<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 2000
REGISTRATION NO. 333-92433
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PETS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 5999 95-4730753
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
435 BRANNAN STREET
SUITE 100
SAN FRANCISCO, CA 94107
(415) 222-9999
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JULIA L. WAINWRIGHT
CHIEF EXECUTIVE OFFICER
PETS.COM, INC.
435 BRANNAN STREET
SUITE 100
SAN FRANCISCO, CA 94107
(415) 222-9999
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
JOHN V. BAUTISTA, ESQ. KEVIN P. KENNEDY, ESQ.
FRANCES JOHNSTON, ESQ. SHEARMAN & STERLING
JOHN DUGAN, ESQ. 1550 EL CAMINO REAL
VENTURE LAW GROUP MENLO PARK, CA 94025
A PROFESSIONAL CORPORATION (650) 330-2200
2800 SAND HILL ROAD
MENLO PARK, CA 94025
(650) 854-4488
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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
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<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.00125 per
share(3).......................... 8,625,000 $11.00 $94,875,000 $26,400(4)
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</TABLE>
(1) Includes 1,125,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act.
(3) The amount of shares registered also includes any shares initially ordered
or sold outside the United States that are thereafter sold or resold in the
United States. Offers and sales of shares outside the United States are
being made pursuant to the exemption afforded by Rule 901 of Regulation S
and this Registration Statement shall not be deemed effective with respect
to such offers and sales.
(4) Previously paid with the initial filing of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PRELIMINARY 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.
greenpaw.eps
SUBJECT TO COMPLETION,
PRELIMINARY PROSPECTUS DATED JANUARY 21, 2000
PROSPECTUS
7,500,000 SHARES
LOGO
COMMON STOCK
------------------------
This is Pets.com's initial public offering of common stock. The U.S.
underwriters are offering 6,000,000 shares in the U.S. and Canada and the
international managers are offering 1,500,000 shares outside the U.S. and
Canada.
We expect the public offering price to be between $9.00 and $11.00 per
share. After pricing this offering, we expect that the common stock will be
quoted on the Nasdaq National Market under the symbol "IPET."
INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS WHICH ARE
DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
------------------------
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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Pets.com, Inc................. $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 900,000
shares from Pets.com at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional 225,000 shares from Pets.com.
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.
The shares will be ready for delivery on or about , 2000.
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
WARBURG DILLON READ LLC
------------------------
The date of this prospectus is , 2000.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 5
Forward-Looking Statements.................................. 20
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 22
Selected Financial and Operating Data....................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 28
Management.................................................. 45
Related Party Transactions.................................. 57
Principal Stockholders...................................... 60
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 64
Underwriting................................................ 66
Legal Matters............................................... 70
Experts..................................................... 70
Additional Information...................................... 70
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.
Pets.com(TM), the Pets.com logo, Because Pets Can't Drive(TM), Keep It
Comin'(TM), More Products Than A Superstore Delivers(TM), People Helping
Animals, Animals Helping People(TM), and Pets.commitment(TM) are trademarks of
Pets.com and Pets.com has the right to use Pets.complete(TM). All other brand
names or trademarks appearing in this prospectus are the property of their
respective holders. Use or display by Pets.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, Pets.com by the trademark or trade dress
owners.
<PAGE> 4
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and financial statements appearing elsewhere
in this prospectus.
PETS.COM, INC.
We are a leading online retailer of pet products, integrating product sales
with expert information on pets and their care. We are committed to serving pets
and their owners with the best care possible through a broad product selection,
expert information and superior service. We seek to address the entire pet
products market, transcending the limited product selection of superstores,
specialty stores and grocery stores. Our broad selection of approximately 12,000
SKUs is integrated with extensive pet-related information and resources designed
to help consumers make informed purchasing decisions. We designed our Web store
to provide our customers with a convenient, one-stop shopping experience that is
organized to reflect how consumers think about shopping for their pets. Our Web
store addresses the needs of many of the most popular pets, including dogs,
cats, birds, fish, reptiles, ferrets, and other small pets. We provide quality
customer service through our in-house distribution, fulfillment, customer
service, and technology operations. Furthermore, we encourage participation in
the pet community both through our Web store and through Pets.commitment, our
charitable foundation that supports the role that pets and people play in each
others' lives.
The pet products industry in the United States is a large and growing
market characterized by a loyal and emotion-driven customer base. According to
the Pet Industry Joint Advisory Council, U.S. consumer spending on pet products
and services grew at an annual rate of approximately 9% per year between 1993
and 1997, totaling approximately $23 billion at the end of 1997. More than 60%
of U.S. households owned a pet and 40% of those households owned more than one
pet in 1998, according to a recent American Pet Products Manufacturers
Association study. The pet products market has traditionally been served by a
combination of traditional store-based retailers, including superstores,
independent specialty stores and grocery stores. This market is highly
fragmented, and generally requires consumers to expend considerable time and
effort shopping for pet products in multiple stores to meet all their needs.
We provide consumers with one-stop shopping for their pet care needs. We
seek to attract and retain consumers by emphasizing the following key
attributes:
Extensive Product Selection. With only one distribution center at this
time, our SKU count is currently equivalent to the number available at the
largest pet superstores, and by the middle of 2000 we expect our SKU count will
increase to approximately two times the SKUs available at these stores.
Expert Information and Professional Resources. We provide consumers
extensive pet and pet care information integrated throughout our Web store
through our in-house staff of pet experts and strategic relationships.
Superior Shopping Experience. We believe that we provide an intuitive,
easy-to-use Web store, categorized and organized the way people think about
shopping for their pets. We also offer our customers a highly streamlined
checkout experience and direct delivery to their doors.
Quality Customer Service. We have invested significant resources to create
our own fulfillment, distribution, and both online and in-person help service
functions to enable us to better control all aspects of the customers' shopping
experience.
Community. Visitors to our Web store can participate online in 60 different
pet discussion forums, sign up for our online newsletter and get information on
our Pets.commitment charitable foundation.
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<PAGE> 5
Our objective is to become one of the world's leading retailers of pet
products. Key elements of our strategy include:
- Building enduring brand equity through an advertising strategy which
includes our Pets.com sock puppet brand icon, relationships with select
online companies, and support for national events and pet-related local
market activities;
- Offering the broadest possible pet product selection available to our
customers at competitive prices;
- Establishing our private label brands for pet products marketed under the
Pets.complete and Pets.com brand names;
- Providing increasingly comprehensive and relevant content in conjunction
with a range of consumer and veterinary care partners;
- Delivering superior customer service and promoting repeat purchases
through investments in people, technology and distribution facilities;
- Continuing to maintain and expand our relationships with Amazon.com,
which is currently our largest stockholder, and GO.com; and
- Expanding internationally in order to capitalize on the global market.
