissions or errors contained in the Construction
Drawings.
23.6 Landlord shall submit the Construction Drawings to the appropriate
municipal authorities for all applicable building permits necessary to
commence and fully complete the construction of the Tenant Improvements.
Landlord hereby agrees that neither Tenant nor Tenant's consultants shall
be responsible for obtaining any building permit or certificate of
occupancy for the Building and that obtaining the same shall be the
Landlord's responsibility; provided, however, that Tenant shall, in any
event, cooperate with Landlord in executing permit applications and
performing other administerial acts reasonably necessary to enable Landlord
to obtain any such permit or certificate of occupancy.
23.7 After the Construction Drawings are approved by Landlord and Tenant, the
Landlord will provide Tenant with a cost proposal which shall include, as
nearly as possible, the cost of all Tenant Improvement Allowance Items to
be incurred by Tenant in. connection with the design and construction of
the Tenant Improvements. Tenant shall approve the cost proposal of the
contractor whom Tenant elects for Landlord to retain to construct the
Tenant improvements. Landlord shall thereafter be released by Tenant to
engage the contractor to commence the construction of the Tenant
Improvements.
23.8 If the approved Cost Proposal exceeds the Tenant Improvement Allowance,
Tenant shall deliver to Landlord cash in an amount (the "Over-Allowance
Amount") equal to the difference between (i) the amount of the Cost
Proposal and (ii) the amount of the Tenant Improvement Allowance. The Over-
Allowance Amount shall be disbursed by Landlord
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prior to the disbursement of any then-remaining portion of the Tenant
Improvement Allowance, and such disbursements shall be pursuant to the
same procedure as the Tenant Improvement Allowance. In the event that,
after the cost proposal is approved by Tenant, any revisions, changes, or
substitutions shall be made to the Construction Drawings or the Tenant
Improvements, except revisions, changes and substitutions made by Landlord
or upon Landlord's request, any additional costs which arise in connection
with such revisions, changes or substitutions or any other additional
costs shall be paid by Tenant to Landlord immediately upon Landlord's
request as an addition to the Over-Allowance Amount.
23.9 Landlord hereby assigns to Tenant all warranties and guarantees by
Contractor relating to the Tenant Improvements, and Tenant hereby waives
all claims against Landlord relating to or arising out of construction of
the Tenant Improvements, except for claims arising from Landlord's direct
negligence or willful misconduct.
23.10 Tenant has designated David Fraze as its sole representative with respect
to the matters set forth in this Article 23 who, until further notice to
Landlord, shall have full authority and responsibility to act on behalf of
the Tenant as is required in this article.
23.11 Landlord has designated Greg Faulkner as its sole representative with
respect to the matters set forth in this Article 23 who, until further
notice to Tenant, shall have full authority and responsibility to act on
behalf of the Landlord as required in this article.
23.12 Notwithstanding provision to the contrary contained in this Lease, if an
event vent of default as described in Article 13 of the Lease, or a
default by Tenant under this Article 23, has occurred at any time or
before the substantial completion of the Tenant Improvements, then, in
addition to all the rights and remedies granted to Landlord pursuant to
the Lease, Landlord shall have the right to withhold payment of all or any
portion of the Tenant Improvement Allowance and/or Landlord may cause
Contractor to cease the construction of the Tenant Improvements. In
addition, all other obligations of Landlord under the terms of this
Article 23 shall be forgiven until such time as such default is cured
pursuant to the terms of the Lease.
ARTICLE 24
Miscellaneous
24.1 The words "Landlord" and "Tenant" as used herein shall include the plural
as well as the singular. The words "'include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation." If
there is more than one Tenant, the obligations hereunder imposed upon
Tenant shall be joint and several. Time is of the essence of this Lease
and each and all of its provisions. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant. Subject to Article 11
hereof, this Lease shall benefit and bind Landlord and Tenant and the
personal representatives, heirs, successors and assigns of Landlord and
Tenant. Tenant shall not use the name of the Building for any purpose
whatsoever other than as the address of
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Tenant at the Premises. If any provision of this Lease is determined to be
illegal or unenforceable, that determination shall not affect any other
provision of this Lease and all other provisions shall remain in full force
and effect.
24.2 Tenant acknowledges that the late payment by Tenant of any monthly
installment of Base Rent or additional monthly rent will cause Landlord to
incur costs and expenses, the exact amount of which is extremely difficult
and impractical to fix. These costs and expenses will include
administration and collection costs and processing and accounting expenses.
Therefore, if any monthly installment of Base Rent or additional monthly
rent is not received by Landlord within ten (10) days after payment is due,
Tenant shall immediately pay to Landlord a late charge equal to four
percent (4%) of the delinquent installment. Landlord and Tenant agree that
this late charge represents a reasonable estimate of the costs and expenses
and is fair compensation to Landlord for the loss suffered by Tenant's
failure to make timely payment. In no event shall the late charge be deemed
to grant to Tenant a grace period or extension of time within which to pay
any monthly rent or prevent Landlord from exercising any right or enforcing
any remedy available to Landlord upon Tenant's failure to pay each
installment of monthly rent due under this Lease in a timely fashion,
including the right to terminate this Lease. All amounts of money payable
by Tenant to Landlord hereunder, if not paid when due, shall bear interest
from the due date until paid at the lesser of the maximum annual interest
rate allowed by law for business loans (not primarily for personal, family
or household purposes) not exempt from the usury law at the due date or
twelve percent (12%) per annum.
24.3 If there is any legal action or proceeding between Landlord and Tenant to
enforce this lease or to protect or establish any right or remedy under
this Lease, the unsuccessful party to the action or proceeding shall pay to
the prevailing party all costs and expenses, including reasonable
attorneys' fees and disbursements, incurred by such prevailing party in the
action or proceeding and in any appeal in connection therewith. If the
prevailing party recovers a judgment in any such action, proceeding or
appeal, its costs, expenses and attorneys' fees and disbursements shall be
included in and as a part of the judgment.
24.4 There are no oral agreements between Landlord and Tenant affecting this
Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, brochures, offers, agreements and
understandings, oral or written, if any, between Landlord and Tenant or
displayed by Landlord or Tenant with respect to the subject matter of this
Lease, the Premises or the Building. There are no representations between
Landlord and Tenant or between any real estate broker and Tenant other than
those expressly set forth in this Lease and all reliance with respect to
any representations is solely upon representations expressly set forth in
this Lease. This Lease may not be amended or modified in any respect
whatsoever except by an instrument in writing signed by Landlord and
Tenant.
24.5 Landlord shall be solely responsible for payment of any real estate
brokerage commissions owed to the Landlord's and Tenant's respective
brokers as a consequence of this Lease. Landlord shall indemnify, protect,
defend and hold harmless the Tenant against all claims, demands, losses,
liabilities, judgements and expenses for any real estate commission alleged
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to be owing to the other's real estate broker upon the execution and
commencement of this Lease. Landlord's obligations hereunder shall not
extend to any claim made for a broker commission, finder's fee, referral
fee, or other compensation by a broker who is not specified in the Basic
Lease Information.
24.6 This Lease shall be governed by and construed in accordance with the laws
of the State of California. All exhibits attached to this Lease are thereby made
a part of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date
set forth below.
LANDLORD:
TRANOD, a California general partnership
Dated: 7/15, 1999 By /s/ GREG FAULKNER
---- -----------------
Greg Faulkner, Partner
Dated: 7/15, 1999 By /s/ ART KERMOYAN
---- ----------------
Art Kermoyan, Partner
TENANT:
PETOPIA.COM
Dated: 7/15, 1999 By /s/ DAVID FRAZE
---------------
David Fraze, CFO
Dated: ______________, 1999 By _____________________
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EXHIBIT 10.36
Loan and Security Agreement
Borrower: PETOPIA.COM, INC.
Address: 1200 Folsom Street
San Francisco, California 94103
Date: January 31, 2000
This Loan and Security Agreement is entered into on the above date between
GREYROCK CAPITAL, a division of Banc of America Commercial Finance Corporation
(Greyrock), whose address is 10880 Wilshire Blvd. Suite 1850, Los Angeles, CA
90024 and the borrower named above (Borrower), whose chief executive office is
located at the above address (Borrower's Address). The Schedule to this
Agreement (the Schedule) being signed concurrently is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set forth in
Section 8 below.)
1. LOAN.
1.1 Term Loan. Greyrock will make a term loan to Borrower (the Loan), in the
amount (the Term Loan Limit) shown on the Schedule, provided no Default or Event
of Default has occurred and is continuing. The Loan shall be repayable in
accordance with terms of the Secured Promissory Note executed concurrently
herewith by Borrower in favor of Greyrock.
1.2 Interest. The Loan and all other monetary Obligations shall bear interest
at the rate shown on the Schedule, except where expressly set forth to the
contrary in this Agreement or in another written agreement signed by Greyrock
and Borrower. Interest shall be payable monthly, on the last day of the month.
Interest may, in Greyrock's discretion, be charged to Borrower's loan account,
and the same shall thereafter bear interest at the same rate as the Loan.
1.3 Fees. Borrower shall pay Greyrock the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Greyrock and are not
refundable.
1.4 Manner of Payments. All payments by Borrower hereunder (including
principal and interest payments) shall be made in lawful money of the United
States of America, on the date on which such payment shall be due. If a payment
hereunder becomes due and payable on a Saturday, Sunday or legal holiday, the
due date thereof shall be extended to the next succeeding Business Day, and
interest shall be payable thereon during such extension.
2. SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Greyrock a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the Collateral): All Receivables,
Inventory, Equipment, Investment Property and General Intangibles, including,
without limitation, all of Borrower's Deposit Accounts, all money, all
collateral in which Greyrock is granted a security interest pursuant to any
other present or future agreement, all property now or at any time in the future
in Greyrock's possession, and all proceeds (including proceeds of any insurance
policies, proceeds of proceeds and claims against third parties), all products
of the foregoing, and all books and records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
In order to induce Greyrock to enter into this Agreement and to make the Loan,
Borrower represents and warrants to Greyrock as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is and will continue to
be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement
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Greyrock Capital Loan and Security Agreement
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or instrument which is binding upon Borrower or its property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Greyrock 30 days' prior written notice before changing its
name. Borrower shall promptly provide notice to Greyrock if Borrower conducts
business under any fictitious name. Borrower has complied, and will in the
future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Greyrock prior written notice
before opening any additional place of business, changing its chief executive
office, or moving any material portion of the Collateral to a location other
than Borrower's Address or one of the locations set forth on the Schedule.
3.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Greyrock now has, and will
continue to have, a first-priority perfected and enforceable security interest
in all of the Collateral, subject only to the Permitted Liens, and Borrower will
at all times defend Greyrock and the Collateral against all claims of others. So
long as any loan is outstanding which is a term loan, none of the Collateral now
is or will be affixed to any real property in such a manner, or with such
intent, as to become a fixture. Borrower is not and will not become a lessee
under any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral and no such lease now prohibits, restrains, impairs or
will prohibit, restrain or impair Borrower's right to remove any Collateral from
the leased premises. Whenever any Collateral is located upon premises in which
any third party has an interest (whether as owner, mortgagee, beneficiary under
a deed of trust, lien or otherwise), Borrower shall, whenever requested by
Greyrock, use its best efforts to cause such third party to execute and deliver
to Greyrock, in form acceptable to Greyrock, such waivers and subordinations as
Greyrock shall specify, so as to ensure that Greyrock's rights in the Collateral
are, and will continue to be, superior to the rights of any such third party.
Borrower will keep in full force and effect, and will comply with all the terms
of, any lease of real property where any of the Collateral now or in the future
may be located.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in good
working condition, ordinary wear and tear excepted, and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise
Greyrock in writing of any material loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 Financial Condition, Statements and Reports. All financial statements now
or in the future delivered to Greyrock have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and fairly reflect in all material respects the financial
condition of Borrower, at the times and for the periods therein stated. Between
the last date covered by any such statement provided to Greyrock and the date
hereof, there has been no material adverse change in the financial condition or
business of Borrower. Borrower is currently solvent.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all material tax returns and reports required by
applicable law, and Borrower has timely paid, and will timely pay, all
applicable taxes, assessments, deposits and contributions now or in the future
owed by Borrower. Borrower may, however, defer payment of any contested taxes,
provided that Borrower (i) in good faith contests Borrower's obligation to pay
the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies Greyrock in writing of the commencement of, and any
material development in, the proceedings, and (iii) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon any
of the Collateral. Borrower is unaware of any claims or adjustments proposed for
any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue to
pay all amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and Borrower has
not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guarantee Corporation or any other governmental
agency. Within ninety (90) days after the closing hereunder, Borrower shall, at
all times, maintain a separate payroll account which shall be used exclusively
for payment of payroll and payroll taxes and other items related directly to
payroll.
3.9 Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 Litigation. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Greyrock in
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Greyrock Capital Loan and Security Agreement
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writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 Use of Proceeds. All proceeds of the Loan shall be used solely for lawful
business purposes.
3.12 Board Meetings. Borrower will notify Greyrock of all meetings and actions
by written consent of the board of directors of Borrower and each committee
thereof at the same time and in the same manner as notice of any meetings or
actions by written consent of such board or committee is required to be given to
its directors who do not waive such notice. Greyrock shall have the right to
send one representative selected by Greyrock (the "Greyrock Representative") to
each such meeting, who shall be permitted to attend such meeting and any
adjournments thereof (other than any portion of such meeting devoted to
discussion of Greyrock). If Borrower receives advice from Borrower's legal
counsel that discussing a specified matter in the presence of the Greyrock
Representative might compromise Borrower's attorney-client privilege with
respect to a specified matter, Borrower may exclude the Greyrock Representative
from a meeting or a portion thereof, provided, however, that Borrower shall
promptly notify the Greyrock Representative that any exclusion from a meeting or
portion thereof was effected to preserve its attorney-client privilege. Except
as permitted under Section 5.3 hereof, Greyrock agrees to maintain, and cause
the Greyrock Representative to maintain, the confidentiality of any confidential
information of Borrower obtained by Greyrock or the Greyrock Representative in
connection with any such board of directors meeting (or any action taken by the
board of directors pursuant to written consent).
4. RECEIVABLES.
4.1 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Greyrock as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall comply
with all applicable laws and governmental rules and regulations. All signatures
and indorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
4.2 Collection of Receivables. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred and
is continuing. Upon the occurrence and during the continuation of an Event of
Default, Borrower shall hold all payments on, and proceeds of, Receivables in
trust for Greyrock, and Borrower shall deliver all such payments and proceeds to
Greyrock, within one Business Day after receipt of the same, in their original
form, duly endorsed, to be applied to the Obligations in the order set forth in
Section 9.2.
4.3 Disputes. Borrower shall notify Greyrock promptly of all material
disputes or claims relating to Receivables on the regular reports to Greyrock.
Borrower shall not forgive, or settle any material Receivable for less than
payment in full, or agree to do any of the foregoing, except that Borrower may
do so, provided that Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Greyrock on the regular reports provided to
Greyrock.
4.4 Verification. Upon the occurrence and during the continuation of an Event
of Default, Greyrock may, from time to time, verify directly with the respective
Account Debtors the validity, amount and other matters relating to the
Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Greyrock or such other name as Greyrock may choose, and Greyrock or
its designee may, at any time, notify Account Debtors that it has a security
interest in the Receivables.
4.5 No Liability. Greyrock shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Greyrock be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Greyrock from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 Insurance. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Greyrock, in such form and amounts as set
forth in the Schedule, and Borrower shall provide evidence of such insurance to
Greyrock, so that Greyrock is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Greyrock as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Greyrock. Upon receipt of the proceeds of any such
insurance, Borrower shall apply such proceeds for the replacement of the
Collateral with respect to which the insurance proceeds were paid. Greyrock may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Greyrock may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Greyrock copies of all reports made to insurance companies.
5.2 Reports. Borrower, at its expense, shall provide Greyrock with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Greyrock shall from time to time reasonably
specify.
5.3 Access to Collateral, Books and Records. At reasonable times, and on two
Business Days' notice, Greyrock, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's
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Greyrock Capital Loan and Security Agreement
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books and records. Greyrock shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Greyrock shall have
the right to disclose any such information to its auditors, regulatory agencies,
and attorneys, and pursuant to any subpoena or other legal process. The
foregoing inspections and audits shall be at Borrower's expense, provided
however, that Borrower shall not be charged more than $3,000 per audit (plus
reasonable out-of-pockets expenses), nor shall audits be done more frequently
than once per calendar year, and provided further, that the foregoing limits
shall not apply after the occurrence of a Default or Event of Default, nor shall
they restrict Greyrock's right to conduct one addition audit per calendar year
at its own expense (whether or not a Default or Event of Default has occurred).
Borrower will not enter into any agreement with any accounting firm, service
bureau or third party to store Borrower's books or records at any location other
than Borrower's Address, without first obtaining Greyrock's written consent,
which may be conditioned upon such accounting firm, service bureau or other
third party agreeing to give Greyrock the same rights with respect to access to
books and records and related rights as Greyrock has under this Agreement.
5.4 Remittance of Proceeds. Upon the occurrence and during the continuation
of an Event of Default, all proceeds arising from the sale or other disposition
of any Collateral shall be delivered, in kind, by Borrower to Greyrock in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Greyrock shall determine. Upon the occurrence of an Event of Default,
Borrower shall not commingle proceeds of Collateral with any of Borrower's other
funds or property, and shall hold such proceeds separate and apart from such
other funds and property and in an express trust for Greyrock. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
5.5 Negative Covenants. Except as may be permitted in the Schedule, Borrower
shall not, without Greyrock's prior written consent, not to be unreasonably
withheld or delayed, do any of the following: (i) merge or consolidate with
another corporation or entity; other mergers or consolidations that do not
result in cash payments to shareholders or other parties and the acquisition or
assumption of indebtedness exceeding in the aggregate $5,000,000 for any
individual merger or consolidation or, together with all other such mergers or
consolidations, $15,000,000 in the aggregate per calendar year and so long as
Greyrock retains a first priority perfected security interest in the surviving
entity's assets (subject to Permitted Liens); (ii) enter into any transaction
outside the ordinary course of business which is not contemplated by Borrower's
business plan (as of the date of this Agreement), other than (a) asset
acquisitions of related businesses which do not exceed $5,000,000 individually
or, together with all other such asset acquisitions, $15,000,000 in the
aggregate per calendar year (with such amount referring to the sum of the cash
purchase price plus the aggregate amount of debt assumed), and (b) strategic
alliance transactions which do not involve payments by Borrower exceeding
$5,000,000 over the life of each such transaction or, together with all other
such transactions entered into during the course of each calendar year,
$15,000,000 over the life of all such transactions in the aggregate; (iii) sell
or transfer all or substantially all of the Collateral; (iv) except as otherwise
permitted in Section 3.3 hereof, store any Inventory or other Collateral with
any warehouseman or other third party; (v) make any loans of any money or other
assets other than purchase money loans to employees for the purpose of acquiring
shares of Borrower's common stock; (vi) incur any debts, outside the ordinary
course of business, which would have a material, adverse effect on Borrower or
on the prospect of repayment of the Obligations; (vii) guarantee or otherwise
become liable with respect to the obligations of another party or entity; (viii)
pay or declare any dividends on Borrower's stock (except for dividends payable
solely in stock of Borrower); (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's stock, except pursuant to
Borrower's right of repurchase or right of first offer with respect to shares of
stock held by Borrower's employees, directors, consultants, or advisors (which
shall not exceed, however, $1,000,000 per year in the aggregate); (x) make any
change in Borrower's capital structure which would have a material adverse
effect on Borrower or on the prospect of repayment of the Obligations; (xi)
dissolve or elect to dissolve; or (xii) agree to do any of the foregoing.