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;
- the split of our common stock on the basis of 0.8 shares for each share
of common stock;
- our reincorporation in Delaware and the filing of our amended and
restated certificate of incorporation authorizing 150,000,000 shares of
common stock and a class of 5,000,000 shares of undesignated preferred
stock upon the closing of the offering; and
- no exercise by the underwriters of their options to purchase additional
shares of our common stock in the offering.
Our net sales were $5.8 million for the period from February 1999
(inception) through December 31, 1999. Our net losses were $61.8 million for the
same period.
We were formed in February 1999. Our principal executive offices are
located at 435 Brannan Street, Suite 100, San Francisco, California 94107. Our
telephone number is (415) 222-9999. Our Web store address is www.pets.com.
Information contained in our Web store does not constitute part of this
prospectus.
2
<PAGE> 6
THE OFFERINGS
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Shares offered by Pets.com
U.S. offering.......................... 6,000,000 shares
International offering............... 1,500,000 shares
-----------------
Total........................ 7,500,000 shares
</TABLE>
Shares outstanding after the
offering..................... 26,392,410 shares, excluding 3,152,327 shares
issued pursuant to the exercise of unvested stock
options which are subject to our right of
repurchase as of December 31, 1999.
Use of proceeds.............. We estimate that our net proceeds from this
offering without exercise of the over-allotment
options will be approximately $68.8 million. We
intend to use these net proceeds for general
corporate purposes, including expansion of our
marketing and brand building efforts, expansion
and building of distribution centers, and working
capital. See "Use of Proceeds."
Risk factors................. See "Risk Factors" and other information included
in this prospectus for a discussion of factors
you should carefully consider before deciding to
invest in shares of the common stock.
Proposed Nasdaq National
Market symbol................ "IPET"
In addition, the information above excludes, as of December 31, 1999,
983,400 shares issuable upon exercise of options granted under our stock plans
at a weighted average exercise price of $1.86 per share, and 2,068,000 shares
available for grant under our stock plans. This number assumes that the
underwriters' over-allotment options are not exercised. If the over-allotment
options are exercised in full, we will issue and sell an additional 1,125,000
shares.
3
<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth a summary of our statement of operations
data for the periods presented. The pro forma net loss per share for the period
from February 17, 1999 (inception) through December 31, 1999 reflects the
conversion of our convertible preferred stock upon completion of this offering.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 17, 1999
(INCEPTION)
QUARTER ENDED QUARTER ENDED THROUGH
QUARTER ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
JUNE 30, 1999 1999 1999 1999
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 39 $ 568 $ 5,168 $ 5,787
Gross margin....................... (37) (1,198) (6,402) (7,625)
Total operating expenses........... 3,584 15,231 36,512 55,344
---------- ---------- -------- -----------
Operating loss..................... (3,621) (16,429) (42,914) (62,969)
Net loss........................... $ (3,498) $ (15,852) (42,423) $ (61,778)
========== ========== ======== ===========
Basic and diluted net loss per
share............................ $ (2.41) $ (10.91) $ (28.92) $ (42.42)
Weighted average shares outstanding
used to compute basic and diluted
net loss per share............... 1,453,470 1,453,470 1,466,803 1,456,489
Pro forma basic and diluted net
loss per share................... $ (3.48)
Weighted average shares outstanding
used to compute pro forma basic
and diluted net loss per share... 17,757,028
</TABLE>
The following data sets forth a summary of our balance sheet data as of
December 31, 1999
- On an actual basis;
- On a pro forma basis to give effect to the automatic conversion of all of
the outstanding shares of our convertible preferred stock into shares of
common stock upon the closing of this offering; and
- On a pro forma as adjusted basis to reflect the automatic conversion of
all of the outstanding shares of our convertible preferred stock and our
receipt of the estimated net proceeds from the sale of 7,500,000 shares
of common stock in this offering at an estimated price of $10.00 per
share.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 30,196 $30,196 $ 98,946
Working capital............................................ 36,088 36,088 104,838
Total assets............................................... 60,310 60,310 129,060
Convertible preferred stock and related paid-in capital.... 109,637 -- --
Total stockholders' equity, including convertible preferred
stock.................................................... 51,120 51,120 119,870
</TABLE>
4
<PAGE> 8
RISK FACTORS
You should carefully consider the following risks before making an
investment in our company. You should also refer to the other information set
forth in this prospectus, including the discussions set forth in "Special Note
Regarding Forward-Looking Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as our
financial statements and the related notes. Our business, financial condition,
or results of operations could be harmed as a result of any of the following
risks. In such case, the trading of our common stock could decline, and you
could lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
WE ONLY BEGAN SELLING OUR PRODUCTS IN FEBRUARY 1999 AND WE OPERATE IN A NEW
AND RAPIDLY EVOLVING MARKET, WHICH MAKES IT DIFFICULT FOR INVESTORS TO
DETERMINE WHETHER WE WILL ACCOMPLISH OUR OBJECTIVES.
Because we were formed in February 1999 and we have yet to achieve
meaningful revenues, we have a limited operating history on which investors and
securities analysts can base an evaluation of our business and prospects. We
have limited insight into trends that may emerge and affect our business.
Accordingly, you must consider the risks and difficulties we face as an early
stage company with limited operating history in a new and rapidly evolving
market. We cannot be certain that our business strategy will be successful.
THE SUCCESS OF OUR BUSINESS DEPENDS ON ATTRACTING AND RETAINING A LARGE
NUMBER OF POTENTIAL CUSTOMERS. IF WE ARE UNABLE TO DO SO, WE WILL NOT BE
ABLE TO ACHIEVE PROFITABILITY.
Our success depends on attracting a large number of potential customers who
shop in traditional retail stores and persuading them to shop in our Web store.
Our success is also dependent on ensuring that these customers remain loyal
long-term customers of Pets.com. In addition to our dependence on the widespread
customer acceptance of the Internet for purchasing products, we cannot be
certain that our customers will accept our online solution over those offered by
our competitors. If we do not achieve widespread customer acceptance of our
online solution, our revenues will suffer. Furthermore, we may be required to
incur significantly higher and more sustained advertising and promotional
expenditures than we currently anticipate to attract online shoppers to our Web
store and to convert those shoppers to purchasing customers. As a result, we may
not be able to achieve profitability when we expect, or at all.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT SIGNIFICANT INCREASES IN OUR
COSTS AND EXPENSES TO RESULT IN CONTINUING LOSSES FOR AT LEAST THE NEXT
FOUR YEARS.