5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Greyrock with respect to any Collateral or in any
manner relating to Borrower, except for suits or proceedings relating to
Greyrock's gross negligence or willful misconduct, Borrower shall, without
expense to Greyrock, make available Borrower and its officers, employees and
agents, and Borrower's books and records, without charge, to the extent that
Greyrock may deem them reasonably necessary in order to prosecute or defend any
such suit or proceeding.
5.7 Notification of Changes. Borrower will promptly notify Greyrock in
writing of any change in its executive officers or directors, the opening of any
new bank account or other deposit account, and any material adverse change in
the business or financial affairs of Borrower.
5.8 Investment Property. Upon the occurrence and during the continuation of
an Event of Default, Borrower shall deliver to Greyrock all certificated
securities included in Investment Property, with all necessary indorsements, and
obtain such account control agreements with securities intermediaries and take
such other action with respect to any Investment Property, as Greyrock shall
request, in form and substance satisfactory to Greyrock. Borrower shall have the
right to retain all Investment Property payments and distributions, unless and
until a Default or an Event of Default has occurred and is continuing. If a
Default or an Event of Default exists, Borrower shall hold all payments on, and
proceeds of, and distributions with respect to, Investment Property in trust for
Greyrock, and Borrower shall deliver all such payments, proceeds and
distributions to Greyrock, immediately upon receipt, in their original form,
duly endorsed, to be applied to the Obligations in such order as Greyrock shall
determine. Upon the occurrence and during the continuation of a Default or Event
of Default, any such distributions and payments with respect to any Investment
Property held in any securities account shall
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be held and retained in such securities account as part of the Collateral.
5.9 Further Assurances. Borrower agrees, at its expense, on request by
Greyrock, to execute all documents and take all actions, as Greyrock may deem
reasonably necessary or useful in order to perfect and maintain Greyrock's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
5.10 Indemnity. Borrower hereby agrees to indemnify Greyrock and hold Greyrock
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
attorneys' fees), of every nature, character and description, which Greyrock
may sustain or incur based upon or arising out of any of the Obligations, any
actual or alleged failure to collect and pay over any withholding or other tax
relating to Borrower or its employees, any relationship or agreement between
Greyrock and Borrower, any actual or alleged failure of Greyrock to comply with
any writ of attachment or other legal process relating to Borrower or any of its
property, or any other matter, cause or thing whatsoever occurred, done, omitted
or suffered to be done by Greyrock relating to Borrower or the Obligations
(except any such amounts sustained or incurred as the result of the gross
negligence or willful misconduct of Greyrock or any of its directors, officers,
employees, agents, attorneys, or any other person affiliated with or
representing Greyrock). Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.
6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the Maturity Date).
6.2 Early Termination. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three (3) Business Days after
written notice of termination is given to Greyrock; or (ii) by Greyrock at any
time after the occurrence of an Event of Default, without notice, effective
immediately.
6.3 Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of Greyrock, then on such date Borrower shall provide to
Greyrock cash collateral in an amount equal to 110% of the face amount of all
such letters of credit plus all interest, fees and costs due or (in Greyrock's
estimation) likely to become due in connection therewith, to secure all of the
Obligations relating to said letters of credit, pursuant to Greyrock's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Greyrock's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full. No
termination shall in any way affect or impair any right or remedy of Greyrock,
nor shall any such termination relieve Borrower of any Obligation to Greyrock,
until all of the Obligations have been paid and performed in full. Upon payment
and performance in full of all the Obligations and termination of this
Agreement, Greyrock shall promptly deliver to Borrower termination statements,
requests for reconveyances and such other documents as may be reasonably
required to terminate Greyrock's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an Event of Default under this Agreement and Borrower shall give
Greyrock immediate written notice of any Event of Default of which it becomes
aware: (a) Any warranty, representation, statement, report or certificate made
or delivered to Greyrock by Borrower or any of Borrower's officers, employees or
agents, now or in the future, shall be untrue or misleading in a material
respect; or (b) Borrower shall fail to pay when due the Loan or any interest
thereon or any other monetary Obligation within three (3) Business Days after
written notice of such failure is given to Borrower; or (c) Borrower shall fail
to perform any non-monetary Obligation, which failure is not cured within ten
(10) Business Days after written notice of such failure is given to Borrower; or
(d) any levy, assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made on all or any part of the Collateral which is not cured
within ten (10) Business Days after written notice of such matter is given to
Borrower; or (e) any default or event of default occurs under any obligation
secured by a Permitted Lien in excess of two hundred fifty thousand dollars
($250,000), which is not cured within any applicable cure period or waived in
writing by the holder of the Permitted Lien; or (f) Borrower breaches any
material contract or obligation, which has or may reasonably be expected to have
a material adverse effect on Borrower's business or financial condition; or (g)
dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (h) the
commencement of any proceeding against Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
which is not cured by the dismissal thereof within 45 days after the date
commenced; or (i) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing; or (j) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset valued in excess of $250,000 pledged by any third party to
secure any or all of the Obligations, or any attempt to do any of the foregoing,
or commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law; or (k) Borrower makes any payment on account of
any indebtedness or
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Greyrock Capital Loan and Security Agreement
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obligation that has been subordinated to the Obligations pursuant to a
subordination agreement other than as permitted in the applicable subordination
agreement (Greyrock acknowledges that Borrower shall be permitted to repay that
certain promissory note issued to the former holders of C/R Catalog Corp. in
accordance with the subordination agreement entered into in connection with such
note), or if any Person who has subordinated such indebtedness or obligations
terminates or in any way limits or terminates its subordination agreement; or
(l) 35% or more of Borrower's capital stock outstanding as of the date hereof
(calculated on a fully-diluted basis) is sold or transferred for value to
unrelated third parties, without the prior written consent of Greyrock;
provided, however, that this subsection shall not apply to shares sold or
- -------- -------
transferred between and among affiliates (so long as one of the affiliates is
currently a shareholder of Borrower) or between and among existing shareholders;
or (m) Borrower shall generally not pay its debts as they become due, or
Borrower shall conceal, remove or transfer any part of its property, with intent
to hinder, delay or defraud its creditors, or make or suffer any transfer of any
of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or (n) there shall be a material adverse change in
Borrower's business or financial condition. Greyrock may cease making any Loan
hereunder during any of the above cure periods, and thereafter if an Event of
Default has occurred.
7.2 Remedies. Upon the occurrence and during the continuance of any Event of
Default, Greyrock, at its option, and without notice or demand of any kind (all
of which are hereby expressly waived by Borrower), may do any one or more of the
following: (a) Cease making the Loan or otherwise extending credit to Borrower
under this Agreement or any other document or agreement; (b) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (c) Take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes Greyrock without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Greyrock deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Greyrock seek to take possession of
any of the Collateral by Court process, Borrower hereby irrevocably waives: (i)
any bond and any surety or security relating thereto required by any statute,
court rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof, and (iii) any requirement that Greyrock retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Greyrock at places designated by Greyrock which are reasonably convenient to
Greyrock and Borrower, and to remove the Collateral to such locations as
Greyrock may deem advisable; (e) Complete the processing, manufacturing or
repair of any Collateral prior to a disposition thereof and, for such purpose
and for the purpose of removal, Greyrock shall have the right to use Borrower's
premises, vehicles, hoists, lifts, cranes, equipment and all other property
without charge; (f) Collect, receive, dispose of and realize upon any Investment
Property, including withdrawal of any and all funds from any securities
accounts; (g) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Greyrock obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Greyrock shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Greyrock deems reasonable, or on Greyrock's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Greyrock may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(h) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Greyrock to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Greyrock's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables,
General Intangibles and the like for less than face value; and (i) Demand and
receive possession of any of Borrower's federal and state income tax returns and
the books and records utilized in the preparation thereof or referring thereto.
Borrower recognizes that Greyrock may be unable to make a public sale of any or
all of the Investment Property, by reasons of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonable sale. All
reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Greyrock with respect to the foregoing shall be added to and become
part of the Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.
7.3 Standards for Determining Commercial Reasonableness. Borrower and
Greyrock agree that a sale or other disposition (collectively, sale) of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
nonspecific terms; (iii) The sale is conducted at a place designated by
Greyrock, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m; (v) Payment of the
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Greyrock Capital Loan and Security Agreement
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purchase price in cash or by cashier's check or wire transfer is required; (vi)
With respect to any sale of any of the Collateral, Greyrock may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. Greyrock shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 Power of Attorney. Upon the occurrence and during the continuance of any
Event of Default, without limiting Greyrock's other rights and remedies,
Borrower grants to Greyrock an irrevocable power of attorney coupled with an
interest, authorizing and permitting Greyrock (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Greyrock
agrees to exercise the following powers in a commercially reasonable manner: (a)
Execute on behalf of Borrower any documents that Greyrock may, in its sole
discretion, deem advisable in order to perfect and maintain Greyrock's security
interest in the Collateral, or in order to exercise a right of Borrower or
Greyrock, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements; (b) Execute
on behalf of Borrower any document exercising, transferring or assigning any
option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Greyrock's Collateral or
in which Greyrock has an interest; (c) Execute on behalf of Borrower, any
invoices relating to any Receivable, any draft against any Account Debtor and
any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice
of Lien, claim of mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (d) Take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into Greyrock's possession; (e) Endorse all
checks and other forms of remittances received by Greyrock; (f) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Receivables and General Intangibles for less than
face value and execute all releases and other documents in connection therewith;
(h) Pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both; (i) Settle and adjust, and give releases
of, any insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Greyrock the same rights
of access and other rights with respect thereto as Greyrock has under this
Agreement; (k) Execute and deliver to any securities intermediary or other
Person any entitlement order, account control agreement or other notice,
document or instrument with respect to any Investment Property, and (1) Take any
action or pay any sum required of Borrower pursuant to this Agreement and any
other present or future agreements. Any and all reasonable sums paid and any
and all reasonable costs, expenses, liabilities, obligations and reasonable
attorneys' fees incurred by Greyrock with respect to the foregoing shall be
added to and become part of the Obligations, shall be payable on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations. In no event shall Greyrock's rights under the foregoing
power of attorney or any of Greyrock's other rights under this Agreement be
deemed to indicate that Greyrock is in control of the business, management or
properties of Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by Greyrock first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Greyrock in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Greyrock shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Greyrock for any deficiency.
If Greyrock, in its sole discretion, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Greyrock shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Greyrock of the cash therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, Greyrock shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Greyrock and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Greyrock of one or more of its rights or remedies shall not be deemed an
election, nor bar Greyrock from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Greyrock to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
Account Debtor means the obligor on a Receivable.
--------------
Affiliate means, with respect to any Person, a relative, 10% partner, 10%
---------
shareholder, director, or officer of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.
Agreement and this Agreement means this Loan and Security Agreement and all
--------- --------------
modifications and amendments thereto, extensions thereof, and replacements
therefor.
Business Day means a day on which Greyrock is open for business.
------------
Code means the Uniform Commercial Code as adopted and in effect in the State
----
of California from time to time.
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Greyrock Capital Loan and Security Agreement
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Collateral has the meaning set forth in Section 2.1 above.
----------
Default means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
Deposit Account has the meaning set forth in Section 9105 of the Code.
---------------
Equipment means all of Borrower's present and hereafter acquired machinery,
---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
Event of Default means any of the events set forth in Section 7.1 of this
----------------
Agreement.
General Intangibles means all general intangibles of Borrower, whether now
-------------------
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Greyrock, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other insurance),
tax refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).
Guarantor means any Person who has guaranteed any of the Obligations.
---------
Inventory means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
Investment Property means any and all investment property of Borrower,
-------------------
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise, wherever
located, and whether now existing or hereafter acquired or arising.
Obligations means the Loan and all present and future loans, advances, debts,
-----------
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Greyrock, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Greyrock in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, loan fees,
termination fees, minimum interest charges and any other sums chargeable to
Borrower under this Agreement or under any other present or future instrument or
agreement between Borrower and Greyrock.
Permitted Liens means the following: (i) purchase money security interests in
---------------
specific items of Equipment; (ii) leases of specific items of Equipment; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
which are subordinate to the security interest in favor of Greyrock and are
consented to in writing by Greyrock (which consent shall not be unreasonably
withheld); (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Greyrock will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Greyrock's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Greyrock,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
Person means any individual, sole proprietorship, partnership, joint venture,
------
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
Prime Rate means the variable rate of interest, per annum, most recently
----------
announced by Bank of America, N.A., as its "prime rate" or "reference rate," as
the case may be, irrespective of whether such announced rate is the best rate
available from such financial institution. If the Prime Rate, as defined, is
unavailable, "Prime Rate" shall mean the highest of the prime rates published in
the
-8-
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Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
Wall Street Journal, as the base rate on corporate loans at large U.S. money
center commercial banks.
Receivables means all of Borrower's now owned and hereafter acquired accounts
-----------
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, documents and all other forms of obligations at any
time owing to Borrower, all guaranties and other security therefor, all
merchandise returned to or repossessed by Borrower, and all rights of stoppage
in transit and all other rights or remedies of an unpaid vendor, lienor or
secured party.
Other Terms All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Greyrock
(including payment of the Obligations in full) shall be deemed applied by
Greyrock on account of the Obligations on the Business Day of receipt by
Greyrock of immediately available funds. Greyrock may charge Borrower's Loan
account for the amount of any item of payment which is returned to Greyrock
unpaid.
9.2 Application of Payments. All payments with respect to the Obligations
shall be applied, to the Obligations, as follows: first, to cost, fees and
expenses referred to herein, next to accrued and unpaid interest, and the
remaining balance to the payment of principal.
9.3 Charges to Account. Greyrock may, in its discretion, require that
Borrower pay monetary Obligations in cash to Greyrock, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loan.
9.4 Monthly Accountings. Greyrock shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Greyrock), unless Borrower
notifies Greyrock in writing to the contrary within sixty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 Notices. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Greyrock or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 Integration. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Greyrock and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
-----------------
understandings, representations or agreements between the parties which are not
- -------------------------------------------------------------------------------
set forth in this Agreement or in other written agreements signed by the parties
- --------------------------------------------------------------------------------
in connection herewith.
- -----------------------
9.8 Waivers. The failure of Greyrock at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Greyrock shall not waive or
diminish any right of Greyrock later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Greyrock shall be deemed to have been
waived by any act or knowledge of Greyrock or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Greyrock and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Greyrock on which Borrower is or may in any way be liable, and notice of any
action taken by Greyrock, unless expressly required by this Agreement.
9.9 Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Greyrock.
9.10 Time of Essence. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.
9.11 Attorneys Fees and Costs. Borrower shall reimburse Greyrock for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Greyrock, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Greyrock incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books
-9-
<PAGE>
Greyrock Capital Loan and Security Agreement
- --------------------------------------------------------------------------------
and records; protect, obtain possession of, lease, dispose of, or otherwise
enforce Greyrock's security interest in, the Collateral; and otherwise represent
Greyrock in any litigation relating to Borrower; provided, however, that the
fees and costs incurred by Greyrock in connection with or relating to the
preparation, negotiation and consummation of this Agreement and the documents
relating hereto shall not exceed twenty-five thousand dollars ($25,000). If
either Greyrock or Borrower files any lawsuit against the other predicated on a
breach of this Agreement, the prevailing party in such action shall be entitled
to recover its reasonable costs and attorneys' fees, including (but not limited
to) reasonable attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Greyrock may be entitled pursuant to this
Paragraph shall immediately become part of Borrower's Obligations, shall be due
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
9.12 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Greyrock; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Greyrock, and any prohibited assignment
shall be void. No consent by Greyrock to any assignment shall release Borrower
from its liability for the Obligations.
9.13 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 Limitation of Actions. Any claim or cause of action by Borrower against
Greyrock, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Greyrock,
its directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Greyrock, or on any other person
authorized to accept service on behalf of Greyrock, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Greyrock in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.15 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Greyrock acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Greyrock or Borrower under any
rule of construction or otherwise.
9.16 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Greyrock and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Greyrock to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Greyrock's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.17 Mutual Waiver of Jury Trial. BORROWER AND GREYROCK EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GREYROCK OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
Borrower:
PETOPIA.COM, INC.,
a Delaware corporation
By /s/ GREGORY SMITH
-----------------
By
-----------------
Greyrock:
GREYROCK CAPITAL,
a division of Banc of America Commercial
Finance Corporation
By
------------------
Title
---------------
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<PAGE>
EXHIBIT 10.37
- --------------------------------------------------------------------------------
SECURED PROMISSORY NOTE
$10,000,000.00 Los Angeles, California
January 31, 2000
FOR VALUE RECEIVED, the undersigned (Borrower) promises to pay to the order
of GREYROCK CAPITAL, a division of Banc of America Commercial Finance
Corporation (Greyrock), at 10880 Wilshire Blvd. Suite 1850, Los Angeles, CA
90024, or at such other address as the holder of this Note shall direct, the
principal sum of $10,000,000.00, payable in the amount of $833,333.34 principal
per month, plus interest as hereinafter provided, commencing on January 31,
2001, and continuing on the last day of each succeeding month, until the earlier
of the following dates (the Final Payment Date): (i) January 31, 2002, or (ii)
the date the Loan and Security Agreement between Borrower and Greyrock dated
January 31, 2000 (the Loan Agreement) terminates by its terms or is terminated
by either party in accordance with its terms. On the Maturity Date the entire
remaining unpaid principal balance of this Note, plus any and all accrued and
unpaid interest, shall be due and payable. Notwithstanding the foregoing, if the
Additional Capital (as defined in the Schedule to the Loan Agreement) is not
received by Borrower on or before January 31, 2001, then the entire remaining
unpaid principal balance of this Note, plus any and all accrued and unpaid
interest, shall be due and payable in full on January 31, 2001.
This Note shall bear interest on the unpaid principal balance hereof from
time to time outstanding at a rate equal to the following: The interest rate in
effect throughout each calendar month during the term of this Note shall be the
highest Prime Rate in effect during such month, plus 2.0% per annum, provided
that the interest rate in effect in each month shall not be less than 8.0% per
annum. Interest shall be calculated on the basis of a 360-day year for the
actual number of days elapsed. Prime Rate has the meaning set forth in the Loan
Agreement.
Accrued interest on this Note shall be payable monthly, in addition to the
principal payments provided above, commencing on January 31, 2000, and
continuing on the last day of each succeeding month. Any accrued interest not
paid when due shall bear interest at the same rate as the principal hereunder.
Principal of and interest on this Note shall be payable in lawful money of
the United States of America. If a payment hereunder becomes due and payable on
a Saturday, Sunday or legal holiday, the due date thereof shall be extended to
the next succeeding business day, and interest shall be payable thereon during
such extension.
In the event any payment of principal or interest on this Note is not paid
in full when due, or if any other default or event of default occurs hereunder,
under the Loan Agreement or under any other present or future instrument,
document, or agreement between Borrower and Greyrock (collectively, Events of
Default), Greyrock may, at its option, at any time thereafter, declare the
entire unpaid principal balance of this Note plus all accrued interest to be
immediately due and payable, without notice or demand. The acceptance of any
installment of principal or interest by Greyrock after the time when it becomes
due, as herein specified, shall not be held to establish a custom, or to waive
any rights of Greyrock to enforce payment when due of any further installments
or any other rights, nor shall any failure or delay to exercise any rights be
held to waive the same.
All payments hereunder are to be applied first to costs and fees referred
to hereunder, second to the payment of accrued interest and the remaining
balance to the payment of principal. Any principal prepayment hereunder shall be
applied against principal payments in the inverse order of maturity.
Borrower agrees to pay all reasonable costs and expenses (including without
limitation reasonable attorney's fees) incurred by Greyrock in connection with
or related to this Note, or its enforcement, whether or not suit be brought.
Borrower hereby waives presentment, demand for payment, notice of dishonor,
notice of
-1-
<PAGE>
nonpayment, protest, notice of protest, and any and all other notices and
demands in connection with the delivery, acceptance, performance, default, or
enforcement of this Note, and Borrower hereby waives the benefits of any statute
of limitations with respect to any action to enforce, or otherwise related to,
this Note.
This Note is secured by the Loan Agreement and all other present and future
security agreements between Borrower and Greyrock. Nothing herein shall be
deemed to limit any of the terms or provisions of the Loan Agreement or any
other present or future document, instrument or agreement, between Borrower and
Greyrock, and all of Greyrock's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of Greyrock, and then only to the extent therein specifically
set forth. If more than one person executes this Note, their obligations
hereunder shall be joint and several.
GREYROCK AND BORROWER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS
NOTE; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
GREYROCK AND BORROWER; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF GREYROCK OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR BORROWER; IN EACH OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
This Note is payable in, and shall be governed by the laws of, the State of
California.
PETOPIA.COM, INC.
By /s/ GREGORY SMITH
---------------------------
By ___________________________
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<PAGE>
EXHIBIT 10.38
PATENT AND TRADEMARK SECURITY AGREEMENT
This PATENT AND TRADEMARK SECURITY AGREEMENT ("Agreement"), dated as of January
31, 2000, is entered into between PETOPIA.COM, INC., a Delaware corporation
("Grantor"), which has a mailing address at 1200 Folsom Street, San Francisco,
California 94103, and GREYROCK CAPITAL, a division of Banc of America Commercial
Finance Corporation ("Greyrock"), which has a mailing address at 10880 Wilshire
Blvd., Suite 1850, Los Angeles, CA 90024.
RECITALS
A. Grantor and Greyrock are, contemporaneously herewith, entering into
that certain Loan and Security Agreement ("Loan Agreement") and other
instruments, documents and agreements contemplated thereby or related thereto
(collectively, together with the Loan Agreement, the "Loan Documents"); and
B. Grantor is the owner of certain intellectual property, identified
below, in which Grantor is granting a security interest to Greyrock.
NOW THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth and for other
good and valuable consideration, the parties hereto mutually agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. The following terms, as used in this Agreement, have the
following meanings:
"Code" means the California Uniform Commercial Code, as amended and
----
supplemented from time to time, and any successor statute.
"Collateral" means all of the following, whether now owned or
----------
hereafter acquired:
(i) Each of the trademarks and rights and interest which are
capable of being protected as trademarks (including trademarks, service
marks, designs, logos, indicia, tradenames, corporate names, company names,
business names, fictitious business names, trade styles, and other source
or business identifiers, and applications pertaining thereto), which are
presently, or in the future may be, owned, created, acquired, or used
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, and all trademark rights with respect thereto throughout the world,
including all proceeds thereof (including license royalties and proceeds of
infringement suits), and rights to renew and extend such trademarks and
trademark rights;
(ii) Each of the patents and patent applications which are
presently, or in the future may be, owned, issued, acquired, or used
(whether pursuant to a license or otherwise) by Grantor, in whole or in
part, and all patent rights with respect thereto throughout the world,
including all proceeds thereof (including license royalties and proceeds of
infringement suits), foreign filing rights, and rights to extend such
patents and patent rights;
(iii) All of Grantor's right to the trademarks and trademark
registrations listed on Exhibit A attached hereto, as the same may be
---------
updated hereafter from time to time;
<PAGE>
(iv) All of Grantor's right, title, and interest, in and to the
patents and patent applications listed on Exhibit B attached hereto, as the
---------
same may be updated hereafter from time to time;
(v) All of Grantor's right, title and interest to register
trademark claims under any state or federal trademark law or regulation of
any foreign country and to apply for, renew, and extend the trademark
registrations and trademark rights, the right (without obligation) to sue
or bring opposition or cancellation proceedings in the name of Grantor or
in the name of Greyrock for past, present, and future infringements of the
trademarks, registrations, or trademark rights and all rights (but not
obligations) corresponding thereto in the United States and any foreign
country;
(vi) All of Grantor's right, title, and interest in all
patentable inventions, and to file applications for patent under federal
patent law or regulation of any foreign country, and to request
reexamination and/or reissue of the patents, the right (without obligation)
to sue or bring interference proceedings in the name of Grantor or in the
name of Greyrock for past, present, and future infringements of the
patents, and all rights (but not obligations) corresponding thereto in the
United States and any foreign country;
(vii) the entire goodwill of or associated with the businesses
now or hereafter conducted by Grantor connected with and symbolized by any
of the aforementioned properties and assets;
(viii) All general intangibles relating to the foregoing and
all other intangible intellectual or other similar property of the Grantor
of any kind or nature, associated with or arising out of any of the
aforementioned properties and assets and not otherwise described above; and
(ix) All products and proceeds of any and all of the foregoing
(including, without limitation, license royalties and proceeds of
infringement suits) and, to the extent not otherwise included, all payments
under insurance, or any indemnity, warranty, or guaranty payable by reason
of loss or damage to or otherwise with respect to the Collateral.
"Obligations" means all obligations, liabilities, and indebtedness of
-----------
Grantor to Greyrock, whether direct, indirect, liquidated, or contingent, and
whether arising under this Agreement, the Loan Agreement, any other of the Loan
Documents, or otherwise, including all costs and expenses described in Section
9.8 hereof.
1.2 Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, and the term "including" is not limiting. The words
"hereof," "herein," "hereby," "hereunder," and other similar terms refer to this
Agreement as a whole and not to any particular provision of this Agreement. Any
initially capitalized terms used but not defined herein shall have the meaning
set forth in the Loan Agreement. Any reference herein to any of the Loan
Documents includes any and all alterations, amendments, extensions,
modifications, renewals, or supplements thereto or thereof, as applicable.
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Greyrock or Grantor, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
Grantor, Greyrock, and their respective counsel, and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of Greyrock and Grantor. Headings have
been set forth herein for convenience only, and shall not be used in the
construction of this Agreement.
<PAGE>
2. GRANT OF SECURITY INTEREST.
To secure the complete and timely payment and performance of all
Obligations, and without limiting any other security interest Grantor has
granted to Greyrock, Grantor hereby grants, assigns, and conveys to Greyrock a
security interest in Grantor's entire right, title, and interest in and to the
Collateral.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
Grantor hereby represents, warrants, and covenants that:
3.1 Trademarks; Patents. A true and complete schedule setting forth all
federal and state trademark registrations owned or controlled by Grantor or
licensed to Grantor, together with a summary description and full information in
respect of the filing or issuance thereof and expiration dates is set forth on
Exhibit A; and a true and complete schedule setting forth all patent and patent
- ---------
applications owned or controlled by Grantor or licensed to Grantor, together
with a summary description and full information in respect of the filing or
issuance thereof and expiration dates is set forth on Exhibit B.
---------
3.2 Validity; Enforceability. Each of the patents and trademarks is valid
and enforceable, and Grantor is not presently aware of any past, present, or
prospective claim by any third party that any of the patents or trademarks are
invalid or unenforceable, or that the use of any patents or trademarks violates
the rights of any third person, or of any basis for any such claims.
3.3 Title. Except for the security interest granted hereunder and the
non-exclusive licenses granted to Grantor's licensees, Grantor is the sole and
exclusive owner of the entire and unencumbered right, title, and interest in and
to each of the patents, patent applications, trademarks, and trademark
registrations, free and clear of any liens, charges, and encumbrances, including
pledges, assignments, licenses, shop rights, and covenants by Grantor not to sue
third persons.
3.4 Notice. Grantor has used and will continue to use proper statutory
notice in connection with its use of each of the patents and trademarks.
3.5 Quality. Grantor has used and will continue to use consistent
standards of high quality (which may be consistent with Grantor's past
practices) in the manufacture, sale, and delivery of products and services sold
or delivered under or in connection with the trademarks, including, to the
extent applicable, in the operation and maintenance of its merchandising
operations, and will continue to maintain the validity of the trademarks.
3.6 Perfection of Security Interest. Except for the filing of financing
statements in the appropriate governmental offices and filings with the United
States Patent and Trademark Office necessary to perfect the security interests
created hereunder, no authorization, approval, or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required
either for the grant by Grantor of the security interest hereunder or for the
execution, delivery, or performance of this Agreement by Grantor or for the
perfection of or the exercise by Greyrock of its rights hereunder to the
Collateral in the United States.
4. AFTER-ACQUIRED PATENT OR TRADEMARK RIGHTS.
If Grantor shall obtain rights to any new trademarks, any new patentable
inventions or become entitled to the benefit of any patent application or patent
for any reissue, division, or continuation, of any patent, the provisions of
this Agreement shall automatically apply thereto.
<PAGE>
Grantor shall give prompt notice in writing to Greyrock with respect to any such
new trademarks or patents, or renewal or extension of any trademark
registration. Grantor shall bear any expenses incurred in connection with future
patent applications or trademark registrations. Without limiting Grantor's
obligation under this Section 4, Grantor authorizes Greyrock to modify this
Agreement by amending Exhibits A or B to include any such new patent or
---------------
trademark rights. Notwithstanding the foregoing, no failure to so modify this
Agreement or amend Exhibits A or B shall in any way affect, invalidate or
---------------
detract from Greyrock's continuing security interest in all Collateral, whether
or not listed on Exhibit A or B.
---------------
5. LITIGATION AND PROCEEDINGS.
Grantor shall commence and diligently prosecute in its own name, as the
real party in interest, for its own benefit, and its own expense, such suits,
administrative proceedings, or other action for infringement or other damages as
are in its reasonable business judgment necessary to protect the Collateral.
Grantor shall provide to Greyrock any information with respect thereto requested
by Greyrock. Greyrock shall provide at Grantor's expense all necessary
cooperation in connection with any such suits, proceedings, or action,
including, without limitation, joining as a necessary party. Following Grantor's
becoming aware thereof, Grantor shall notify Greyrock of the institution of, or
any adverse determination in, any proceeding in the United States Patent and
Trademark Office, or any United States, state, or foreign court regarding
Grantor's claim of ownership in any of the patents or trademarks, its right to
apply for the same, or its right to keep and maintain such patent or trademark
rights.
6. POWER OF ATTORNEY.
Grantor hereby appoints Greyrock as Grantor's true and lawful attorney,
with full power of substitution, to do any or all of the following, in the name,
place and stead of Grantor: (a) file this Agreement (or an abstract hereof) or
any other document describing Greyrock's interest in the Collateral with the
United States Patent and Trademark Office; (b) execute any modification of this
Agreement pursuant to Section 4 of this Agreement; (c) take any action and
execute any instrument which Greyrock may deem necessary or advisable to
accomplish the purposes of this Agreement; and (d) following an Event of Default
(as defined in the Loan Agreement), (i) endorse Grantor's name on all
applications, documents, papers and instruments necessary for Greyrock to use or
maintain the Collateral; (ii) ask, demand, collect, sue for, recover, impound,
receive, and give acquittance and receipts for money due or to become due under
or in respect of any of the Collateral; (iii) file any claims or take any action
or institute any proceedings that Greyrock may deem necessary or desirable for
the collection of any of the Collateral or otherwise enforce Greyrock's rights
with respect to any of the Collateral, and (iv) assign, pledge, convey, or
otherwise transfer title in or dispose of the Collateral to any person.
7. RIGHT TO INSPECT.
Grantor grants to Greyrock and its employees and agents the right to visit
Grantor's plants and facilities which manufacture, inspect, or store products
sold under any of the patents or trademarks, and to inspect the products and
quality control records relating thereto in accordance with Section 5.3 of the
Loan Agreement.
8. SPECIFIC REMEDIES.
Upon the occurrence of any Event of Default (as defined in the Loan
Agreement), Greyrock shall have, in addition to, other rights given by law or in
this Agreement, the Loan Agreement, or in any other Loan Document, all of the
rights and remedies with respect to the Collateral of a secured party under the
Code, including the following:
<PAGE>
8.1 Notification. Greyrock may notify licensees to make royalty payments
on license agreements directly to Greyrock;
8.2 Sale. Greyrock may sell or assign the Collateral and associated
goodwill at public or private sale for such amounts, and at such time or times
as Greyrock deems advisable. Any requirement of reasonable notice of any
disposition of the Collateral shall be satisfied if such notice is sent to
Grantor five (5) days prior to such disposition. Grantor shall be credited with
the net proceeds of such sale only when they are actually received by Greyrock,
and Grantor shall continue to be liable for any deficiency remaining after the
Collateral is sold or collected. If the sale is to be a public sale, Greyrock
shall also give notice of the time and place by publishing a notice one time at
least five (5) days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held. To the maximum extent
permitted by applicable law, Greyrock may be the purchaser of any or all of the
Collateral and associated goodwill at any public sale and shall be entitled, for
the purpose of bidding and making settlement or payment of the purchase price
for all or any portion of the Collateral sold at any public sale, to use and
apply all or any part of the Obligations as a credit on account of the purchase
price of any collateral payable by Greyrock at such sale.
9. GENERAL PROVISIONS.
9.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Grantor and Greyrock.
9.2 Notices. Except to the extent otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing and shall be governed by the notice provisions of the
Loan Agreement.
9.3 No Waiver. No course of dealing between Grantor and Greyrock, nor any
failure to exercise nor any delay in exercising, on the part of Greyrock, any
right, power, or privilege under this Agreement or under the Loan Agreement or
any other agreement, shall operate as a waiver. No single or partial exercise of
any right, power, or privilege under this Agreement or under the Loan Agreement
or any other agreement by Greyrock shall preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege by Greyrock.
9.4 Rights Are Cumulative. All of Greyrock's rights and remedies with
respect to the Collateral whether established by this Agreement, the Loan
Agreement, or any other documents or agreements, or by law shall be cumulative
and may be exercised concurrently or in any order.
9.5 Successors. The benefits and burdens of this Agreement shall inure to
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that Grantor may not transfer any of the
Collateral or any rights hereunder, without the prior written consent of
Greyrock, except as specifically permitted hereby.
9.6 Severability. The provisions of this Agreement are severable. If any
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
9.7 Entire Agreement. This Agreement is subject to modification only by a
writing signed by the parties, except as provided in Section 4 of this
Agreement. To the extent that any provision of this Agreement conflicts with any
provision of the Loan Agreement, the provision
<PAGE>
giving Greyrock greater rights or remedies shall govern, it being understood
that the purpose of this Agreement is to add to, and not detract from, the
rights granted to Greyrock under the Loan Agreement. This Agreement, the Loan
Agreement, and the documents relating thereto comprise the entire agreement of
the parties with respect to the matters addressed in this Agreement.
9.8 Fees and Expenses. Subject to Section 9.11 of the Loan Agreement,
Grantor shall pay to Greyrock on demand all costs and expenses that Greyrock
pays or incurs in connection with the negotiation, preparation, consummation,
administration, enforcement, and termination of this Agreement, including: (a)
reasonable attorneys' and paralegals' fees and disbursements of counsel to
Greyrock; (b) costs and expenses (including reasonable attorneys' and
paralegals' fees and disbursements) for any amendment, supplement, waiver,
consent, or subsequent closing in connection with this Agreement and the
transactions contemplated hereby; (c) costs and expenses of lien and title
searches; (d) taxes, fees, and other charges for filing this Agreement at the
United States Patent and Trademark Office, or for filing financing statements,
and continuations, and other actions to perfect, protect, and continue the
security interest created hereunder; (e) sums paid or incurred to pay any amount
or take any action required of Grantor under this Agreement that Grantor fails
to pay or take; (f) costs and expenses of preserving and protecting the
Collateral; and (g) costs and expenses (including reasonable attorneys' and
paralegals' fees and disbursements) paid or incurred to enforce the security
interest created hereunder, sell or otherwise realize upon the Collateral, and
otherwise enforce the provisions of this Agreement, or to defend any claims made
or threatened against the Greyrock arising out of the transactions contemplated
hereby (including preparations for the consultations concerning any such
matters). The foregoing shall not be construed to limit any other provisions of
this Agreement or the Loan Documents regarding costs and expenses to be paid by
Grantor. The parties agree that reasonable attorneys' and paralegals' fees and
costs incurred in enforcing any judgment are recoverable as a separate item in
addition to fees and costs incurred in obtaining the judgment and that the
recovery of such attorneys' and paralegals' fees and costs is intended to
survive any judgment, and is not to be deemed merged into any judgment.
9.9 Indemnity. Grantor shall indemnify, and hold harmless Greyrock
pursuant to Section 5.10 of the Loan Agreement.
9.10 Further Assurances. At Greyrock's request, Grantor shall execute and
deliver to Greyrock any further instruments or documentation, and perform any
acts, that may be reasonably necessary or appropriate to implement this
Agreement, the Loan Agreement or any other agreement, and the documents relating
thereto, including without limitation any instrument or documentation reasonably
necessary or appropriate to create, maintain, perfect, or effectuate Greyrock's
security interests in the Collateral.