We incurred net losses of $42.4 million for the three-month period ended
December 31, 1999 and cumulative losses of $61.8 million from our inception
through December 31, 1999. We have not achieved profitability. We only began
selling products in February 1999 and have yet to achieve meaningful revenue,
and cannot be certain that we will obtain enough customer traffic or a high
enough volume of purchases to generate sufficient revenues and achieve
profitability. We believe that we will continue to incur operating and net
losses for at least the next four years, and possibly longer, and that the rate
at which we will incur these losses will increase significantly from current
levels. We intend to increase our costs and expenses substantially as we:
- Increase our sales and marketing activities, such as increasing
advertising expenses and entering into strategic marketing agreements
with third parties;
- Open additional distribution centers and expand our existing
distribution center;
- Provide our customers with shipping below our actual costs to attract
customers;
- Increase our general and administrative functions to support our
growing operations;
- Expand our customer support organization to better serve customer
needs; and
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<PAGE> 9
- Develop or license from third parties enhanced technologies and
features to improve our Web store.
Because we will spend these amounts before we receive any incremental
revenues from these efforts, our losses will be greater than the losses we would
incur if we developed our business more slowly. In addition, we may find that
these efforts are more expensive than we currently anticipate or that these
efforts may not result in proportionate increases in our revenues, which would
further increase our losses. We may also engage in promotional efforts such as
coupons or discounts that would reduce our revenues.
WE MAY NOT SUCCEED IN ESTABLISHING THE PETS.COM BRAND, WHICH WOULD
ADVERSELY AFFECT CUSTOMER ACCEPTANCE AND OUR REVENUES.
Due to the early stage and competitive nature of the online market for pet
products, information and services, 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 expense in our
advertising efforts on television, radio, magazines and other forms of
traditional media, along with advertising on Web sites that we believe our
customers are likely to visit. We will also incur substantial expense in our
efforts to enter into strategic alliances with, including making investments in,
online and more traditional companies that we believe will promote our brand and
drive customers to our Web store. To provide a high quality customer experience,
we will also need to spend money to attract and train customer service
personnel. We also will incur substantial expenses to develop content to help
build our brand and attract customers to our Web store. If these brand promotion
activities do not yield increased revenues, we will incur additional losses.
Beginning in the first half of 2000, we intend to introduce a line of
private label pet products. We may not achieve consumer acceptance of these
products. Further, we may be forced to incur higher expenses in order to produce
or market our private label product lines, which could negatively affect our
financial condition or operating results.
INCREASING OUR PRODUCT DISTRIBUTION CAPACITY IS AN IMPORTANT PART OF OUR
BUSINESS STRATEGY AND WILL REQUIRE SIGNIFICANT INVESTMENTS IN CASH AND
MANAGEMENT RESOURCES. IF WE DO NOT SUCCESSFULLY BUILD ADDITIONAL
DISTRIBUTION CENTERS, WE WILL FACE DIFFICULTIES IN INCREASING OUR REVENUES
AND WE MAY LOSE CUSTOMERS TO OUR COMPETITORS.
We currently have one distribution center in Union City, California which
has a satellite operation in Hayward, California. We expect to begin operating a
second distribution center in the first half of 2000, and a third distribution
center within twenty-four months thereafter. Our success depends on our ability
to build additional distribution centers to accommodate increases in customer
demand, reduce our shipping costs, reduce shipping times to customers, provide
for a large product selection and increase our gross margins. If we do not
successfully build additional distribution centers in time to accommodate
increases in customer demand, we may not be able to increase our revenues and we
may lose customers to our competitors.
Opening additional distribution centers will require significant capital
investments in facilities and equipment, will require us to hire and train a
significant number of new employees, and could divert management attention from
other issues. We expect to invest from $7 million to $9 million in facilities
and equipment in connection with opening an additional distribution center
during the first half of 2000. For additional information relating to the risks
we may face in obtaining additional financing, see "We may need to raise
additional funds and these funds may not be available to us when we need them.
If we cannot raise additional funds when we need them, our business could fail."
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<PAGE> 10
SINCE WE CURRENTLY OPERATE ONLY ONE DISTRIBUTION CENTER LOCATED IN THE SAN
FRANCISCO BAY AREA, WE ARE SUSCEPTIBLE TO THE RISK OF DAMAGE TO OUR
DISTRIBUTION CENTER.
Since we currently only operate one distribution center out of which we
ship products to nearly all of our customers, we are susceptible to power and
equipment failures, disruptions in our order fulfillment and delivery systems,
and fires, floods and other disasters. Furthermore, since our distribution
center is located in the San Francisco Bay Area, which is an
earthquake-sensitive area, we are particularly susceptible to the risk of damage
to, or total destruction of, our distribution center and the surrounding
transportation infrastructure caused by earthquakes. We cannot assure you that
we are adequately insured to cover the total amount of any losses caused by any
of the above events. In addition, we are not insured against any losses due to
interruptions in our business due to damage to or destruction of our
distribution center caused by earthquakes or to major transportation
infrastructure disruptions or other events that do not occur on our premises.
WE EXPECT OUR QUARTERLY FINANCIAL RESULTS TO FLUCTUATE SIGNIFICANTLY FROM
QUARTER TO QUARTER, WHICH CAN CAUSE THE TRADING PRICE OF OUR COMMON STOCK
TO FLUCTUATE SIGNIFICANTLY.
We expect that our revenues and operating results will vary significantly
from quarter to quarter due to a number of factors, including:
- Consumer traffic to our Web store may fluctuate depending on the
effectiveness of our sales and marketing campaign, the timing and
level of promotions we engage in with Amazon.com, GO.com and our
other strategic partners, and the effectiveness of content on our Web
store 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 store, the availability of products we have
for sale, seasonal factors and other factors;
- Our revenues may decline as a result of promotional offers made by
our competitors, the introduction of products or services offered by
our competitors, or the introduction of new competitors into our
market;
- We may experience consumer dissatisfaction with our Web store as we
add or change features, or as a result of technical difficulties on
our Web store that do not permit a consumer to access our Web store
or to complete a shopping session;
- Our expenses will also fluctuate depending on the timing and nature
of expansion of our distribution center; and our ability to achieve
efficiencies and lower shipping costs as a result of this expansion;
- Changes in government regulation of the Internet, particularly the
imposition of sales tax for online transactions, may discourage
online shopping and result in decreased revenues; and
- We may incur costs related to potential acquisitions of technology or
businesses.