9.11 Release. At such time as Grantor shall completely satisfy all of the
Obligations and the Loan Agreement shall be terminated, Greyrock shall execute
and deliver to Grantor all assignments and other instruments as may be
reasonably necessary or proper to terminate Greyrock's security interest in the
Collateral, subject to any disposition of the Collateral which may have been
made by Greyrock pursuant to this Agreement. For the purpose of this Agreement,
the Obligations shall be deemed to continue if Grantor enters into any
bankruptcy or similar proceeding at a time when any amount paid to Greyrock
could be ordered to be repaid as a preference or pursuant to a similar theory,
and shall continue until it is finally determined that no such repayment can be
ordered.
9.12 Governing Law. The validity and interpretation of this Agreement and
the rights and obligations of the parties shall be governed by the laws of the
State of California, excluding its conflict of law rules to the extent such
rules would apply the law of another jurisdiction, and the United States. The
parties agree that all actions or proceedings arising in connection with this
Agreement shall be tried and litigated only in the state and federal courts
located in the
<PAGE>
County of Los Angeles, State of California or, at the sole option of Greyrock,
in any other court in which Greyrock shall initiate legal or equitable
proceedings and which has subject matter jurisdiction over the matter in
controversy. each of Grantor and Greyrock waives, to the extent permitted under
applicable law, any right they may have to assert the doctrine of forum non
conveniens or to object to venue to the extent any proceeding is brought in
accordance with this Section.
9.13 Waiver of Right To Jury Trial. GREYROCK AND GRANTOR EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND GRANTOR; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF GREYROCK OR GRANTOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
GREYROCK OR GRANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
GREYROCK CAPITAL, a Division of Banc PETOPIA.COM, INC.
of America Commercial Finance Corporation
By _________________________________ By /s/ GREGORY SMITH
-----------------
Title ______________________________ Title Vice President of Finance
-------------------------
<PAGE>
EXHIBIT 10.39
SECURITY AGREEMENT IN COPYRIGHTED WORKS
This Security Agreement In Copyrighted Works (this "Agreement") is made at
Los Angeles, California as of January 31, 2000, is entered into between
PETOPIA.COM, INC., a Delaware corporation ("Grantor"), which has a mailing
address at 1200 Folsom Street, San Francisco, California 94103, and GREYROCK
CAPITAL, a Division of Banc of America Commercial Finance Corporation
("Greyrock"), which has a mailing address at 10880 Wilshire Blvd., Suite 1850,
Los Angeles, CA 90024.
RECITALS
A. Greyrock is providing financing to Grantor pursuant to the Loan and
Security Agreement of even date herewith between Greyrock and Grantor (as
amended from time to time, the "Loan Agreement"). Pursuant to the Loan
Agreement, Grantor has granted to Greyrock a security interest in all of
Grantor's present and future assets, including without limitation all of
Grantor's present and future general intangibles, and including without
limitation the "Copyrights" (as defined below), to secure all of its present and
future indebtedness, liabilities, guaranties and other obligations to Greyrock.
B. To supplement Greyrock's rights in the Copyrights, Grantor is
executing and delivering this Agreement.
NOW, THEREFORE, for valuable consideration, Grantor agrees as follows:
1. Assignment. To secure the complete and timely payment and performance
----------
of all "Obligations" (as defined in the Loan Agreement), and without limiting
any other security interest Grantor has granted to Greyrock, Grantor hereby
hypothecates to Greyrock and grants, assigns, and conveys to Greyrock a security
interest in Grantor's entire right, title, and interest in and to all of the
following, now owned and hereafter acquired (collectively, the "Collateral"):
(a) Registered Copyrights and Applications for Copyright
----------------------------------------------------
Registrations. All of Grantor's present and future United States and foreign
- -------------
registered copyrights and copyright registrations, including, without
limitation, the registered copyrights listed in Schedule A to this Agreement
----------
(and including all of the exclusive rights afforded a copyright registrant in
the United States under 17 U.S.C. (S)106 and any exclusive rights which may in
the future arise by act of Congress or otherwise) and all of Grantor's present
and future applications for copyright registrations (including applications for
copyright registrations of derivative works and compilations) (collectively, the
"Registered Copyrights"), and any and all royalties, payments, and other amounts
payable to Grantor in connection with the Registered Copyrights, together with
all renewals and extensions of the Registered Copyrights, the right to recover
for all past, present, and future infringements of the Registered Copyrights,
and all computer programs, computer databases, computer program flow diagrams,
source codes, object codes and all tangible property embodying or incorporating
the Registered Copyrights, and all other rights of every kind whatsoever
accruing thereunder or pertaining thereto.
(b) Unregistered Copyrights. All of Grantor's present and future
-----------------------
copyrights which are not registered in the United States Copyright Office (the
"Unregistered Copyrights"), whether now owned or hereafter acquired, and any and
all royalties, payments, and other amounts payable to Grantor in connection with
the Unregistered Copyrights, together with all renewals and extensions of the
Unregistered Copyrights, the right to recover for all past, present, and future
infringements of the Unregistered Copyrights, and all computer programs,
computer databases, computer program flow diagrams, source codes, object codes
and all tangible property embodying or incorporating the Unregistered
Copyrights, and all other rights of every kind whatsoever accruing thereunder or
pertaining thereto. The Registered Copyrights and the Unregistered Copyrights
collectively are referred to herein as the "Copyrights."
-1-
<PAGE>
(c) Licenses. All of Grantor's right, title and interest in and to
--------
any and all present and future license agreements with respect to the Copyrights
(the "Licenses").
(d) Accounts Receivable. All present and future accounts, accounts
-------------------
receivable and other rights to payment arising from, in connection with or
relating to the Copyrights.
(e) Proceeds. All cash and non-cash proceeds of any and all of the
--------
foregoing.
2. Representations. Grantor represents and warrants that:
---------------
(a) Each of the Copyrights is valid and enforceable (except to the
extent that the Unregistered Copyrights must be registered to be enforced);
(b) Except for the security interest granted hereby and the non-
exclusive licenses granted to Grantor's licensees with respect to the Copyrights
in the ordinary course of business of Grantor, Grantor is (and upon creation of
all future Copyrights, will be) the sole and exclusive owner of the entire and
unencumbered right, title, and interest in and to each of the Copyrights and
other Collateral, free and clear of any liens, charges, or encumbrances;
(c) Grantor has no knowledge of any pending or threatened
infringement of any of the Copyrights by any third person.
(d) Listed on Schedule A are all Registered Copyrights owned by
Grantor, in which Grantor has an interest, or which are used in Grantor's
business.
(e) Each employee, agent and/or independent contractor who has
participated in the creation of the property constituting the Collateral has
either executed an assignment of his or her rights of authorship to Grantor or
is an employee of Grantor acting within the scope of his or her employment and
was such an employee at the time of said creation.
3. Covenants. Until all of the Obligations have been satisfied in full
---------
and the Loan Agreement has terminated:
(a) Grantor shall not grant a security interest in any of the
Copyrights or other Collateral to any other person and shall not enter into any
agreement or take any action that is inconsistent with Grantor's obligations
hereunder or Grantor's other Obligations or would impair Greyrock's rights,
under this Agreement or otherwise, without Greyrock's prior written consent.
(b) Grantor shall use reasonable efforts to ensure that each use of
the Copyrights described in Section 1 of this Agreement carries a complete and
accurate copyright notice.
(c) Grantor shall use its reasonable efforts to preserve and defend
Grantor's rights in material Copyrights.
(d) Grantor shall undertake all reasonable measures to cause its
employees, agents and independent contractors to assign to Grantor all rights of
authorship to any copyrighted material in which Grantor has or may subsequently
acquire any right or interest.
4. Greyrock May Supplement. Grantor authorizes Greyrock to modify this
-----------------------
Agreement by amending Schedule A to include any future copyrights to be included
in the Registered Copyrights. Grantor shall from time to time update the lists
of Registered Copyrights as Grantor obtains or acquires copyrights in the
future. Notwithstanding the foregoing, no failure to so modify this Agreement or
amend Schedule A shall in any way affect, invalidate or detract
-2-
<PAGE>
from Greyrock's continuing security interest in all Copyrights, whether or not
listed on Schedule A.
5. Default. Upon an Event of Default (as defined in the Loan Agreement)
-------
Greyrock shall have, in addition to all of its other rights and remedies under
the Loan Agreement, all rights and remedies of a secured party under the Uniform
Commercial Code (as enacted in any jurisdiction in which the Copyrights or other
Collateral are located or deemed to be located) or other applicable law. Upon
occurrence of an Event of Default, Grantor shall, upon request of Greyrock, give
written notice to all parties to the Licenses that all payments thereunder shall
be made to Greyrock, and Greyrock may itself give such notice.
6. Fees and Expenses. In accordance with Section 9.11 of the Loan
-----------------
Agreement, Grantor shall reimburse Greyrock all reasonable fees, costs, and
expenses incurred by Greyrock in connection with (a) preparing this Agreement
and all other documents relating to this Agreement, (b) consummating this
transaction, (c) filing or recording any documents (including all taxes in
connection therewith) in public offices; and (d) paying or discharging any
taxes, counsel fees, maintenance fees, encumbrances, or other amounts in
connection with protecting, maintaining, or preserving the Copyrights or
defending or prosecuting any actions or proceedings arising out of or related to
the Copyrights.
7. Greyrock's Rights. In the event that Grantor fails to use its best
-----------------
efforts to preserve and defend Grantor's rights in the Copyrights (except as
permitted by paragraph 3(c) hereof) within a reasonable period of time after
learning of the existence of any actual or threatened infringement thereof, upon
twenty (20) days prior written notice to Grantor, Greyrock shall have the right,
but shall in no way be obligated to, bring suit or take any other action, in its
own name or in Grantor's name, to enforce or preserve Greyrock's or Grantor's
fights in the Copyrights. Grantor shall at the request of Greyrock and at
Grantor's expense do any lawful acts and execute any documents requested by
Greyrock to assist with such enforcement. In the event Grantor has not taken
action to enforce or preserve Greyrock's and Grantor's rights in the Copyrights
and Greyrock thereupon takes such action, Grantor, upon demand, shall promptly
reimburse and indemnify Greyrock for all costs and expenses incurred in the
exercise of Greyrock's or Grantor's rights under this Section 8.
8. No Waiver. No course of dealing between Grantor and Greyrock, nor any
---------
failure to exercise nor any delay in exercising, on the part of Greyrock, any
right, power, or privilege under this Agreement or under the Loan Agreement or
any other agreement, shall operate as a waiver. No single or partial exercise of
any fight, power, or privilege under this Agreement or under the Loan Agreement
or any other agreement by Greyrock shall preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege by Greyrock.
9. Rights Are Cumulative. All of Greyrock's rights and remedies with
---------------------
respect to the Copyrights and other Collateral whether established by this
Agreement, the Loan Agreement, or any other documents or agreements, or by law
shall be cumulative and may be exercised concurrently or in any order.
10. Copyright Office. At the request of Greyrock, Grantor shall execute
----------------
any further documents necessary or appropriate to create and perfect Greyrock's
security interest in the Copyrights, including without limitation any documents
for filing with the United States Copyright Office and/or any applicable state
office. Greyrock may record this Agreement, an abstract thereof, or any other
document describing Greyrock's interest in the Copyrights with the United States
Copyright Office, at the expense of Grantor.
11. Indemnity. Grantor shall indemnify, and hold harmless Greyrock and
---------
Greyrock's pursuant to Section 5.10 of the Loan Agreement.
-3-
<PAGE>
12. Severability. The provisions of this Agreement are severable. If any
------------
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforcebility shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
13. Amendments; Entire Agreement. This Agreement is subject to
----------------------------
modification only by a writing signed by the parties, except as provided in
Section 5 of this Agreement. To the extent that any provision of this Agreement
conflicts with any provision of the Loan Agreement, the provision giving
Greyrock greater rights or remedies shall govern, it being understood that the
purpose of this Agreement is to add to, and not detract from, the rights granted
to Greyrock under the Loan Agreement. This Agreement, the Loan Agreement, and
the documents relating thereto comprise the entire agreement of the parties with
respect to the matters addressed in this Agreement.
14. Further Assurances. At Greyrock's request, Grantor shall execute and
------------------
deliver to Greyrock any further instruments or documentation, and perform any
acts, that may be reasonably necessary or appropriate to implement this
Agreement, the Loan Agreement or any other agreement, and the documents relating
thereto, including without limitation any instrument or documentation reasonably
necessary or appropriate to create, maintain, perfect, or effectuate Greyrock's
security interests in the Copyrights or other Collateral.
15. Release. At such time as Grantor shall completely satisfy all of the
-------
Obligations and the Loan Agreement shall be terminated, Greyrock shall execute
and deliver to Grantor all assignments and other instruments as may be
reasonably necessary or proper to terminate Greyrock's security interest in the
Copyrights, subject to any disposition of the Copyrights which may have been
made by Greyrock pursuant to this Agreement. For the purpose of this Agreement,
the Obligations shall be deemed to continue if Grantor enters into any
bankruptcy or similar proceeding at a time when any amount paid to Greyrock
could be ordered to be repaid as a preference or pursuant to a similar theory,
and shall continue until it is finally determined that no such repayment can be
ordered.
16. True and Lawful Attorney. Grantor hereby appoints Greyrock as
------------------------
Grantor's true and lawful attorney, with full power of substitution, to do any
or all of the following, in the name, place and stead of Grantor: (a) execute an
abstract of this Agreement or any other document describing Greyrock's interest
in the Copyrights, for filing with the United States Copyright Office; (b)
execute any modification of this Agreement pursuant to Section 5 of this
Agreement; and (c) following an Event of Default (as defined in the Loan
Agreement) execute any assignments, notices or transfer documents for purposes
of transferring title or right to receive any of the Copyrights or other
Collateral to any person, including without limitation Greyrock.
17. Successor. The benefits and burdens of this Agreement shall inure to
---------
the benefit of and be binding upon the respective successors and permitted
assigns of the parties; provided that Grantor may not transfer any material
portion of the Collateral or any rights hereunder, without the prior written
consent of Greyrock, except as specifically permitted hereby.
19. Governing Law. The validity and interpretation of this Agreement and
-------------
the rights and obligations of the parties shall be governed by the laws of the
State of California, excluding its conflict of law rules to the extent such
rules would apply the law of another jurisdiction, and the United States.
-4-
<PAGE>
20. Waiver of Right to Jury Trial. Greyrock and Grantor each hereby waive
-----------------------------
the right to trial by jury in any action or proceeding based upon, arising out
of, or in any way relating to:(1) this Agreement; or (ii) any other present or
future instrument or agreement between Greyrock and Grantor; or (iii) any
conduct, acts or omissions of Greyrock or Grantor or any of their directors,
officers, employees, agents, attorneys or any other persons affiliated with
Greyrock or Grantor; in each of the foregoing cases, whether sounding in
contract or tort or otherwise.
WITNESS the execution hereof as of the date first written above.
Grantor:
PETOPIA.COM, INC.
By: /s/ GREGORY SMITH
-----------------
Name (please print):
Gregory Smith
---------------------
Title: Vice President of Finance
-------------------------
Chairman of the Board, President, or Vice
President Accepted.
Greyrock:
GREYROCK CAPITAL,
a Division of Banc of America Commercial Finance Corporation
By: ___________________________
Name (please print):
_______________________________
Title:_________________________
-5-
<PAGE>
EXHIBIT 10.40
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of January 31, 2000 (as amended, supplemented or
otherwise modified, renewed or replaced from time to time, the "Pledge
Agreement") between (i) PETOPIA.COM, INC. ("Pledgor") and (ii) GREYROCK CAPITAL,
a division of Banc of America Commercial Finance Corporation ("Lender").
INTRODUCTORY STATEMENT
Pursuant to a Loan and Security Agreement dated as of January 31, 2000
between Pledgor and Lender (said agreement as it may hereafter be amended,
supplemented or otherwise modified, renewed or replaced from time to time in
accordance with its terms being the "Loan Agreement"), Lender has agreed to make
a loan (the "Loan") to Pledgor.
Pledgor owns beneficially and of record all of the issued and
outstanding shares of the capital stock of each subsidiary set forth on Schedule
1 hereto (the "Pledged Affiliates").
In order to induce Lender to enter into the Loan Agreement and make
the Loan to Pledgor and to secure the Obligations (as defined below), Pledgor is
pledging to Lender, all or a portion of the issued and outstanding shares of the
capital stock of the Pledged Affiliates as set forth on Schedule 1 hereto, all
as more fully set forth herein.
Accordingly, the parties hereto agree as follows (capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Loan Agreement):
1. Definitions. When used in this Pledge Agreement:
-----------
"Event of Default" shall mean the occurrence of an Event of Default (as
-----------------
defined in the Loan Agreement).
"Obligations" shall mean all obligations of Pledgor under the Loan
------------
Agreement and the documents and agreements relating thereto or delivered in
connection therewith, including, without limitation, all principal and interest
owing with respect to the Loan.
2. Pledge. (a) As security for payment in full of the Obligations, Pledgor
------
hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto
Lender, and grants a security interest in, (i) all or a portion the capital
stock of the Pledged Affiliates which Pledgor owns beneficially and of record,
as set forth on Schedule 1 hereto, and (ii) all
-1-
<PAGE>
proceeds of such capital stock and all other securities or other property at any
time and from time to time receivable or otherwise distributed in respect of or
in exchange for any or all of such capital stock or additional securities. All
items referred to in clauses (i) and (ii) of this Section 2 are hereinafter
referred to collectively as the "Pledged Securities".
(b) Pledgor shall deliver to Lender the certificates representing the
Pledged Securities accompanied by undated stock powers executed in blank and by
such other instruments or documents as Lender or its counsel shall reasonably
request.
(c) In the event Pledgor acquires any additional shares of capital stock of
any Pledged Affiliate or any other subsidiary or any corporation which is the
successor to subsidiary, Pledgor shall forthwith deliver to and pledge such
shares to Lender under this Pledge Agreement and shall deliver to Lender any
certificates therefor, accompanied by stock powers or other appropriate
instruments of assignment duly executed by Pledgor in blank.
(d) Pledgor authorizes Lender to modify this Pledge Agreement by amending
Schedule 1 to include any pledge of additional shares of capital stock pursuant
to Section 2(c).
3. Registration in Nominee Name; Denominations. Lender shall have the right
-------------------------------------------
(in its sole and absolute discretion) to hold the certificates representing any
Pledged Securities in its own name, the name of its nominee or in the name of
Pledgor, endorsed or assigned in blank or in favor of Lender. Upon the
occurrence and during the continuation of an Event of Default, Lender shall have
the right to exchange the certificates representing Pledged Securities for
certificates of smaller or larger denominations for any purpose consistent with
this Pledge Agreement.