To the extent our revenues and operating results fall below the expectation
of investors and securities analysts, the trading price of our common stock may
fall significantly.
BECAUSE OUR OPERATING EXPENSES ARE GENERALLY FIXED IN THE SHORT TERM, IF WE
FAIL TO ACHIEVE ANTICIPATED REVENUES WE WILL INCUR SUBSTANTIAL ADDITIONAL
OPERATING LOSSES. FURTHERMORE, OUR LIMITED OPERATING HISTORY MAKES IT
DIFFICULT TO PREDICT REVENUES AND PLAN OUR OPERATING EXPENSES.
Because of our limited operating history, we have insufficient financial
data on which to forecast our revenues and operating expenses. Our operating
expenses are largely based on anticipated revenue trends and a high percentage
of our expenses are fixed in the short term. As a result, a delay in generating
or recognizing revenue for any reason could result in substantial additional
operating losses. The volume and timing of orders of pet products on our Web
store are difficult to predict because the online market for
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such products is in its infancy. Due to the limited operating history of our Web
store, we do not have a material amount of repeat business from regular
customers. Because our Web store is designed to encourage repeat business and we
do not yet have sufficient historical data on how successful this strategy will
be, we cannot currently forecast revenue from regular customers or overall
anticipated revenue trends.
Furthermore, as a result of our limited operating history, it is difficult
to predict the volatility associated with the nature and timing of special
promotional offers, such as reducing the price on selected products, providing
redeemable coupons to customers, or offering shipping below our actual costs,
and our advertising efforts. For example, our revenues may decrease
significantly after a promotional offer has expired or prior to an expected
offer. In addition, our advertising expenses may be disproportionately higher
than our anticipated revenues from these advertising efforts.
WE WILL NEED TO RAISE ADDITIONAL FUNDS AND THESE FUNDS MAY NOT BE AVAILABLE
TO US WHEN WE NEED THEM. IF WE CANNOT RAISE ADDITIONAL FUNDS WHEN WE NEED
THEM, OUR BUSINESS COULD FAIL.
Based on our current projections, we will need to raise funds over time
through the issuance of equity, equity-related or debt securities or through
obtaining credit from financial institutions in addition to the funds we are
raising in this offering. We cannot be certain that additional funds will be
available to us on favorable terms when required, or at all. If this additional
financing is not available to us we may need to dramatically 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
existing stockholders and our issuance of debt securities could increase the
risk or perceived risk of our company. Any of these actions could cause our
stock price to fall.
A PORTION OF OUR REVENUES MAY BE SEASONAL, WHICH COULD CAUSE OUR QUARTERLY
FINANCIAL RESULTS AND OUR COMMON STOCK PRICE TO FLUCTUATE SIGNIFICANTLY.
A portion of our revenues may be seasonal in nature, associated with the
sale of gift products for pets during the holiday season, the sale of outdoor
and activity-related pet products during the Spring season and the sale of flea
and tick products for pets during the Summer season. In addition, consumer fads
and other changes in consumer trends 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 impossible to assess
the impact of these factors.
WE DEPEND ON OUR ADVERTISING AGREEMENT WITH AMAZON.COM TO ATTRACT CUSTOMERS
TO OUR WEB STORE AND BUILD OUR BRAND. IN THE EVENT OUR ADVERTISING
AGREEMENT WITH AMAZON.COM WERE TO TERMINATE, WE COULD FACE SIGNIFICANTLY
HIGHER COSTS AND SIGNIFICANTLY MORE DIFFICULTY IN ATTRACTING CUSTOMERS.
We have entered into an advertising agreement with Amazon.com whereby
Amazon.com provides us with online promotions mutually agreed upon, such as
emails about Pets.com, and one or more links from different locations on its Web
site to our Web store, consistent with Amazon.com's other marketing
arrangements. We experienced increases in traffic to our Web store after the
initiation of these promotions and have begun to derive traffic from the
Amazon.com Web site. Although our current agreement with Amazon.com expires in
October 2000, Amazon.com could terminate most of these online promotions at any
time. We cannot be certain that our relationship with Amazon.com will be
available to us in the future on acceptable commercial terms, if at all. If we
are unable to maintain our relationship with Amazon.com or agree upon the terms
and conditions of continuing the agreement beyond October 2000, our customer
traffic could fall and our brand identity could be adversely impacted resulting
in decreased revenues, and our marketing expenses could increase as we are
forced to incur higher costs to attract customers. In addition, our relationship
with Amazon.com is not exclusive. Amazon.com could partner with any of our
competitors or offer competing products, information or services directly from
its Web site. Furthermore, by virtue of the fact that we derive traffic directly
from the Amazon.com Web site, any interruption in service of Amazon.com's Web
site or the distribution of products to its customers could reduce the number of
customers to our Web store and reduce our revenues. Because we depend on the
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brand awareness of Amazon.com to help build our brand, negative publicity about
Amazon.com or a reduction of the effectiveness of its brand could also have a
negative impact on our brand and reduce our revenues.
WE UTILIZE CONSULTING ADVICE AND SUPPORT FROM AMAZON.COM FOR OPERATIONAL
AND STRATEGIC EXPERTISE. AMAZON.COM HAS NO CONTRACTUAL OBLIGATION TO
PROVIDE THIS SUPPORT. IF AMAZON.COM DOES NOT CONTINUE TO PROVIDE THE ADVICE
AND SUPPORT WE NEED, WE COULD INCUR HIGHER OPERATIONAL EXPENSES IN RUNNING
OUR BUSINESS AND DIFFICULTIES IN EXECUTING ON OUR BUSINESS PLAN.
Since our inception, Amazon.com has provided us with free consulting
services relating to the operation of our business. During this time, Amazon.com
has also provided us with assistance in negotiating with vendors who also do
business with Amazon.com. This assistance has allowed us to incur significantly
lower operational expenses than we could otherwise have achieved at our early
stage of development. Amazon.com has provided these services to us because of
Amazon.com's significant equity stake in us. Amazon.com, however, is under no
contractual obligation to continue to provide this advice and support. While
Amazon.com will continue to own approximately 30.4% of our common stock after
this offering, 29.3% if the underwriters' over-allotment options are exercised
in full, we cannot be certain that Amazon.com will continue to provide, or
provide at all, the level of consulting advice and support that Amazon.com has
provided to us in the past. If we are unable to maintain our relationship with
Amazon.com, we would lose access to important operational and strategic
expertise, which could harm our business.
WE DEPEND ON OUR ABILITY TO BUILD AND MAINTAIN RELATIONSHIPS WITH OUR
SUPPLIERS TO OBTAIN SUFFICIENT QUANTITIES OF QUALITY MERCHANDISE ON
ACCEPTABLE COMMERCIAL TERMS. IF WE FAIL TO MAINTAIN OUR SUPPLIER
RELATIONSHIPS, OUR REVENUES WILL DECLINE.
Our business strategy depends on providing a large selection of well-known
and high-quality branded products which in turn depends on our ability to
maintain relationships with a significant number of suppliers. We currently
purchase our products from approximately 200 suppliers. Our contracts or
arrangements with suppliers do not guarantee the availability of merchandise,
establish guaranteed prices or provide for the continuation of particular
pricing practices. Our current suppliers may not continue to sell products to us
on current terms or at all, and we may not be able to establish new suppliers to
ensure delivery of products in a timely manner or on terms acceptable to us.
Furthermore, because many of the products offered on our Web store are
well-known branded products, if suppliers of these products do not supply
products to us, we may lose customers who are unwilling to substitute for other
brands we carry. We are also dependent on suppliers for assuring the quality of
products supplied to us. Because we ship products directly to our customers, if
the quality of products supplied to us fall below our customers' expectations,
we may lose customers. In addition, our supply contracts do not restrict our
suppliers from selling products to our online competitors or to retailers other
than online retailers, which could limit our ability to supply the quantity of
products requested by our customers. We are also subject to the risks our
suppliers face, including employee strikes and inclement weather. Our failure to
deliver a large selection of high-quality and well-known branded products to our
customers in a timely and accurate manner, and at acceptable prices, would harm
our reputation, the Pets.com brand and our results of operations.
WE FACE THE RISK OF SYSTEMS INTERRUPTIONS AND CAPACITY CONSTRAINTS ON OUR
WEB SITE, POSSIBLY RESULTING IN ADVERSE PUBLICITY, REVENUE LOSSES AND
EROSION OF CUSTOMER TRUST.
The satisfactory performance, reliability and availability of our Web
store, transaction processing systems and network infrastructure are critical to
our reputation and our ability to attract and retain customers and to maintain
adequate customer service levels. Any future systems interruption that results
in the unavailability of our Web store or reduced order fulfillment performance
could result in negative publicity and reduce the volume of goods sold and the
attractiveness of our Web store, which could negatively affect our revenues. For
the period from February 17, 1999 to December 31, 1999, there were three periods
of one to three hours and one period of thirteen hours during which users were
able to access
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our site but unable to complete transactions. There were also approximately four
periods of one to two hours during which our site was unavailable to customers
due to scheduled periodic maintenance. Nevertheless, we may experience temporary
system interruptions for a variety of reasons in the future, including power
failures, software bugs and an overwhelming number of visitors trying to reach
our Web store during sales or other promotions. We may not be able to correct a
problem in a timely manner. Because we are dependent in part on outside
consultants for the implementation of certain aspects of our system and because
some of the reasons for a systems interruption may be outside of our control, we
also may not be able to remedy the problem quickly or at all.
We opened our Web store for customers in February 1999 and to the extent
that customer traffic grows substantially, we will need to expand the capacity
of our systems to accommodate a larger number of visitors. Any inability to
scale our systems may cause unanticipated system disruptions, slower response
times, degradation in levels of customer service, impaired quality and speed of
order fulfillment, or delays in reporting accurate financial information. We are
not certain that we will be able to project the rate or timing of increases, if
any, in the use of our Web store accurately or in a timely manner to permit us
to effectively upgrade and expand our transaction-processing systems or to
integrate smoothly any newly developed or purchased modules with our existing
systems.
WE HAVE GROWN VERY RAPIDLY. THIS GROWTH HAS PLACED, AND OUR ANTICIPATED
FUTURE OPERATIONS WILL CONTINUE TO PLACE, A SIGNIFICANT STRAIN ON OUR
MANAGEMENT SYSTEMS AND RESOURCES. WE WILL NOT BE ABLE TO IMPLEMENT OUR
BUSINESS STRATEGY UNLESS WE ARE ABLE TO EFFECTIVELY MANAGE THIS STRAIN ON
OUR SYSTEMS AND RESOURCES.
We have rapidly and significantly expanded our operations, and anticipate
that we will continue to expand. From March 31, 1999 to September 30, 1999 to
December 31, 1999 we grew from 4 to 123 to 270 employees, respectively. We
currently have one distribution center, and expect to begin operating a second
distribution center in the first half of 2000 and a third distribution center
within twenty-four months thereafter. This growth has placed, and our
anticipated future operations will continue to place, a significant strain on
our management systems and resources. We will not be able to implement our
business strategy unless we are able to effectively manage this strain on our
systems and resources. We will not be able to increase revenues unless we
continue to improve our transaction-processing, operational, financial and
managerial controls, reporting systems and procedures, expand, train, supervise
and manage our work force, and manage multiple relationships with third parties.
WE ENTER INTO STRATEGIC RELATIONSHIPS TO HELP PROMOTE OUR WEB STORE. IF WE
FAIL TO MAINTAIN OR ENHANCE THESE RELATIONSHIPS, WE MAY NOT BE ABLE TO
ATTRACT AND RETAIN CUSTOMERS, BUILD OUR PETS.COM BRAND AND ENHANCE OUR
SALES AND MARKETING CAPABILITIES.
We believe that our ability to attract customers, facilitate broad market
acceptance of our products and the Pets.com brand, and enhance our sales and
marketing capabilities depends on our ability to develop and maintain strategic
relationships with:
- Amazon.com, with whom we have entered into an advertising agreement
pursuant to which Amazon.com provides us with online promotions mutually
agreed upon;
- GO.com, with whom we have entered into a distribution agreement which
provides that we will engage in promotions on GO.com's online properties,
and place media advertising with ABC, Inc., which, along with GO.com, is
an affiliate of The Walt Disney Company;
- American Veterinary Medical Foundation, with whom we have entered into an
exclusive marketing agreement pursuant to which our products and services
will receive coverage in the American Veterinary Medical Foundation's
bi-monthly video which is sent to 17,000 veterinarians;
- PetPlace.com, Inc., a provider of online veterinary information in whom
we have made an equity investment and with whom we have entered into an
exclusive marketing agreement which provides for cross promotions and
direct links between our respective Web sites; and
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- Other pets-related Web sites and portals, and other Web sites that can
drive customer traffic to our Web store.