4. Pledgor's Representations, Warranties and Covenants. Pledgor hereby
---------------------------------------------------
represents and warrants to and/or covenants and agrees with Lender as follows:
(i) the Pledged Securities constitute the percentage of the issued and
outstanding equity securities of each of the Pledged Affiliates as of the date
hereof, as set forth on Schedule 1 hereto;
(ii) the Pledged Securities are duly authorized, validly issued, fully paid
and non-assessable;
(iii) there are no restrictions on the transfer of the Pledged Securities
other than as a result of the Loan Agreement or applicable securities laws or
the regulations promulgated thereunder;
(iv) Pledgor has good title to the Pledged Securities;
(v) the Pledged Securities are not subject to any prior liens,
encumbrances or security interests;
-2-
<PAGE>
(vi) Pledgor has the right to pledge the Pledged Securities hereunder
free and clear of any liens, encumbrances or security interests and without the
consent of any other person or any government agency whatsoever;
(vii) Pledgor has full power and authority to execute, deliver and
perform this Pledge Agreement and to pledge the Pledged Securities hereunder;
(viii) Pledgor will not take any action to allow any additional equity
securities of the Pledged Affiliates to be issued or grant any options or
warrants, unless such securities are pledged to Lender, on terms satisfactory to
Lender as security for the Obligations;
(ix) the execution, delivery and performance of this Pledge Agreement
will not violate any provision of law, administrative regulation, any order of
any court or other agency of government, any provision of any indenture,
agreement or other instrument to which Pledgor is a party, or be in conflict
with, result in a material breach of or constitute (with due notice and/or lapse
of time) a material default under any such indenture, agreement or other
instrument;
(x) there are no pending legal or governmental proceedings to which
Pledgor is a party or to which any of its properties is subject which will
materially affect Pledgor's ability to perform its obligations hereunder; and
(xi) on the date hereof, the Pledged Securities consist of the securities
listed on Schedule 1.
5. Voting Rights: Dividends; etc. (a) Unless and until an Event of Default
-----------------------------
shall have occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all voting and/or
consensual rights and powers accruing to the owner of the Pledged Securities or
any part thereof for any purpose not inconsistent with the terms hereof and of
the Loan Agreement.
(ii) Any dividends or distributions of any kind whatsoever received by
Pledgor, whether resulting from a subdivision, combination, or reclassification
of the outstanding capital stock of the Pledged Affiliates or received in
exchange for the Pledged Securities or any part thereof or as a result of any
merger, consolidation, acquisition, or other exchange of assets to which the
Pledged Affiliates may be a party, or otherwise, shall be and become part of the
Pledged Securities pledged hereunder and shall immediately be delivered to
Lender to be held subject to the terms of this Pledge Agreement.
(iii) Lender shall execute and deliver to Pledgor, or cause to be
executed and delivered to Pledgor, all such proxies, powers of attorney and
other
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<PAGE>
instruments as Pledgor may reasonably request for the purpose of enabling
Pledgor to exercise the voting and/or consensual rights and powers which it is
entitled to exercise pursuant to clause (i) above.
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of Pledgor to (i) exercise the voting and/or consensual rights and
powers which it is entitled to exercise pursuant to Section 5(a)(i) hereof and
(ii) receive and retain dividends and distributions which Pledgor would be
entitled to receive and retain pursuant to Section 5(a)(ii), if any, shall cease
and all such rights shall thereupon become vested in Lender who shall have the
sole and exclusive right and authority to exercise such voting and/or consensual
rights; provided, however, that to the extent any governmental consents or
filings are required for the exercise by Lender of any of the foregoing rights
and powers, Lender shall refrain from exercising such rights or powers until the
making of such required filings, the receipt of such consents and the expiration
of all related waiting periods.
6. Remedies Upon Default. (a) If an Event of Default shall have occurred
---------------------
and be continuing, Lender may, subject to applicable securities laws, sell the
Pledged Securities, or any part thereof, at public or private sale or at any
broker's board or on any securities exchange, for cash, upon credit or for
future delivery as Lender shall deem appropriate subject to the terms hereof or
as otherwise provided in the California Uniform Commercial Code. Lender shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Pledged Securities for their own account and not with a
view to the distribution or sale thereof, and upon consummation of any such sale
Lender shall have the right to assign, transfer, and deliver to the purchaser or
purchasers thereof the Pledged Securities so sold. Each such purchaser at any
such sale shall hold the property sold absolutely, free from any claim or right
on the part of Pledgor.
(b) The Lender shall give Pledgor seven (7) days' written notice of
Lender's intention to make any such public or private sale, or sale at any
broker's board or on any such securities exchange, or of any other disposition
of the Pledged Securities contemplated by Section 6(a). Such notice, in the case
of public sale, shall state the time and place for such sale and, in the case of
sale at a broker's board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which the Pledged
Securities, or portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as Lender may fix and shall
state in the notice of such sale. At any such sale, the Pledged Securities, or
portion thereof, to be sold may be sold in one lot as an entirety or in separate
parcels, as Lender may (in its sole and absolute discretion) determine. Lender
shall not be obligated to make any sale of the Pledged Securities if it shall
determine not to do so, regardless of the fact that notice of sale of the
Pledged Securities may have been given. Lender may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so
-4-
<PAGE>
adjourned. In case the sale of all or any part of the Pledged Securities is made
on credit or for future delivery, the Pledged Securities so sold shall be
retained by Lender until the sale price is paid by the purchaser or purchasers
thereof, but Lender shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Pledged Securities so sold and,
in case of any such failure, such Pledged Securities may be sold again upon like
notice. At any sale or sales made pursuant to this Section 6, Lender may bid for
or purchase, free from any claim or right of whatever kind, including any equity
of redemption, of Pledgor, any such demand, notice, claim, right or equity being
hereby expressly waived and released, any or all of the Pledged Securities
offered for sale, and may make any payment on the account thereof by using any
claim for moneys then due and payable to Lender by Pledgor or the Pledged
Affiliates as a credit against the purchase price; and Lender, upon compliance
with the terms of sale, may hold, retain and dispose of the Pledged Securities
without further accountability therefor to Pledgor or any third party. Lender
shall in any such sale make no representations or warranties with respect to the
Pledged Securities or any part thereof, and Lender shall not be chargeable with
any of the obligations or liabilities of Pledgor with respect thereto. Pledgor
hereby agrees (i) it will indemnify and hold Lender harmless from and against
any and all claims with respect to the Pledged Securities asserted before the
taking of actual possession or control of the Pledged Securities by Lender
pursuant to this Pledge Agreement or arising out of any act of, or omission to
act on the part of, any party other than Lender prior to such taking of actual
possession or control by Lender, or arising out of any act on the part of
Pledgor or its agents before or after the commencement of such actual possession
or control by Lender; and (ii) Lender shall have no liability or obligation
arising out of any such claim. As an alternative to exercising the power of sale
herein conferred upon it, Lender may proceed by a suit or suits at law or in
equity to foreclose this Pledge Agreement and to sell the Pledged Securities, or
any portion thereof, pursuant to a judgment or decree of a court or courts
having competent jurisdiction.
7. Application of Proceeds of Sale and Cash. The proceeds of any sale of
----------------------------------------
the Pledged Securities sold pursuant to Section 6 hereof shall be applied by
Lender (in such order as Lender shall in its sole discretion determine) to the
payment in full of the Obligations and the payment of costs incurred by Lender
while enforcing its rights pursuant to this Pledge Agreement.
8. Lender Appointed Attorney-in-Fact. Upon the occurrence of an Event of
---------------------------------
Default and during the continuance of an Event of Default, Pledgor hereby
appoints Lender its attorney-in-fact for the purpose of carrying out the
provisions of this Pledge Agreement and the pledge of the Pledged Securities
hereunder and taking any action and executing any instrument which Lender may
deem necessary or advisable to accomplish the purposes hereof, which appointment
is irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, Lender shall have the right and power to receive, endorse, and
collect all checks and other orders for the payment of money made payable to
Pledgor representing any dividend or other distribution payable in respect of
the Pledged Securities or any part thereof and to give full discharge for the
same.
-5-
<PAGE>
9. Securities Act, etc. In view of the position of Pledgor in relation to
-------------------
the Pledged Securities, or because of other present or future circumstances, a
question may arise under the Securities Act of 1933, as amended, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being hereinafter called the "Federal Securities Laws"), with respect to
any disposition of the Pledged Securities permitted hereunder. Pledgor
understands that compliance with the Federal Securities Laws may very strictly
limit the course of conduct of Lender if Lender were to attempt to dispose of
all or any part of the Pledged Securities, and may also limit the extent to
which or the manner in which any subsequent transferee of any Pledged Securities
may dispose of the same. Similarly, there may be other legal restrictions or
limitations affecting Lender in any attempt to dispose of all or any part of the
Pledged Securities under applicable "Blue Sky" or other state securities laws,
or similar laws analogous in purpose or effect. Under applicable law, in the
absence of an agreement to the contrary, Lender may be held to have certain
general duties and obligations to Pledgor to make some effort towards obtaining
a fair price even though the Obligations may be discharged or reduced by the
proceeds of a sale at a lesser price. To the maximum extent permitted by
applicable law, Pledgor hereby agrees that Lender shall not have any such
general duty or obligation to it, and Pledgor will not attempt to hold Lender
responsible for selling all or any part of the Pledged Securities at an
inadequate price, even if Lender shall accept the first offer received or does
not approach more than one possible purchaser. Without limiting the generality
of the foregoing, the provisions of this Section 9 would apply if, for example,
Lender were to place all or any part of the Pledged Securities for private
placement by an investment banking firm, or if such investment banking firm
purchased all or any part of the Pledged Securities for its own account, or if
Lender placed all or any part of the Pledged Securities privately with a
purchaser or purchasers.
10. Continuation and Reinstatement. Pledgor further agrees that its pledge
------------------------------
hereunder shall continue to be effective or be reinstated, as the case may be,
if at any time payment, or any part thereof, of principal of or interest on any
Obligation is rescinded or must otherwise be restored by Lender upon the
bankruptcy or reorganization of Pledgor or otherwise.
11. Termination. The pledge hereunder shall terminate when all of the
-----------
obligations of Pledgor under the Loan Agreement or under any other instruments
or documents delivered by Pledgor in connection with the Loan Agreement shall
have been fully paid and performed and the Loan Agreement shall have been
terminated. At such time Lender shall, at the sole cost and expense of Pledgor,
assign and deliver to Pledgor, or to such person or persons as Pledgor shall
designate, against receipt, such of the Pledged Securities (if any) as shall not
have been sold or otherwise applied by Lender pursuant to the terms hereof and
shall still be held by it hereunder, together with appropriate instruments of
reassignment and release. Any such reassignment shall be without recourse upon
or warranty by Lender (except as to acts of Lender or persons claiming through
Lender).
-6-
<PAGE>
12. Further Assurances. Pledgor, at its own expense, will execute and
------------------
deliver, from time to time, any and all further, or other, instruments, and
perform such acts, as Lender may reasonably request to effect the purposes of
this Pledge Agreement and to secure to Lender, the benefits of all rights,
authorities, and remedies conferred upon Lender by the terms of this Pledge
Agreement.
13. Notices. Notices and other communication provided for herein shall be
-------
in writing and shall be governed by the notice provisions of the Loan Agreement.
14. Non-Waiver of Rights and Remedies. No delay or failure on the part of
---------------------------------
Lender in the exercise of any right or remedy shall operate as a waiver thereof,
no single or partial exercise by Lender of any right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or remedy
and no course of dealing between the parties shall operate as a waiver of any
right or remedy of Lender.
15. CHOICE OF LAW. THIS AGREEMENT AND ANY INSTRUMENT OR AGREEMENT REQUIRED
-------------
HEREUNDER SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
16. Severability. This Pledge Agreement shall be interpreted in such
------------
manner as to be effective and valid under applicable law, but if any provision
of this Pledge Agreement shall be prohibited by or invalidated under applicable
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 Pledge Agreement and the parties hereto agree to
negotiate in good faith a provision to replace the ineffective provision, such
provision to be as similar in effect and intent as the ineffective provision as
permissible.
17. Amendments. This Pledge Agreement may not be amended except by a
----------
writing signed by the parties hereto.
18. Successors and Assigns. This Pledge Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
19. Counterparts. This Pledge Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall constitute an
original for all purposes, but all such counterparts taken together shall
constitute the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed as of the day and year first above written.
PETOPIA.COM, INC.
By: /s/ GREGORY SMITH
-----------------
Name: Gregory Smith
Title: Vice President of Finance
Address: 1200 Folsom Street
San Francisco, California 94103
GREYROCK CAPITAL, a division of Banc of America
Commercial Finance Corporation
By: ___________________________
Name:
Title:
Address: 10880 Wilshire Boulevard, Suite 1850
Los Angeles, California 90024
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<PAGE>
EXHIBIT 10.41
SUBORDINATION AGREEMENT
January 31, 2000
Greyrock Capital, a division of Banc of America
Commercial Finance Corporation
10880 Wilshire Boulevard, Suite 1850
Los Angeles, California 90024
Re: PETOPIA.COM, INC. (the "Debtor")
Ladies and Gentlemen:
The above-captioned Debtor is now indebted to Clifcor Capital, LLC and the
other Holders (as defined in the Agreement and Plan of Merger, dated December
29, 1999, as amended (the "Merger Agreement") (collectively, "Junior Creditor")
in the amount of $2,000,000.00 (the "Present Indebtedness"). Said indebtedness
has not heretofore been assigned or subordinated.
To induce Greyrock Capital, a division of Banc of America Commercial
Finance Corporation (the "Senior Creditor) to enter into or to refrain from
terminating a financial agreement with the Debtor and in consideration of any
loans, advances, payments, extensions of credit (including the extension or
renewal, in whole or in part, of any antecedent or other debt), benefits or
financial accommodations heretofore or hereafter made, granted or extended by
the Senior Creditor to or for the account of the Debtor, whether under said
arrangements or otherwise, the Junior Creditor hereby makes subject and
subordinate the payment of the Present Indebtedness as well as all other present
and/or future indebtedness of Debtor to the undersigned together with any and
all interest accrued or to accrue thereon (hereinafter referred to as the
"Junior Debt ") to the payment of principal and interest (including interest
accruing after the date on which the Debtor becomes subject to the jurisdiction
of any federal or state debtor relief statute, whether or not recoverable
against the Debtor) of any and all present and future debts and obligations of
Debtor to the Senior Creditor, whether absolute or contingent, due or to become
due, and whether direct or acquired by the Senior Creditor by transfer,
assignment or otherwise whether or not such debts are contemplated by the
-------------------------------------------------
Debtor, the Senior Creditor, or the Junior Creditor (all hereinafter referred to
- ---------------------------------------------------
as "Senior Debt") and the Junior Creditor agrees not to ask, demand, sue for,
take or receive payment of, discharge the Debtor from, or take capital stock of
the Debtor in exchange for all or any part of the Junior Debt unless and until
the Senior Debt shall have been fully paid and discharged, and all commitments
by the Senior Creditor to extend credit to the Debtor shall have been
terminated; provided, however, that the Junior Creditor may receive, and the
Debtor may make, required payments in respect of the Present Indebtedness and
any interest thereon.
<PAGE>
Notwithstanding the terms or provisions of any agreement or arrangement
which the Senior Creditor or Junior Creditor may now or hereafter have with the
Debtor or any rule of law and irrespective of the time, order or method of
perfection of any security interest or the recordation or other filing in any
public record of any financing statement, any security interest in the assets of
Debtor described in Exhibit A hereto (the "Senior Creditor Collateral') granted
to the Senior Creditor by the Debtor, whether or not perfected, are and shall
remain senior to any security interest therein now or hereafter granted by the
Debtor to the Junior Creditor.
The Junior Creditor shall have no right to take any action with respect to
the Senior Creditor Collateral, whether by judicial or non-judicial foreclosure,
notification to the Debtor's account debtors, or otherwise, unless and until all
Senior Debt has been fully and indefeasibly paid, and the Senior Creditor shall
have no commitment to extend any further credit to Debtor.
This agreement is solely for the benefit of the parties and shall bind each
of the parties and its respective successors and assigns, and no entity shall
have any right, benefit, priority, or interest hereunder. This agreement shall
be subject to modification only in writing, signed by Senior Creditor and Junior
Creditor. This agreement shall remain in effect so long as Junior Creditor has a
lien or security interest in any property of the Debtor, or until all of
Debtor's Obligations to Senior Creditor have been paid in full.
Any proceeds of the Senior Creditor Collateral, or proceeds thereof
(whether or not identifiable), received by the Junior Creditor shall be paid to
the Senior Creditor on demand.
This Agreement shall remain in full force and effect notwithstanding the
filing of a petition for relief by or against the Debtor under the Bankruptcy
Code and shall apply with full force and effect with respect to all Senior
Creditor Collateral acquired by the Debtor, or obligations incurred by the
Debtor to the Subordinating Creditor, subsequent to the date of said petition.
The Junior Creditor irrevocably waives any right to compel the Senior
Creditor to marshal assets of the Debtor, whether such rights arise under
California Civil Code section 3433 or otherwise.
Upon the distribution of any assets of Debtor (whether by reason of sale,
reorganization, liquidation, dissolution, arrangement, bankruptcy, receivership,
assignment for the benefit of creditors, foreclosure or otherwise) the Senior
Creditor shall be entitled to receive payment in full of the Senior Debt
(including without limitation interest arising subsequent to the date of the
filing by or against Debtor of any petition for relief under the Federal
Bankruptcy Code or the making of any assignment for the benefit of creditors,
whether or not such interest is recoverable from or provable against Debtor)
<PAGE>
prior to the payment of all or any part of the Junior Debt, other than Permitted
Payments; and you are hereby irrevocably appointed attorney-in-fact for the
Junior Creditor with full power to act in the place and stead of the Junior
Creditor in all matters relating to or affecting the Junior Debt, including the
right to make, present, file and vote such proofs of claim against Debtor on
account of all or any part of the Junior Debt as you may deem advisable and to
receive and collect any and all dividends or other payments ("Dividends") made
thereon and to apply the same on account of the Senior Debt. The Junior Creditor
will execute and deliver to you such instruments as may be required by you to
enforce any and all Junior Debt, to effectuate the aforesaid power of attorney
and to effect collection of any and all Dividends which may be made at any time
on account thereof.
The Junior Creditor will not, without your prior written consent, assign to
or subordinate in favor of any other entity any right, claim or interest in any
part of the Junior Debt (except to any person or entity which shall have come an
express party to this Agreement by executing a counterpart to this Agreement
agreeing to be a Junior Creditor for the purposes of hereof), or commence or
join with any other creditor in commencing any bankruptcy, reorganization or
insolvency proceeding against Debtor.