All of these relationships are relatively new and, accordingly, we have no
historical experience on which to evaluate their impact. If these relationships
do not assist us in attracting or retaining customers, it may be difficult for
us to grow our business. In addition, we may need to expend significant
additional resources to form additional strategic relationships if the
relationships set forth above fail to produce the desired results.
COMPETITION FROM BOTH TRADITIONAL AND ONLINE RETAILERS MAY RESULT IN PRICE
REDUCTIONS AND DECREASED DEMAND FOR OUR PRODUCTS AND SERVICES.
We compete in a market that is new, rapidly evolving and highly
competitive, and we expect competition to intensify in the future. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share. We currently or potentially compete with
a variety of companies, many of which have significantly greater financial,
technical, marketing and other resources. These competitors can be divided into
several groups:
- online stores that specialize in pet products such as
Petopia.com, Inc.
PetsMart.com, Inc.
PetStore.com, Inc.;
- online stores that offer pet products;
- superstore retailers of pet products such as
Petco Animal Supplies, Inc.
PetsMart, Inc.;
- specialty pet stores;
- mass market retailers such as
Wal Mart Stores, Inc.
Kmart Corporation
Target Stores, Inc.;
- supermarkets;
- warehouse clubs such as Costco Companies, Inc.;
- mail order suppliers of pet products; and
- pet supply departments at major department stores.
Many of these companies, which include national, regional and local chains,
have existed for a longer period, have greater financial resources, have
established marketing relationships with leading manufacturers and advertisers,
and have longer established brand recognition among customers.
We believe we may face a significant competitive challenge from our
competitors forming alliances with each other. For instance, Petopia, Inc. is
owned in part by Petco Animal Supplies, Inc., and PetsMart.com, Inc. is owned in
part by PetsMart, Inc. The combined resources of these alliances could pose a
significant competitive challenge to Pets.com. These relationships may enable
these online stores to achieve greater brand recognition, particularly in the
case of PetsMart.com, Inc., by leveraging the better established brand awareness
of their pet retail store partner. These relationships may also enable these
online stores to negotiate better pricing and other terms from suppliers by
aggregating their demand for products and negotiating volume discounts. Our
inability to partner with a major pet store chain could be a major competitive
disadvantage to us.
We also believe we may face significant competitive challenges from
discount general merchandise stores, mass market retailers and other retailers
that commence or expand their presence on the Internet to include pet products.
Finally, we are aware of numerous other smaller entrepreneurial companies that
are
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focusing significant resources on developing and marketing products, information
and services that will compete directly with those offered at Pets.com.
We believe that there may be a significant advantage in establishing a
large customer base before our competitors do so. If we fail to attract and
retain a large customer base and our competitors establish a more prominent
market position relative to ours, this could inhibit our ability to grow. We
believe the principal factors in our market include brand recognition, product
selection, quality of Web store content, reliability and speed of order
shipment, customer service, speed and accessibility of our Web store,
personalized service, convenience and price. We will have little or no control
over how successful our competitors are in addressing these factors. In
addition, with little difficulty, our online competitors can duplicate many of
the products, services and content offered in our Web store.
EXPANSION OF OUR INTERNATIONAL OPERATIONS WILL REQUIRE MANAGEMENT ATTENTION
AND RESOURCES AND MAY BE UNSUCCESSFUL WHICH COULD HARM OUR FUTURE BUSINESS
DEVELOPMENT AND EXISTING DOMESTIC OPERATIONS.
To date, we have conducted no international operations but we intend to
make an investment in a UK-based company that intends to sell pet products
online. We plan to build local versions of our Web store for foreign companies
or expand our international operations through acquisitions or alliances with
third parties. Our expansion plans will require management attention and
resources and may be unsuccessful. We have no experience in selling our products
to conform to local cultures, standards and policies. We may have to compete
with local companies which understand the local market better than we do. In
addition, to achieve satisfactory performance for consumers in international
locations it will be necessary to locate physical facilities, such as server
computers and distribution centers in the foreign market. We do not have
experience establishing such facilities overseas. We may not be successful in
expanding into any international markets or in generating revenues from foreign
operations. In addition, different privacy, censorship and liability standards
and regulations and different intellectual property laws in foreign countries
may cause our business to be harmed. Furthermore, once we expand internationally
we expect to incur net losses in developing foreign markets for the foreseeable
future.
OUR SYSTEMS AND OPERATIONS, AND THOSE OF OUR SUPPLIERS AND SHIPPERS, ARE
VULNERABLE TO NATURAL DISASTERS AND OTHER UNEXPECTED PROBLEMS.
Substantially all of our computer and communications hardware is located at
our leased facility in San Francisco, California and our systems infrastructure
is hosted at an Exodus Communications, Inc. facility in Santa Clara, California.
Our systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, earthquakes and similar events.
In addition, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to accept and fulfill customer orders. We
do not currently have fully redundant systems or a formal disaster recovery plan
and do not carry sufficient business interruption insurance to compensate for
losses that may occur. Our suppliers also face these risks.
We also depend on the efficient operation of Internet connections from
customers to our systems. These connections, in turn, depend on the efficient
operation of Web browsers, Internet service providers and Internet backbone
service providers, all of which have had periodic operational problems or
experienced outages. Any system delays, failures or loss of data, whatever the
cause, could reduce customer satisfaction with our applications and services and
harm our sales.
GOVERNMENTAL REGULATION OF OUR BUSINESS COULD REQUIRE SIGNIFICANT EXPENSES,
AND FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS COULD RESULT IN CIVIL AND
CRIMINAL PENALTIES.
Our business is subject to federal, state and local regulations relating to
the shipment of pet food, live animals 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 any regulations
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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 adversely effect our operations.
WE NEED TO HIRE AND RETAIN A NUMBER OF ADDITIONAL TECHNOLOGY, CONTENT AND
PRODUCT ORIENTED PERSONNEL WHO MIGHT BE DIFFICULT TO FIND AND WHO ARE KEY
TO OUR CONTINUED GROWTH AND ULTIMATE SUCCESS IN THE MARKET.
We intend to continue to hire a significant number of additional personnel,
including software engineers, editorial and customer support personnel,
marketing personnel, and warehouse and operational personnel. Competition for
these individuals is intense, and we may not be able to attract, assimilate or
retain additional highly qualified personnel in the future. The failure to
attract, integrate, motivate and retain these additional employees could
seriously harm our business.
WE RELY ON THE SERVICES OF OUR KEY PERSONNEL, WHOSE KNOWLEDGE OF OUR
BUSINESS AND TECHNICAL EXPERTISE ARE IMPORTANT TO OUR CONTINUED GROWTH AND
ULTIMATE SUCCESS IN THE MARKET AND WOULD BE DIFFICULT TO REPLACE.