The Senior Creditor may at any time, in its discretion, renew or extend the
time of payment of any portion of the Senior Debt, or waive or release any
collateral which may be held therefor, and the Senior Creditor may enter into
such agreements with Debtor as it may deem desirable without notice to or
further assent from the Junior Creditor and without in any way affecting the
rights of the Senior Creditor hereunder.
This instrument is and shall be deemed to be a continuing subordination and
shall be irrevocable. The Debtor acknowledges that attempted or purported
termination of this Agreement by the Junior Creditor shall constitute a default
in the terms and conditions of the Senior Debt.
THE JUNIOR CREDITOR HEREBY WAIVES TRIAL BY JURY AND CONSENTS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA, AND THE UNITED STATES
DISTRICT COURT, CENTRAL DISTRICT OF CALIFORNIA, IN ANY ACTION OR PROCEEDING
COMMENCED IN ENFORCEMENT HEREOF. IN THE EVENT THAT THE SENIOR CREDITOR COMMENCES
ANY ACTION OR SUIT IN THE FOREGOING COURTS TO ENFORCE THIS SUBORDINATION
AGREEMENT, SERVICE OF PROCESS MAY BE MADE ON THE JUNIOR CREDITOR BY MAILING A
COPY THEREOF TO THE JUNIOR CREDITOR AT THE ADDRESS SET FORTH BELOW, OR AT SUCH
OTHER ADDRESS AS THE SENIOR CREDITOR SHALL HAVE BEEN ADVISED IN WRITING.
In the event that either party deems it necessary to retain counsel to
enforce any provision herein, the prevailing party shall recover all its
attorneys fees and expenses from the unsuccessful party.
<PAGE>
The Senior Creditor is authorized to demand specific performance of this
agreement, whether or not Debtor or Junior Creditor has complied with any of the
provisions hereof. Debtor and Junior Creditor waive any defense based on the
adequacy of a remedy at law which might be asserted as a bar to such remedy of
specific performance.
Scott Vertrees hereby represents and warrants to the Senior Creditor that
he is authorized to act as agent on behalf of Clifcor Capital LLC and as
attorney-in-fact for the other Holders of the Junior Debt in the negotiation,
execution and delivery of this Agreement, and that Junior Creditor's
undertakings hereunder shall bind each and every Holder of the Junior Debt.
The Debtor acknowledges notice of this Agreement and agrees to be bound by
all of its terms and conditions. The Debtor hereby acknowledges that the Junior
Debt is due and owing as of the date hereof without setoff, defense or
counterclaim.
CLIFCOR CAPITAL LLC
By: -------------------------
Name: Scott Vertrees
Title: President
By: -------------------------
Scott Vertrees, as attorney in
fact on behalf of:
Ann Counts
William Rauhauser
John E. Flatley
W.W. McGlothlin
James O'Malley
Helen Counts
Bascom B. Matney
Ronelle L. Rotterman-Matney
Robert N. Beck, as Trustee under the
Robert N. Beck Living Trust UTD 10/31/94
Georgena M. Beck, as Trustee under the
Georgena M. Beck Living Trust UTD 10/31/94
Pete Baltaxe
Doug Bertozzi
<PAGE>
Ian Chaplin
Jamie Cheng
Michael Dunn
Scott Galloway
Geoffrey Hale
Connie Hallquist
Clifford Lindsay
Lee Lodes
Jawad Mohammed
Jarom Smith
Jason Stavers
Pete Baltaxe
Doug Bertozzi
Ian Chaplin
Jamie Cheng
Michael Dunn
Scott Galloway
Geoffrey Hale
Connie Hallquist
Clifford Lindsay
Lee Lodes
Jawad Mohammed
Jarom Smith
Jason Stavers
ACCEPTED AND AGREED
this _____ of January, 2000
GREYROCK CAPITAL
a division of Banc of America Commercial Finance Corporation
By: _______________________
Name: _______________________
Title: _______________________
PETOPIA.COM, INC.
By: /s/ GREGORY SMITH
-----------------
Name: Gregory Smith
-------------
Title: Vice President of Finance
-------------------------
<PAGE>
Exhibit 10.42
Continuing Guarantee
Borrower: PETOPIA.COM, INC.
Guarantor(s): In The Company of Dogs, Inc. (formerly ICOD Acquisition Corp.)
Date: January 31, 2000
This Continuing Guarantee is executed by the above-named guarantor (the
Guarantor), as of the above date, in favor of Greyrock Capital, a division of
Banc of America Commercial Finance Corporation (Greyrock), whose address is
10880 Wilshire Blvd. Suite 1850, Los Angeles, CA 90024, with respect to the
Indebtedness of the above-named borrower (Borrower).
1. Continuing Guarantee. Guarantor hereby unconditionally guarantees and
promises to pay on demand to Greyrock, at the address indicated above, or at
such other address as Greyrock may direct, in lawful money of the United States,
and to perform for the benefit of Greyrock, all Indebtedness of Borrower now or
hereafter owing to or held by Greyrock. As used herein, the term Indebtedness is
used in its most comprehensive sense and shall mean and include without
limitation: (a) any and all debts, duties, obligations, liabilities,
representations, warranties and guaranties of Borrower or any one or more of
them, heretofore, now, or hereafter made, incurred, or created, whether directly
to Greyrock or acquired by Greyrock by assignment or otherwise, or held by
Greyrock on behalf of others, however arising, whether voluntary or involuntary,
due or not due, absolute or contingent, liquidated or unliquidated, certain or
uncertain, determined or undetermined, monetary or nonmonetary, written or oral,
and whether Borrower may be liable individually or jointly with others, and
regardless of whether recovery thereon may be or hereafter become barred by any
statute of limitations, discharged or uncollectible in any bankruptcy,
insolvency or other proceeding, or otherwise unenforceable; and (b) any and all
amendments, modifications, renewals and extensions of any or all of the
foregoing, including without limitation amendments, modifications, renewals and
extensions which are evidenced by any new or additional instrument, document or
agreement; and (c) any and all attorneys' fees, court costs, and collection
charges incurred in endeavoring to collect or enforce any of the foregoing
against Borrower, Guarantor, or any other person liable thereon (whether or not
suit be brought) and any other expenses of, for or incidental to collection
thereof. As used herein, the term Borrower shall include any successor to the
business and assets of Borrower, and shall also include Borrower in its capacity
as a debtor or debtor in possession under the federal Bankruptcy Code, and any
trustee, custodian or receiver for Borrower or any of its assets, should
Borrower hereafter become the subject of any bankruptcy or insolvency
proceeding, voluntary or involuntary; and all indebtedness, liabilities and
obligations incurred by any such person shall be included in the Indebtedness
guaranteed hereby. This Guarantee is given in consideration for credit and other
financial accommodations which may, from time to time, be given by Greyrock to
Borrower in Greyrock's sole discretion, but Guarantor acknowledges and agrees
that acceptance by Greyrock of this Guarantee shall not constitute a commitment
of any kind by Greyrock to extend such credit or other financial accommodation
to Borrower or to permit Borrower to incur Indebtedness to Greyrock. All sums
due under this Guarantee shall bear interest from the date due until the date
paid at the highest rate charged with respect to any of the Indebtedness.
2. Waivers. Guarantor hereby waives: (a) presentment for payment, notice of
dishonor, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which Guarantor might be entitled, including
without limitation notice of all of the following: the acceptance hereof; the
creation, existence, or acquisition of any Indebtedness; the amount of the
Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or non-
payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between Greyrock and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guarantee); (b) any right to require Greyrock to
institute suit against, or to exhaust its rights and remedies against, Borrower
or any other person, or to proceed against
-1-
<PAGE>
any property of any kind which secures all or any part of the Indebtedness, or
to exercise any right of offset or other right with respect to any reserves,
credits or deposit accounts held by or maintained with Greyrock or any
indebtedness of Greyrock to Borrower, or to exercise any other right or power,
or pursue any other remedy Greyrock may have; (c) any defense arising by reason
of any disability or other defense of Borrower or any other guarantor or any
endorser, co-maker or other person, or by reason of the cessation from any cause
whatsoever of any liability of Borrower or any other guarantor or any endorser,
co-maker or other person, with respect to all or any part of the Indebtedness,
or by reason of any act or omission of Greyrock or others which directly or
indirectly results in the discharge or release of Borrower or any other
guarantor or any other person or any Indebtedness or any security therefor,
whether by operation of law or otherwise; (d) any defense arising by reason of
any failure of Greyrock to obtain, perfect, maintain or keep in force any
security interest in, or lien or encumbrance upon, any property of Borrower or
any other person; (e) any defense based upon any failure of Greyrock to give
Guarantor notice of any sale or other disposition of any property securing any
or all of the Indebtedness, or any defects in any such notice that may be given,
or any failure of Greyrock to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by Greyrock to
dispose of any property securing any or all of the Indebtedness in a
commercially reasonable manner; (f) any defense based upon or arising out of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against Borrower or any
other guarantor or any endorser, co-maker or other person, including without
limitation any discharge of, or bar against collecting, any of the Indebtedness
(including without limitation any interest thereon), in or as a result of any
such proceeding; and (g) the benefit of any and all statutes of limitation with
respect to any action based upon, arising out of or related to this Guarantee.
Until all of the Indebtedness has been paid, performed, and discharged in full,
nothing shall discharge or satisfy the liability of Guarantor hereunder except
the MI performance and payment of all of the Indebtedness. If any claim is ever
made upon Greyrock for repayment or recovery of any amount or amounts received
by Greyrock in payment of or on account of any of the Indebtedness, because of
any claim that any such payment constituted a preferential transfer or
fraudulent conveyance, or for any other reason whatsoever, and Greyrock repays
all or part of said amount by reason of any judgment, decree or order of any
court or administrative body having jurisdiction over Greyrock or any of its
property, or by reason of any settlement or compromise of any such claim
effected by Greyrock with any such claimant (including without limitation
Borrower), then and in any such event, Guarantor agrees that any such judgment,
decree, order, settlement and compromise shall be binding upon Guarantor,
notwithstanding any revocation or release of this Guarantee or the cancellation
of any note or other instrument evidencing any of the Indebtedness, or any
release of any of the Indebtedness, and the Guarantor shall be and remain liable
to Greyrock under this Guarantee for the amount so repaid or recovered, to the
same extent as if such amount had never originally been received by Greyrock,
and the provisions of this sentence shall survive, and continue in effect,
notwithstanding any revocation or release of this Guarantee. Until all of the
Indebtedness has been irrevocably paid and performed in full, Guarantor hereby
expressly and unconditionally waives all rights of subrogation, reimbursement
and indemnity of every kind against Borrower, and all rights of recourse to any
assets or property of Borrower, and all rights to any collateral or security
held for the payment and performance of any Indebtedness, including (but not
limited to) any of the foregoing rights which Guarantor may have under any
present or future document or agreement with any Borrower or other person, and
including (but not limited to) any of the foregoing rights which Guarantor may
have under any equitable doctrine of subrogation, implied contract, or unjust
enrichment, or any other equitable or legal doctrine. Neither Greyrock, nor any
of its directors, officers, employees, agents, attorneys or any other person
affiliated with or representing Greyrock shall be liable for any claims,
demands, losses or damages, of any kind whatsoever, made, claimed, incurred or
suffered by Guarantor or any other party through the ordinary negligence of
Greyrock, or any of its directors, officers, employees, agents, attorneys or any
other person affiliated with or representing Greyrock.
3. Consents. Guarantor hereby consents and agrees that, without notice to or
by Guarantor and without affecting or impairing in any way the obligations or
liability of Guarantor hereunder, Greyrock may, from time to time before or
after revocation of this Guarantee, do any one or more of the following in
Greyrock's sole and absolute discretion: (a) accelerate, accept partial payments
of, compromise or settle, renew, extend the time for the payment, discharge, or
performance of, refuse to enforce, and release all or any parties to, any or all
of the Indebtedness; (b) grant any other indulgence to Borrower or any other
person in respect of any or all of the Indebtedness or any other matter; (c)
accept, release, waive, surrender, enforce, exchange, modify, impair, or extend
the time for the performance, discharge, or payment of, any and all property of
any kind securing any or all of the Indebtedness or any guaranty of any or all
of the Indebtedness, or on which Greyrock at any time may have a lien, or refuse
to enforce its rights or make any compromise or settlement or agreement therefor
in respect of any or all of such property; (d) substitute or add, or take any
action or omit to take any action which results in the release of, any one or
more endorsers or guarantors of all or any part of the Indebtedness, including,
without limitation one or more parties to this Guarantee, regardless of any
destruction or impairment of any right of contribution or other right of
Guarantor; (e) amend, alter or change in any respect
2
<PAGE>
whatsoever any term or provision relating to any or all of the Indebtedness,
including the rate of interest thereon; (f) apply any sums received from
Borrower, any other guarantor, endorser, or co-signer, or from the disposition
of any collateral or security, to any indebtedness whatsoever owing from such
person or secured by such collateral or security, in such manner and order as
Greyrock determines in its sole discretion, and regardless of whether such
indebtedness is part of the Indebtedness, is secured, or is due and payable; (g)
apply any sums received from Guarantor or from the disposition of any collateral
or security securing the obligations of Guarantor, to any of the Indebtedness in
such manner and order as Greyrock determines in its sole discretion, regardless
of whether or not such Indebtedness is secured or is due and payable. Guarantor
consents and agrees that Greyrock shall be under no obligation to marshal any
assets in favor of Guarantor, or against or in payment of any or all of the
Indebtedness. Guarantor further consents, and agrees that Greyrock shall have no
duties or responsibilities whatsoever with respect to any property securing any
or all of the Indebtedness. Without limiting the generality of the foregoing,
Greyrock shall have no obligation to monitor, verify, audit, examine, or obtain
or maintain any insurance with respect to, any property securing any or all of
the Indebtedness.
4. Account Stated. Greyrock's books and records showing the account between it
and Borrower shall be admissible in evidence in any action or proceeding as
prima facie proof of the items therein set forth. Greyrock's monthly statements
rendered to Borrower shall be binding upon the Guarantor (whether or not the
Guarantor receives copies thereof), and shall constitute an account stated
between Greyrock and Borrower, unless Greyrock receives a written statement of
Borrower's exceptions within 30 days after the statement was mailed to Borrower.
'Be Guarantor assumes full responsibility for obtaining copies of such monthly
statements from Borrower, if the Guarantor desires such copies.
5. Exercise of Rights and Remedies; Foreclosure of Trust Deeds. Guarantor
hereby waives all rights of subrogation, reimbursement, indemnification, and
contribution and any other rights and defenses that are or may become available
to the Guarantor or other surety by reason of California Civil Code Sections
2787 to 2855 inclusive. The Guarantor waives all rights and defenses arising out
of an election of remedies by Greyrock, even though that election of remedies
has destroyed the Guarantor's rights of subrogation and reimbursement against
the principal.
6. Acceleration. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall immediately become due and payable, without notice,
upon the occurrence of an Event of Default under Section 7.1 of that certain
Loan and Security Agreement by and between Borrower and Greyrock, that is not
cured within the applicable cure period therefor (if any). All of the foregoing
are hereinafter referred to as Events of Default.
7. Right to Attachment Remedy. Guarantor agrees that, notwithstanding the
existence of any property securing any or all of the Indebtedness, Greyrock
shall have all of the rights of an unsecured creditor of Guarantor, including
without limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guarantee.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guarantee, to the extent that Greyrock, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by Greyrock therefrom may be less than the
indebtedness of the Guarantor under this Guarantee, Greyrock shall have all the
rights of an unsecured creditor against Guarantor, including without limitation
the right of Greyrock, prior to the disposition of said property, to obtain a
temporary protective order and writ of attachment against Guarantor. Guarantor
waives the benefit of Section 483.010(b) of the California Code of Civil
Procedure and of any and all other statutes and rules of law now or hereafter in
effect requiring Greyrock to first resort to or exhaust all such collateral
before seeking or obtaining any attachment remedy against Guarantor. Greyrock
shall have no liability to Guarantor as a result thereof, whether or not the
actual deficiency realized by Greyrock is less than the anticipated deficiency
on the basis of which Greyrock obtains a temporary protective order or writ of
attachment.
8. Indemnity. Guarantor hereby agrees to indemnify Greyrock and hold Greyrock
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
without limitation attorneys' fees), of every nature, character and description,
which Greyrock may sustain or incur based upon or arising out of any of the
Indebtedness, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any relationship
or agreement between Greyrock and Borrower, any actual or alleged failure of
Greyrock to comply with any writ of attachment or other legal process relating
to Borrower or any of its property, or any other matter, cause or thing
whatsoever occurred, done, omitted or suffered to be done by Greyrock relating
in any way to Borrower or the Indebtedness (except any such amounts sustained or
incurred as the result of the gross negligence or willful misconduct of Greyrock
or any of its directors, officers, employees, agents, attorneys, or any other
person affiliated with or representing Greyrock). Notwithstanding any provision
in this Guarantee to the contrary, the indemnity agreement set forth in this
Section shall survive any termination or revocation of this Guarantee and shall
for all purposes continue in full force and effect.
9. Subordination. Any and all rights of Guarantor under any and all debts,
liabilities and obligations owing from Borrower to Guarantor, including any
security for and
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<PAGE>
guaranties of any such obligations, whether now existing or hereafter arising,
are hereby subordinated in right of payment to the prior payment in full of all
of the Indebtedness. No payment in respect of any such subordinated obligations
shall at any time be made to or accepted by Guarantor if at the time of such
payment any Indebtedness is outstanding. If any Event of Default has occurred,
Borrower and any assignee, trustee in bankruptcy, receiver, or any other person
having custody or control over any or all of Borrower's property are hereby
authorized and directed to pay to Greyrock the entire unpaid balance of the
Indebtedness before making any payments whatsoever to Guarantor, whether as a
creditor, shareholder, or otherwise; and insofar as may be necessary for that
purpose, Guarantor hereby assigns and transfers to Greyrock all rights to any
and all debts, liabilities and obligations owing from Borrower to Guarantor,
including any security for and guaranties of any such obligations, whether now
existing or hereafter arising, including without limitation any payments,
dividends or distributions out of the business or assets of Borrower. Any
amounts received by Guarantor in violation of the foregoing provisions shall be
received and held as trustee for the benefit of Greyrock and shall forthwith be
paid over to Greyrock to be applied to the Indebtedness in such order and
sequence as Greyrock shall in its sole discretion determine, without limiting or
affecting any other right or remedy which Greyrock may have hereunder or
otherwise and without otherwise affecting the liability of Guarantor hereunder.
Guarantor hereby expressly waives any right to set-off or assert any
counterclaim against Borrower.
10. Revocation. This is a Continuing Guarantee relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written notice of
revocation to Greyrock at its address above by registered first-class U.S. mail,
postage prepaid, return receipt requested, and only as to new loans made by
Greyrock to Borrower more than 90 days after actual receipt of such written
notice by Greyrock. No termination or revocation of this Guarantee shall be
effective until 90 days following the date of actual receipt of said written
notice of revocation by Greyrock. Notwithstanding such written notice of
revocation or any other act of Guarantor or any other event or circumstance,
Guarantor agrees that this Guarantee and all consents, waivers and other
provisions hereof shall continue in full force and effect as to any and all
Indebtedness which is outstanding on or before the 90th day following actual
receipt of said written notice of revocation by Greyrock, and all extensions,
renewals and modifications of said Indebtedness (including without limitation
amendments, extensions, renewals and modifications which are evidenced by new or
additional instruments, documents or agreements executed before or after
expiration of said 90-day period), and all interest thereon, accruing before or
after expiration of said 90-day period, and all attorneys' fees, court costs and
collection charges, incurred before or after expiration of said 90-day period,
in endeavoring to collect or enforce any of the foregoing against Borrower,
Guarantor or any other person liable thereon (whether or not suit be brought)
and any other expenses of, for or incidental to collection thereof.
11. Independent Liability. Guarantor hereby agrees that one or more successive
or concurrent actions may be brought hereon against Guarantor, in the same
action in which Borrower may be sued or in separate actions, as often as deemed
advisable by Greyrock. The liability of Guarantor hereunder is exclusive and
independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guarantee). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by Greyrock or set forth in this Guarantee); or
(b) any direction as to the application of payment by Borrower or by any other
party; or (c) any other continuing or restrictive guaranty or under-taking or
any limitation on the liability of any other guarantor (whether under this
Guarantee or under any other agreement); or (d) any payment on or reduction of
any such other guaranty or undertaking; or (e) any revocation, amendment
modification or release of any such other guaranty or under-taking; or (f) any
dissolution or termination of, or increase, decrease, or change in membership
of any Guarantor which is a partnership. Guarantor hereby expressly represents
that he was not induced to give this Guarantee by the fact that there are or may
be other guarantors either under this Guarantee or otherwise, and Guarantor
agrees that any release of any one or more of such other guarantors shall not
release Guarantor from his obligations hereunder either in full or to any lesser
extent. If Guarantor is a married person, Guarantor hereby expressly agrees that
recourse may be had against his or her separate property for all of his or her
obligations hereunder.
12. Financial Condition of Borrower. Guarantor is fully aware of the financial
condition of Borrower and is executing and delivering this Guarantee at
Borrower's request and based solely upon his own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of Greyrock with respect thereto. Guarantor
represents and warrants that it is in a position to obtain, and Guarantor hereby
assumes full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting Greyrock to
furnish to him any information now or hereafter
4
<PAGE>
in Greyrock's possession concerning the same or any other matter. By executing
this Guarantee, Guarantor knowingly accepts the full range of risks encompassed
within a contract of continuing guaranty, which risks Guarantor acknowledges
include without limitation the possibility that Borrower will incur additional
Indebtedness for which Guarantor will be liable hereunder after Borrower's
financial condition or ability to pay such Indebtedness has deteriorated and/or
after bankruptcy or insolvency proceedings have been commenced by or against
Borrower. Guarantor shall have no right to require Greyrock to obtain or
disclose any information with respect to the Indebtedness, the financial
condition or character of Borrower, the existence of any collateral or security
for any or all of the Indebtedness, the filing by or against Borrower of any
bankruptcy or insolvency proceeding, the existence of any other guaranties of
all or any part of the Indebtedness, any action or non-action on the part of
Greyrock, Borrower, or any other person, or any other matter, fact, or
occurrence.
14. Representations and Warranties. Guarantor hereby represents and warrants
that (i) it is in Guarantor's direct interest to assist Borrower in procuring
credit because Borrower is an affiliate of Guarantor, furnishes goods or
services to Guarantor, purchases or acquires goods or services from Guarantor,
and/or otherwise has a direct or indirect corporate or business relationship
with Guarantor, (ii) this Guarantee has been duly and validly authorized,
executed and delivered and constitutes the valid and binding obligation of
Guarantor, enforceable in accordance with its terms, and (iii) the execution and
delivery of this Guarantee does not violate or constitute a default under (with
or without the giving of notice, the passage of time, or both) any order,
judgment, decree, instrument or agreement to which Guarantor is a party or by
which it or its assets are affected or bound.
15. Costs. Whether or not suit be instituted, Guarantor agrees to reimburse
Greyrock on demand for all reasonable attorneys' fees and all other reasonable
costs and expenses incurred by Greyrock in enforcing this Guarantee, or arising
out of or relating in any way to this Guarantee, or in enforcing any of the
Indebtedness against Borrower, Guarantor, or any other person, or in connection
with any property of any kind securing all or any part of the Indebtedness.
Without limiting the generality of the foregoing, and in addition thereto,
Guarantor shall reimburse Greyrock on demand for all reasonable attorneys' fees
and costs Greyrock incurs in any way relating to Guarantor, Borrower or the
Indebtedness, in order to: obtain legal advice; enforce or seek to enforce any
of its rights; commence, intervene in, respond to, or defend any action or
proceeding; file, prosecute or defend any claim or cause of action in any action
or proceeding (including without limitation any probate claim, bankruptcy claim,
third-party claim, secured creditor claim, reclamation complaint, and complaint
for relief from any stay under the Bankruptcy Code or otherwise); protect,
obtain possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent Greyrock in any litigation with respect to Borrower's
or Guarantor's affairs. In the event either Greyrock or Guarantor files any
lawsuit against the other predicated on a breach of this Guarantee, the
prevailing party in such action shall be entitled to recover its attorneys' fees
and costs of suit from the non-prevailing party.
16. Notices. Any notice which a party shall be required or shall desire to
give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guarantee) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to Greyrock at its address set forth in the heading
of this Guarantee and to Guarantor at his address set forth under his signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. Greyrock and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give Greyrock immediate
written notice of any change in his address.
17. Claims. Guarantor agrees that any claim or cause of action by Guarantor
against Greyrock, or any of Greyrock's directors, officers, employees, agents,
accountants or attorneys, based upon, arising from, or relating to this
Guarantee, or any other present or future agreement between Greyrock and
Guarantor or between Greyrock and Borrower, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, whether or not relating hereto or thereto,
occurred, done, omitted or suffered to be done by Greyrock, or by Greyrock's
directors, officers, employees, agents, accountants or attorneys, whether
sounding in contract or in tort or otherwise, shall be barred unless asserted by
Guarantor by the commencement of an action or proceeding in a court of competent
jurisdiction within Los Angeles County, California, by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based and service of a summons
and complaint on an officer of Greyrock or any other person authorized to accept
service of process on behalf of Greyrock, within 30 days thereafter. Guarantor
agrees that such one year period is a reasonable and sufficient time for
Guarantor to investigate and act upon any such claim or cause of action. The one
year period provided herein shall not be waived, tolled, or extended except by a
specific written agreement of Greyrock. This provision shall survive any
termination of this Guarantee or any other agreement.
18. Construction; Severability. As used in this Guarantee, the term property
is used in its most comprehensive sense and shall mean all property of every
kind and nature whatsoever, including without limitation
5
<PAGE>
real property, personal property, mixed property, tangible property and
intangible property. Words used herein in the masculine gender shall include the
neuter and feminine gender, words used herein in the neuter gender shall include
the masculine and feminine, words used herein in the singular shall include the
plural and words used in the plural shall include the singular, wherever the
context so reasonably requires. If any provision of this Guarantee or the
application thereof to any party or circumstance is held invalid, void,
inoperative or unenforceable, the remainder of this Guarantee and the
application of such provision to other parties or circumstances shall not be
affected thereby, the provisions of this Guarantee being severable in any such
instance.
19. General Provisions. Greyrock shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other instrument or
agreement evidencing obligations of Guarantor to Greyrock, and against Borrower
to the full extent of the Indebtedness. No election in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of Greyrock's right to proceed in any other form of action or proceeding
or against any other party. The failure of Greyrock to enforce any of the
provisions of this Guarantee at any time or for any period of time shall not be
construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to Greyrock by law or under
any other instrument or agreement. Time is of the essence in the performance by
Guarantor of each and every obligation under this Guarantee. Guarantor hereby
agrees that Greyrock shall have no obligation to inquire into the power or
authority of Borrower or any of its officers, directors, partners, or agents
acting or purporting to act on its behalf, and any Indebtedness made or created-
in reliance upon the professed exercise of any such power or authority shall be
included in the Indebtedness guaranteed hereby. This Guarantee is the entire and
only agreement between Guarantor and Greyrock with respect to the guaranty of
the Indebtedness of Borrower by Guarantor, and all representations, warranties,
agreements, or undertakings heretofore or contemporaneously made, which are not
set forth herein, are superseded hereby. No course of dealings between the
parties, no usage of the trade, and no parol or extrinsic evidence of any nature
shall be used or be relevant to supplement or explain or modify any term or
provision of this Guarantee. There are no conditions to the full effectiveness
of this Guarantee. The terms and provisions hereof may not be waived, altered,
modified, or amended except in a writing executed by Guarantor and a duly
authorized officer of Greyrock. All rights, benefits and privileges hereunder
shall inure to the benefit of and be enforceable by Greyrock and its successors
and assigns and shall be binding upon Guarantor and its successors and assigns.
Section headings are used herein for convenience only. Guarantor acknowledges
that the same may not describe completely the subject matter of the applicable
Section, and the same shall not be used in any manner to construe, limit, define
or interpret any term or provision hereof 20. Governing Law; Venue and
Jurisdiction. This instrument and all acts and transactions pursuant or relating
hereto and all rights and obligations of the parties hereto shall be governed,
construed, and interpreted in accordance with the internal laws of the State of
California. In order to induce Greyrock to accept this Guarantee, and as a
material part of the consideration therefor, Guarantor (i) agrees that all
actions or proceedings relating directly or indirectly hereto shall, at the
option of Greyrock, be litigated in courts located within Los Angeles County,
California, (ii) consents to the jurisdiction of any such court and consents to
the service of process in any such action or proceeding by personal delivery or
any other method permitted by law; and (iii) waives any and all rights Guarantor
may have to transfer or change the venue of any such action or proceeding.
20. Governing Law; Venue and Jurisdiction. This instrument and all acts and
transactions pursuant or relating hereto and all rights and obligations of the
parties hereto shall be governed, construed, and interpreted in accordance with
the internal laws of the State of California. In order to induce Greyrock to
accept this Guarantee, and as a material part of the consideration therefor,
Guarantor (i) agrees that all actions or proceedings relating directly or
indirectly hereto shall, at the option of Greyrock, be litigated in courts
located within Los Angeles County, California, (ii) consents to the jurisdiction
of any such court and consents to the service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (iii)
waives any and all rights Guarantor may have to transfer or change the venue of
any such action or proceeding.
21. Mutual Waiver of Right to Jury Trial.
GREYROCK AND GUARANTOR HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
CLAIM, LAWSUIT OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING
TO: (i) THIS GUARANTEE OR ANY SUPPLEMENT OR AMENDMENT THERETO; OR (ii) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND GUARANTOR; OR
(iii) ANY BREACH, CONDUCT, ACTS OR OMISSIONS OF GREYROCK OR GUARANTOR OR ANY OF
THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSON AFFILIATED WITH OR REPRESENTING GREYROCK OR GUARANTOR; IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
22. Receipt of Copy. Guarantor acknowledges receipt of a copy of this Guarantee.
Guarantor Signature:
In the Company of Dogs, Inc.
By: /s/ Greg Smith
------------------------------
Title: Vice President of Finance
---------------------------
Address:
c/o Petopia.com, Inc.
1200 Folsom Street
San Francisco, CA 94103
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Exhibit 10.43
- ------------------------------------------------------------------------------
Security Agreement
Debtor: IN THE COMPANY OF DOGS, INC. (formerly ICOD ACQUISITION CORP.)
Address: 151 West 25th, 12th Floor
New York, New York 10001
Date: January 31, 2000
This Security Agreement is entered into as of the above date at Los Angeles,
California, between the above-named debtor(s) (jointly and severally, the
"Debtor"), whose chief executive office is set forth above ("Debtor's Address"),
and Greyrock Capital, a Division of Banc of America Commercial Finance
Corporation ("Greyrock"), whose address is 10880 Wilshire Blvd., Suite 1850,
Los Angeles, CA 90024. Certain capitalized terms used in this Agreement are
defined in Section 6 below.
1. DEFINITIONS OF OBLIGATIONS AND COLLATERAL; GRANT OF SECURITY INTEREST.
1.1 Obligations. The term "Obligations" as used in this Agreement shall mean
and include each and all of the following: the obligation to pay and perform
when due all indebtedness, liabilities, obligations, guarantees, covenants,
agreements, warranties and representations of Debtor to Greyrock, whether
heretofore, now or hereafter existing, owing or arising; whether primary,
secondary, direct, absolute, contingent, fixed, secured or unsecured; joint or
several, monetary or non-monetary; and whether created pursuant to, or caused by
Debtor's breach of, this Agreement, or any other present or future agreement or
instrument, or created by operation of law or otherwise. The Obligations include
without limitation the obligations of Debtor under that certain Continuing
Guaranty in favor of Greyrock with respect to the indebtedness of Petopia.com,
Inc., and all extensions and renewals, thereof.
1.2 Collateral. To secure the payment and performance of all of the
Obligations when due, Debtor hereby grants to Greyrock a security interest in
all of Debtor's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Investment Property, Receivables, and General Intangibles, including,
without limitation, all of Debtor's Deposit Accounts, all money, all collateral
in which Greyrock is granted a security interest pursuant to any other present
or future agreement, all property now or at any time in the future in Greyrock's
possession, and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products of the
foregoing, and all books and records related to any of the foregoing.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEBTOR.
In order to induce Greyrock to enter into this Agreement, Debtor represents
and warrants to Greyrock as follows, and Debtor covenants that the following
representations will continue to be true, and that Debtor will at all times
comply with all of the following covenants:
2.1 Corporate Existence and Authority. Debtor, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Debtor is and will continue to be
qualified and licensed to do business in all jurisdictions in which any failure
to do so would have a material adverse effect on Debtor. The execution, delivery
and performance by Debtor of this Agreement, and all other documents
contemplated hereby (i) have been duly and validly authorized, (ii) are
enforceable against Debtor in accordance with their terms (except as enforcement
may be limited by equitable principles and by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors' rights
generally), (iii) do not violate Debtor's articles or certificate of
incorporation, or Debtor's by-laws, or any law or any material agreement or
instrument which is binding upon Debtor or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Debtor or its
property.
2.2 Name; Trade Names and Styles. The name of Debtor set forth in the heading
to this Agreement is its correct name. Listed on the Schedule are all prior
names of Debtor and all of Debtor's present and prior trade names. Debtor shall
give Greyrock 30 days' prior written notice before changing its name. Debtor
shall promptly provide notice to Greyrock if Debtor conducts business under any
fictitious name. Debtor has complied, and will in the future comply, with all
laws relating to the conduct of business under a fictitious business name.
2.3. Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Debtor's chief executive office. In addition,
Debtor has places of business and Collateral is located only at the locations
set forth on the Schedule. Debtor will give Greyrock prior written notice
before opening any additional place of business, changing its chief executive
office, or moving any material portion of the Collateral to a location other
than Debtor's Address or one of the locations set forth on the Schedule.
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Greyrock Capital Security Agreement
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2.4 Title to Collateral; Permitted Liens. Debtor is now, and will at all times
in the future be, the sole owner of all the Collateral, except for items of
Equipment which are leased by Debtor. The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens. Greyrock now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Debtor will at all
times defend Greyrock and the Collateral against all claims of others. Whenever
any Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Debtor shall, whenever requested by Greyrock, use its best efforts
to cause such third party to execute and deliver to Greyrock, in form acceptable
to Greyrock, such waivers and subordinations as Greyrock shall specify, so as to
ensure that Greyrock's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Debtor will keep in full force
and effect, and will comply with all the terms of, any lease of real property
where any of the Collateral now or in the future may be located.
2.5 Maintenance of Collateral. Debtor will maintain the Collateral in good
working condition, ordinary wear and tear excepted, and Debtor will not use the
Collateral for any unlawful purpose. Debtor will immediately advise Greyrock in
writing of any material loss or damage to the Collateral.
3. DUTIES OF THE DEBTOR.
3.1 Insurance. Debtor shall, at all times, insure all of the tangible personal
property Collateral and carry such other business insurance, with insurers
reasonably acceptable to Greyrock, in such form and amounts as set forth in the
Schedule, and Debtor shall provide evidence of such insurance to Greyrock, so
that Greyrock is satisfied that such insurance is, at all times, in full force
and effect. All such insurance policies shall name Greyrock as an additional
loss payee, and shall contain a lenders loss payee endorsement in form
reasonably acceptable to Greyrock. Upon receipt of the proceeds of any such
insurance, Debtor shall apply such proceeds for the replacement of the
Collateral with respect to which the insurance proceeds were paid. Greyrock may
require reasonable assurance that the insurance proceeds so released will be so
used. If Debtor fails to provide or pay for any insurance, Greyrock may, but is
not obligated to, obtain the same at Debtor's expense. Debtor shall promptly
deliver to Greyrock copies of all reports made to insurance companies.
3.2 Access to Collateral, Books and Records. At reasonable times, and on one
Business Day's notice, Greyrock, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Debtor's books and records.
Greyrock shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Greyrock shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process.
3.3 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Greyrock with respect to any Collateral or in any
manner relating to Debtor, Debtor shall, without expense to Greyrock, make
available Debtor and its officers, employees and agents, and Debtor's books and
records, without charge, to the extent that Greyrock may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
3.4 Notification of Changes. Debtor will promptly notify Greyrock in writing
of any change in its officers or directors, the opening of any new bank account
or other deposit account, and any material adverse change in the business or
financial affairs of Debtor.
3.5 Further Assurances. Debtor agrees, at its expense, on request by Greyrock,
to execute all documents and take all actions, as Greyrock may deem reasonably
necessary or useful in order to perfect and maintain Greyrock's perfected
security interest in the Collateral, and in order to fully consummate the
transactions contemplated by this Agreement.
3.6 Indemnity. Debtor hereby agrees to indemnify Greyrock and hold Greyrock
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
attorneys' fees), of every nature, character and description, which Greyrock may
sustain or incur based upon or arising out of any of the Obligations, any actual
or alleged failure to collect and pay over any withholding or other tax relating
to Debtor or its employees, any relationship or agreement between Greyrock and
Debtor, any actual or alleged failure of Greyrock to comply with any writ of
attachment or other legal process relating to Debtor or any of its property, or
any other matter, cause or thing whatsoever occurred, done, omitted or suffered
to be done by Greyrock relating to Debtor or the Obligations (except any such
amounts sustained or incurred as the result of the gross negligence or willful
misconduct of Greyrock or any of its directors, officers, employees, agents,
attorneys, or any other person affiliated with or representing Greyrock).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement and shall for all purposes continue in full force and effect.