We rely upon the continued service and performance of a relatively small
number of key technical and senior management personnel. Our future success
depends on our retention of these key employees, such as Julie Wainwright, our
Chief Executive Officer. None of our key technical or senior management
personnel are bound by employment agreements, and as a result, any of these
employees could leave with little or no prior notice. If we lose any of our key
technical and senior management personnel, our business could be seriously
harmed. We do not have "key person" life insurance policies covering any of our
employees.
MANY MEMBERS OF OUR MANAGEMENT TEAM ARE NEW TO THE COMPANY OR TO THE PET
PRODUCTS AND SERVICES INDUSTRY OR ONLINE BUSINESSES, AND EXECUTION OF OUR
BUSINESS PLAN AND DEVELOPMENT STRATEGY COULD BE SERIOUSLY HARMED IF
INTEGRATION OF OUR MANAGEMENT TEAM INTO OUR COMPANY IS NOT SUCCESSFUL.
We have recently experienced significant growth in our management team.
Paul Manca, our Chief Financial Officer, joined us in September 1999 and Ralph
Lewis, our Vice President of Distribution and Logistics, joined us in November
1999. In addition, many of the members of our senior management team do not have
prior experience in the pet products and services industry or in online
businesses or in publicly traded companies. Our business could be seriously
harmed if integration of our management team into our company is not successful.
We expect that it will take time for our new management team to integrate into
our company and it is too early to predict whether this integration will be
successful.
WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO PROTECT OUR INTELLECTUAL
PROPERTY, AND WE MAY BE FOUND TO INFRINGE PROPRIETARY RIGHTS OF OTHERS,
WHICH COULD NEGATIVELY AFFECT OUR BUSINESS BY DIVERTING OUR MONETARY
RESOURCES AND MANAGEMENT'S ATTENTION TO THESE MATTERS INSTEAD OF ALLOWING
US TO FOCUS ON THE CONTINUING DEVELOPMENT OF OUR MARKET STRATEGY.
We rely on a combination of trademark, trade secret and copyright law and
contractual restrictions to protect our intellectual property. These afford only
limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our Web store, 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 store, our
content and our trademarks.
We have filed applications for the registration of Pets.com(TM), the
Pets.com logo, Because Pets Can't Drive(TM), Keep It Comin'(TM), More Products
Than a Superstore Delivers(TM), People Helping Animals, Animals Helping
People(TM), Pets.commitment(TM) and our sock puppet in the U.S. and in some
other countries, although we have not secured registration of our marks to date.
We have been granted the right to use Pets.complete(TM) from a third party in
exchange for economic consideration. We may be unable to secure these
registrations. It is also possible that our competitors or others will adopt
service names similar
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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 Pets.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
proceeding 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, 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.
WE MAY NOT BE ABLE TO PROTECT OUR DOMAIN NAMES IN ALL COUNTRIES OR AGAINST
ALL INFRINGERS, WHICH COULD DECREASE THE VALUE OF OUR BRAND NAME AND
PROPRIETARY RIGHTS.
We currently hold the Internet domain name "pets.com," as well as various
other related names. Domain names generally are regulated by Internet regulatory
bodies. The regulation of domain names in the United States and in foreign
countries is subject to change. Regulatory bodies could modify the requirements
for holding domain names. As a result, we may not be able to acquire or maintain
the domain names in all of the countries in which we conduct business which
utilize the term "pets" or "pets.com." We are aware that other entities have
already registered domain names utilizing the term "pets" or "pets.com." For
example, other entities have registered in the United States the following
domain names: pets-.com, pet-s.com, p-e-t-s.net and pets.net. If we are unable
to purchase these names from these entities on commercially reasonable terms or
in the event we were to otherwise lose the ability to use a domain name in a
particular country, we would be forced to incur significant additional expenses
to market our products within that country, including the development of a new
brand and the creation of new promotional materials and packaging.
WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND MAY FACE LIABILITY FOR
CONTENT ON OUR WEB STORE, ANY OF WHICH COULD HARM OUR FINANCIAL CONDITION
AND LIQUIDITY IF WE ARE NOT ABLE TO SUCCESSFULLY DEFEND AGAINST SUCH
CLAIMS.
Because we sell consumer products we may be 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. In addition, because we post product information and other content on
our Web store and permit our customers to place content on our bulletin board
systems and in other areas of our Web store, we face potential liability for
negligence, copyright, patent, trademark, defamation, indecency and other claims
based on the nature and content of the materials that we post or permit our
customers to post. Claims of this type have been brought, and sometimes
successfully pressed, against Internet content distributors. In addition, we do
not and cannot practically screen all of the content generated by our users and
placed on our Web store. Although we maintain general liability insurance of $3
million, our insurance may not cover potential claims of this type or may not be
adequate to indemnify us for all liability that may be imposed. Any imposition
of liability that is not covered by insurance or is in excess of insurance
coverage could harm our financial condition and liquidity.
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OUR OPERATIONS MAY BE DISRUPTED IF WE OR OUR PRODUCT SUPPLIERS OR OTHER
VENDORS EXPERIENCE SYSTEMS FAILURE OR DATA CORRUPTION FROM THE YEAR 2000
ISSUE.
Any failure of our material systems, our product suppliers or others
vendors' material systems or the Internet to be year 2000 compliant would have
material adverse consequences for us. Consequences of this type would include
difficulties in operating our Web store effectively, taking product orders,
making product deliveries or conducting other fundamental parts of our business.
We may be unable to detect or assess the effect of any failure well into the
year 2000 and beyond. We are currently assessing the year 2000 readiness of the
software, computer technology and other services that we use which may not be
year 2000 compliant. We do not intend to develop a contingency plan to address
situations that may result if our vendors or we experience material difficulties
after January 1, 2000 as a result of the year 2000 problem.
We also depend on the year 2000 compliance of the computer systems and
financial services used by consumers. A significant disruption in the ability of
consumers to reliably access the Internet or portions of it or to use their
credit cards would have an adverse effect on demand for our products and
services. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000" for a further description of the issues we
face with regard to the year 2000.
AMAZON.COM AND OUR CURRENT OFFICERS AND DIRECTORS WILL STILL CONTROL THE
MAJORITY OF OUR COMMON STOCK AFTER THIS OFFERING AND THEREFORE BE ABLE TO
DECIDE ALL MATTERS REQUIRING APPROVAL OF OUR STOCKHOLDERS, WHICH COULD
DISCOURAGE AN ACQUISITION OF US OR MAKE REMOVAL OF INCUMBENT MANAGEMENT
MORE DIFFICULT.