4. TERM. This Agreement shall continue in effect until all of the Obligations
have been paid and performed in full and all agreements between Greyrock and
Debtor have been terminated.
5. EVENTS OF DEFAULT AND REMEDIES.
5.1 Events of Default. The occurrence of any of an "Event of Default" under
the Loan and Security Agreement by and between Petopia.com, Inc. and Greyrock
shall be Event of Default hereunder.
5.2 Remedies. Upon the occurrence and during the continuance of any Event of
Default, Greyrock, at its option, and without notice or demand of any kind (all
of which are hereby expressly waived by Debtor), may do any one or more of the
following: (a) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (b) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Debtor hereby authorizes Greyrock without
judicial process to enter onto any of Debtor's premises without interference to
search for, take
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Greyrock Capital Security Agreement
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possession of, keep, store, or remove any of the Collateral, and remain on the
premises or cause a custodian to remain on the premises in exclusive control
thereof, without charge for so long as Greyrock deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, however, that should Greyrock seek to take possession
of any of the Collateral by Court process, Debtor hereby irrevocably waives: (i)
any bond and any surety or security relating thereto required by any statute,
court rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Greyrock retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (c) Require
Debtor to assemble any or all of the Collateral and make it available to
Greyrock at places designated by Greyrock which are reasonably convenient to
Greyrock and Debtor, and to remove the Collateral to such locations as Greyrock
may deem advisable; (d) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Greyrock shall have the right to use Debtor's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (e) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Greyrock obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Greyrock shall have the right to
conduct such disposition on Debtor's premises without charge, for such time or
times as Greyrock deems reasonable, or on Greyrock's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Greyrock may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Debtor of any liability Debtor may have if any Collateral is defective
as to title or physical condition or otherwise at the time of sale; (f) Collect,
receive, dispose of and realize upon any Investment Property, including
withdrawal of any and all funds from any securities accounts; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Debtor irrevocably authorizes Greyrock to endorse
or sign Debtor's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Debtor and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Greyrock's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables, General Intangibles and the like for
less than face value; and (h) Demand and receive possession of any of Debtor's
federal and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. Debtor recognizes that Greyrock may be
unable to make a public sale of any or all of the Investment Property, by
reasons of prohibitions contained in applicable securities laws or otherwise,
and expressly agrees that a private sale to a restricted group of purchasers for
investment and not with a view to any distribution thereof shall be considered a
commercially reasonable sale. All reasonable attorneys' fees, expenses, costs,
liabilities and obligations incurred by Greyrock with respect to the foregoing
shall be added to and become part of the Obligations, shall be due on demand,
and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations.
5.3 Standards for Determining Commercial Reasonableness. Debtor and Greyrock
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Debtor at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, nonspecific terms; (iii) The sale is
conducted at a place designated by Greyrock, with or without the Collateral
being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00
p.m; (v) Payment of the purchase price in cash or by cashier's check or wire
transfer is required; (vi) With respect to any sale of any of the Collateral,
Greyrock may (but is not obligated to) direct any prospective purchaser to
ascertain directly from Debtor any and all information concerning the same.
Greyrock shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
5.4 Power of Attorney. Upon the occurrence and during the continuance of any
Event of Default, without limiting Greyrock's other rights and remedies, Debtor
grants to Greyrock an irrevocable power of attorney coupled with an interest,
authorizing and permitting Greyrock (acting through any of its employees,
attorneys or agents) at any time, at its option, but without obligation, with or
without notice to Debtor, and at Debtor's expense, to do any or all of the
following, in Debtor's name or otherwise, but Greyrock agrees to exercise the
following powers in a commercially reasonable manner: (a) Execute on behalf of
Debtor any documents that Greyrock may, in its sole discretion, deem advisable
in order to perfect and maintain Greyrock's security interest in the Collateral,
or in order to exercise a right of Debtor or Greyrock, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Debtor any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Greyrock's Collateral or in which Greyrock has an interest; (c)
Execute on behalf of Debtor, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Debtor upon any instruments, or
documents, evidence of payment or Collateral that may come into Greyrock's
possession; (e) Endorse all checks and other forms of remittances received by
Greyrock; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim
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Greyrock Capital Security Agreement
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in or to any of the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; (g) Grant extensions of time to
pay, compromise claims and settle Receivables and General Intangibles for less
than face value and execute all releases and other documents in connection
therewith; (h) Pay any sums required on account of Debtor's taxes or to secure
the release of any liens therefor, or both; (i) Settle and adjust, and give
releases of, any insurance claim that relates to any of the Collateral and
obtain payment therefor; (j) Instruct any third party having custody or control
of any books or records belonging to, or relating to, Debtor to give Greyrock
the same rights of access and other rights with respect thereto as Greyrock has
under this Agreement; (k) Execute and deliver to any securities intermediary or
other Person any entitlement order, account control agreement or other notice,
document or instrument with respect to any Investment Property; and (k) Take any
action or pay any sum required of Debtor pursuant to this Agreement and any
other present or future agreements. Any and all reasonable sums paid and any and
all reasonable costs, expenses, liabilities, obligations and reasonable
attorneys' fees incurred by Greyrock with respect to the foregoing shall be
added to and become part of the Obligations, shall be payable on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations. In no event shall Greyrock's rights under the foregoing
power of attorney or any of Greyrock's other rights under this Agreement be
deemed to indicate that Greyrock is in control of the business, management or
properties of Debtor.
5.5 Application of Proceeds. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by Greyrock first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Greyrock in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Greyrock shall determine in its sole
discretion. Any surplus shall be paid to Debtor or other persons legally
entitled thereto; Debtor shall remain liable to Greyrock for any deficiency. If
Greyrock, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any sale of
Collateral, Greyrock shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Greyrock of the cash therefor.
5.6 Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, Greyrock shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Greyrock and Debtor, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Greyrock of one or more of its rights or remedies shall not be deemed an
election, nor bar Greyrock from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Greyrock to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
6. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
--------------
"Affiliate" means, with respect to any Person, a relative, 10% partner, 10%
---------
shareholder, director, or officer of such Person, or any parent or subsidiary of
such Person, or any Person controlling, controlled by or under common control
with such Person.
"Agreement" and "this Agreement" means this Security Agreement and all
--------- --------------
modifications and amendments thereto, extensions thereof, and replacements
therefor.
"Business Day" means a day on which Greyrock is open for business.
------------
"Code" means the Uniform Commercial Code as adopted and in effect in the State
----
of California from time to time.
"Collateral" has the meaning set forth in Section 1.2 above.
----------
"Default" means any event which with notice or passage of time or both, would
--------
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
----------------
"Equipment" means all of Debtor's present and hereafter acquired machinery,
----------
molds, machine tools, motors, furniture equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Debtor's operations or owned by Debtor and any interest in any of the foregoing,
and all attachments, accessories, accessions, replacements, substitutions,
additions or improvements to any of the foregoing, wherever located.
"Event of Default" means any of the events set forth in Section 5.1 of this
-----------------
Agreement.
"General Intangibles" means all general intangibles of Debtor, whether now
--------------------
owned or hereafter created or acquired by Debtor, including, without limitation,
all choses in action, causes of action, corporate or other business records,
Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill of the business symbolized thereby,
names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Debtor against Greyrock, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including life insurance, key man insurance,
credit insurance, liability insurance, property insurance and other insurance),
tax refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or
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granted to Debtor, all rights to indemnification and all other intangible
property of every kind and nature (other than Receivables).
"Inventory" means all of Debtor's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Debtor's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"Investment Property" means any and all investment property of Debtor,
-------------------
including all securities, whether certificated or uncertificated, security
entitlements, securities accounts, commodity contracts and commodity accounts,
and all financial assets held in any securities account or otherwise, wherever
located, and whether now existing or hereafter acquired or arising.
"Obligation" has the meaning set forth in Section 1 above.
----------
"Permitted Liens" means the following: (i) purchase money security interests
---------------
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens which are subordinate to the security interest in favor of Greyrock and
are consented to in writing by Greyrock (which consent shall not be unreasonably
withheld); (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods; and (ix) a first
priority lien securing up to $2 million of indebtedness of Debtor. Greyrock will
have the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Greyrock's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Greyrock,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Debtor agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Debtor's now owned and hereafter acquired accounts
-----------
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Debtor, all guaranties and other security
therefor, all merchandise returned to or repossessed by Debtor, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lien or secured party.
Other Terms. All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
7. GENERAL PROVISIONS.
7.1 Application of Payments. All payments with respect to the Obligations
shall be applied, to the Obligations, as follows: first, to cost, fees and
expenses referred to herein, next to accrued and unpaid interest, and the
remaining balance to the payment of principal.
7.2 Notices. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Greyrock or Debtor at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
7.3 Severability. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
7.4 Integration. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Debtor and Greyrock and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
-----------------
understandings, representations or agreements between the parties which are not
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set forth in this Agreement or in other written agreements signed by the parties
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in connection herewith.
- -----------------------
7.5 Waivers. The failure of Greyrock at any time or times to require Debtor to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Debtor and Greyrock shall not waive or
diminish any right of Greyrock later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Debtor and delivered to Greyrock shall be deemed to have been
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waived by any act or knowledge of Greyrock or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Greyrock and
delivered to Debtor. Debtor waives demand, protest, notice of protest and notice
of default or dishonor, notice of payment and nonpayment release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Greyrock on which
Debtor is or may in any way be liable, and notice of any action taken by
Greyrock, unless expressly required by this Agreement.
7.6 Amendment. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by Debtor and a duly authorized officer of
Greyrock.
7.7 Time of Essence. Time is of the essence in the performance by Debtor of
each and every obligation under this Agreement.
7.8 Attorneys Fees and Costs. Debtor shall reimburse Greyrock for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Greyrock, pursuant to
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Greyrock incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Debtor; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Debtor's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Greyrock's security interest in, the Collateral; and otherwise represent
Greyrock in any litigation relating to Debtor; provided, however, that the fees
and costs incurred by Greyrock in connection with or relating to the
preparation, negotiation and consummation of this Agreement and the documents
relating hereto shall not exceed twenty-five thousand dollars ($25,000). If
either Greyrock or Debtor files any lawsuit against the other predicated on a
breach of this Agreement, the prevailing party in such action shall be entitled
to recover its reasonable costs and attorneys' fees, including (but not limited
to) reasonable attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Greyrock may be entitled pursuant to this
Paragraph shall immediately become part of Debtor's Obligations, shall be due on
demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.
7.9 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Debtor and Greyrock; provided, however,
that Debtor may not assign or transfer any of its rights under this Agreement
without the prior written consent of Greyrock, and any prohibited assignment
shall be void. No consent by Greyrock to any assignment shall release Debtor
from its liability for the Obligations.
7.10 Joint and Several Liability. If Debtor consists of more than one Person,
their liability shall be joint and several, and the compromise of any claim
with, or the release of, any Debtor shall not constitute a compromise with, or a
release of, any other Debtor.
7.11 Limitation of Actions. Any claim or cause of action by Debtor against
Greyrock, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Agreement, or any other present or
future document or agreement, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, occurred, done, omitted or suffered to be done by Greyrock, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Debtor by the commencement of an action or proceeding
in a court of competent jurisdiction by the filing of a complaint within one
year after the first act, occurrence or omission upon which such claim or cause
of action, or any part thereof, is based, and the service of a summons and
complaint on an officer of Greyrock, or on any other person authorized to accept
service on behalf of Greyrock, within thirty (30) days thereafter. Debtor agrees
that such one-year period is a reasonable and sufficient time for Debtor to
investigate and act upon any such claim or cause of action. The one-year period
provided herein shall not be waived, tolled, or extended except by the written
consent of Greyrock in its sole discretion. This provision shall survive any
termination of this Agreement or any other present or future agreement.
7.12 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Debtor and Greyrock acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Greyrock or Debtor under any rule
of construction or otherwise.
7.13 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Greyrock and Debtor
shall be governed by the laws of the State of California. As a material part of
the consideration to Greyrock to enter into this Agreement, Debtor (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Greyrock's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Debtor may
have to object to the jurisdiction of any such court or to transfer or change
the venue of any such action or proceeding.
-6-
<PAGE>
Greyrock Capital Security Agreement
- -----------------------------------------------------------------------------
7.14 Mutual Waiver of Jury Trial. DEBTOR AND GREYROCK EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GREYROCK AND DEBTOR, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GREYROCK OR DEBTOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GREYROCK OR DEBTOR, IN
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Debtor: IN THE COMPANY OF DOGS,
INC.
By /s/ GREGORY SMITH
-----------------
Title Vice President of Finance
-------------------------
By _______________________
Title______________________
Greyrock: GREYROCK CAPITAL,
a Division of Banc of America
Commercial Finance Corporation
By________________________
Title_______________________
Schedule to Security Agreement
Prior Names of Debtor:
Aardvark Pet Products, Inc.
C/R Catalog Corp.
Fictitious Names, Trade Names and Trade Styles of Debtor:
In the Company of Dogs
Other Addresses and Other Locations of Collateral:
Insurance Coverage: [see Schedule to Loan and Security Agreement, dated January
31, 2000, executed by Greyrock and Petopia.com, Inc.]
-7-
<PAGE>
EXHIBIT 10.44
LOCK-UP AGREEMENT
February __, 2000
CIBC WORLD MARKETS CORP.
SG COWEN SECURITIES CORPORATION
SOUNDVIEW TECHNOLOGY GROUP, INC.
As Representatives of the several
Underwriters named in Schedule I to
the Underwriting Agreement referred to below
c/o CIBC World Markets Corp.
2420 Sand Hill Road, Suite 300
Menlo Park, California 94025
Re: Petopia.com, Inc. - Initial Public Offering
-------------------------------------------
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the
several Underwriters, propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Petopia.com, Inc., a Delaware corporation (the
----------------------
"Company"), providing for the initial public offering (the "Offering") by the
------- --------
several Underwriters named in Schedule I to the Underwriting Agreement (the
"Underwriters"), of Common Stock, $0.0001 par value (the "Common Stock"), of the
------------ ------------
Company. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Underwriting Agreement.
In consideration of the Underwriters' agreement to purchase and make
the Offering of the Common Stock, and for other good and valuable consideration
receipt of which is hereby acknowledged, the undersigned hereby agrees that,
without the prior written consent of CIBC World Markets Corp. on behalf of the
Underwriters, the undersigned will not, during the period ending 180 days after
the date of the prospectus relating to the Offering (the "Prospectus"), (1)
----------
offer, pledge, announce the intention to sell, 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 Common Stock or any securities of the
Company which are substantially similar to the Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock (including, but
not limited to, Common Stock which may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations of the Securities and
Exchange Commission and securities which may be issued upon exercise of a stock
option or warrant) or (2) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the
<PAGE>
-2-
Common Stock or any securities of the Company which are substantially similar to
the Common Stock, including, but not limited to, any security convertible into
or exercisable or exchangeable for Common Stock, whether any such transaction
described in clause (1) or (2) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise; provided, however, that
clauses (1) and (2) above shall not apply to (a) options issued pursuant to the
Company's employee stock option plans existing on the date of the Prospectus or
the exercise of such options, and (b) gifts of the undersigned's shares of
Common Stock or any securities of the Company which are substantially similar to
the Common Stock, including, but not limited to, any security convertible into
or exercisable or exchangeable for Common Stock, provided that any person that
receives such gift delivers to the Underwriters an executed lock-up agreement
substantially similar to this Lock-Up Agreement and in form and substance
satisfactory to CIBC World Markets Corp. In addition, the undersigned agrees
that, without the prior written consent of CIBC World Markets Corp. on behalf of
the Underwriters, it will not, during the period ending 180 days after the date
of the Prospectus, make any demand for or exercise any right with respect to,
the registration of any shares of Common Stock or any substantially similar
securities of the Company, including but not limited to, any security
convertible into or exercisable or exchangeable for Common Stock.
In furtherance of the foregoing, the Company and any duly appointed
transfer agent for the registration or transfer of the securities described
herein are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this Lock-Up Agreement.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to enter into this Lock-Up Agreement. All
authority herein conferred or agreed to be conferred and any obligations of the
undersigned shall be binding upon the successors, assigns, heirs or personal
representatives of the undersigned.
The undersigned understands that, if the Underwriting Agreement does
not become effective, or if the Underwriting Agreement (other than the
provisions thereof which survive termination) shall terminate or be terminated
prior to payment for and delivery of the Common Stock to be sold thereunder, the
undersigned shall be released from all obligations under this Lock-Up Agreement.
The undersigned understands that the Underwriters are entering into
the Underwriting Agreement and proceeding with the Offering in reliance upon
this Lock-Up Agreement.
<PAGE>
-3-
THIS LOCK-UP AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
Very truly yours,
By:_____________________________________
Name:
Title:
<PAGE>
-4-
Accepted as of the date first
set forth above:
CIBC WORLD MARKETS CORP.
SG COWEN SECURITIES CORPORATION
SOUNDVIEW TECHNOLOGY GROUP, INC.
Acting severally on behalf of themselves and
the several Underwriters named in Schedule I
to the Underwriting Agreement
By: CIBC WORLD MARKETS CORP.
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT 21.1
NAME JURISDICTION OF INCORPORATION
In The Company Of Dogs, Inc. Delaware
<PAGE>
EXHIBIT 23.1
Consent of Ernst & Young LLP Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 18, 2000, in the Registration Statement (Form
S-1) and the related prospectus of Petopia.com for the registration of shares
of its common stock.
/s/ ERNST & YOUNG LLP
San Jose, California
March 9, 2000
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Petopia.com, Inc.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement of Petopia.com, Inc. on Form S-1 of our report dated
December 23, 1999 on the financial statements of C/R Catalog Corp. as of June
27, 1998 and June 26, 1999 and for the years then ended, which appear in such
Prospectus. We also consent to the reference to our Firm under the captions
"Experts" in such Prospectus.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> MAR-09-1999
<PERIOD-END> JAN-01-2000
<CASH> 22,982
<SECURITIES> 13,546
<RECEIVABLES> 297
<ALLOWANCES> 0
<INVENTORY> 227
<CURRENT-ASSETS> 42,533
<PP&E> 3,502
<DEPRECIATION> 356
<TOTAL-ASSETS> 52,840
<CURRENT-LIABILITIES> 11,536
<BONDS> 0
0
3
<COMMON> 1
<OTHER-SE> 41,300
<TOTAL-LIABILITY-AND-EQUITY> 52,840
<SALES> 3,452
<TOTAL-REVENUES> 3,452
<CGS> 5,639
<TOTAL-COSTS> 5,639
<OTHER-EXPENSES> 39,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (40,865)
<INCOME-TAX> 0
<INCOME-CONTINUING> (40,865)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,865)
<EPS-BASIC> 10.84
<EPS-DILUTED> 10.84
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