After this offering, Amazon.com will beneficially own approximately 30.4%
of our outstanding common stock, 29.3% if the underwriters' over-allotment
options are exercised in full, and Mark Britto, Amazon.com's Vice President of
Strategic Alliances is a member of our Board of Directors. Therefore, Amazon.com
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. Amazon.com's substantial equity stake
in us could also make us a much less attractive acquisition candidate to
potential acquirors, because Amazon.com would be able to block the acquisition
by acting in concert with only a small number of other stockholders. In
addition, Amazon.com would have sufficient votes to prevent the tax-free
treatment of an acquisition. In addition, executive officers, directors and
entities affiliated with them, including Amazon.com, will, in the aggregate,
beneficially own approximately 59.4% of our outstanding common stock following
the completion of this offering, 57.3% if the underwriters' over-allotment
options are exercised in full. These stockholders, if acting together, would be
able to decide all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions. See "Principal Stockholders" for a description of Amazon.com's
stock ownership relative to other stockholders, "Executive Officers and
Directors" for background on Mark Britto, and "Related Party Transactions" for a
description of our agreements with Amazon.com.
RISKS RELATED TO INTERNET COMMERCE
WE DEPEND ON CONTINUED USE OF THE INTERNET, AND IF THE USE OF THE INTERNET
DOES NOT DEVELOP AS WE ANTICIPATE, OUR SALES MAY NOT GROW.
Our future revenues and profits, if any, substantially depend upon the
widespread acceptance and use of the Internet as an effective medium of business
and communication by our target customers. Rapid growth in the use of and
interest in the Internet has occurred only recently. As a result, acceptance and
use may not continue to develop at historical rates, and a sufficiently broad
base of consumers may not adopt, and continue to use, the Internet and other
online services as a medium of commerce.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. Our success will depend, in
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large part, upon third parties maintaining the Internet infrastructure to
provide a reliable network backbone with the speed, data capacity, security and
hardware necessary for reliable Internet access and services.
OUR SUCCESS DEPENDS ON THE WILLINGNESS OF CONSUMERS TO PURCHASE PET
PRODUCTS OVER THE INTERNET INSTEAD OF THROUGH TRADITIONAL RETAILERS. IF
CONSUMERS ARE NOT WILLING TO DO THIS, THE MARKET POTENTIAL FOR OUR PRODUCTS
AND SERVICES WILL BE IMPAIRED.
The online market for pet products, information and services is in its
infancy. The market is significantly less developed than the online market for
books, auctions, music, software and numerous other consumer products. If this
market does not gain widespread acceptance, our business may fail. Demand and
market acceptance for recently introduced services and products on the Internet
are subject to a high level of uncertainty, 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 store may be using our service because it is new and
different rather than because they believe it is a desirable way to purchase pet
products. Such consumers may use our service only once or twice and then return
to more familiar means of purchasing these products.
OUR SALES COULD BE NEGATIVELY AFFECTED IF WE ARE REQUIRED TO CHARGE TAXES
ON PURCHASES.
We do not collect sales or other similar taxes in respect of goods sold by
Pets.com, except from purchasers located in California. However, one or more
states or the federal government may seek to impose sales tax collection
obligations on out-of-state companies, such as Pets.com, which engage in or
facilitate 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 U.S. federal government enacted
legislation prohibiting states or other local authorities from imposing new
taxes on Internet commerce for a three-year period, ending on October 1, 2001.
This tax moratorium does not prohibit states or the Internal Revenue Service
from collecting taxes on our income, if any, or from collecting taxes that are
due 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 store 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.
We intend to open distribution centers from time to time in other states
and, regardless of the outcome of this federal tax moratorium, may be required
to collect sales or other similar taxes in respects of goods sold by Pets.com
into these states. A successful assertion by one or more states or the federal
government that we should collect further sales or other taxes on the sales of
products through Pets.com could negatively affect our revenues and business.
WE RELY ON THIRD-PARTY CARRIERS FOR PRODUCT SHIPMENTS TO US AND OUR
CUSTOMERS, AND COULD LOSE CUSTOMERS IF THESE CARRIERS DO NOT ADEQUATELY
SERVE OUR NEEDS.
We rely upon third-party carriers for product shipments, including
shipments to and from our distribution facility. We are therefore subject to the
risks, including employee strikes and inclement weather, associated with their
ability to provide delivery services to meet our shipping needs. We regularly
rely on three third-party carriers to deliver products to our customers, and in
the event of their unsatisfactory performance, we may need to add additional
carriers. While we have the ability to switch carriers, there are only a few
national ground-based carriers that we do not already employ and any change in
third-party carriers could increase our shipping costs or result in a delay in
shipment of products to our
16
<PAGE> 20
customers for a period of time. Failure to deliver products to our customers in
a timely manner would damage our reputation and brand.
WE ARE EXPOSED TO RISKS ASSOCIATED WITH CREDIT CARD FRAUD WHICH COULD
REDUCE OUR COLLECTIONS AND HARM OUR BUSINESS BECAUSE WE ARE UNABLE TO
OBTAIN SIGNATURES FROM OUR CUSTOMERS WHEN WE PROCESS ORDERS ONLINE.
A failure to adequately control fraudulent credit card transactions would
harm our net sales and results of operations because we do not carry insurance
against this risk. Under current credit card practices, we are liable for
fraudulent credit card transactions because we do not obtain a cardholder's
signature. Although we have experienced almost no losses from credit card fraud,
we face the risk of significant losses from this fraud as our sales increase.
Our failure to adequately control fraudulent credit card transactions could
reduce our collections and harm our business.
OUR REPUTATION COULD BE HARMED IF WE FAIL TO PREVENT ONLINE COMMERCE
SECURITY BREACHES. WE MAY THEREFORE NEED TO EXPEND SIGNIFICANT RESOURCES TO
PROTECT AGAINST SECURITY BREACHES OR TO ADDRESS PROBLEMS CAUSED BY
BREACHES.
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks, and our failure
to prevent security breaches could harm our business. Currently, a significant
number of our users authorize us to bill their credit card accounts directly for
all products sold by us. We rely on encryption and authentication technology
licensed from third parties to provide the security and authentication
technology to effect secure transmission of confidential information, including
customer credit card numbers. Advances in computer capabilities, new discoveries
in the field of cryptography, or other developments may result in a compromise
or breach of the technology used by us to protect customer transaction data. Any
compromise of our security could harm our reputation and expose us to a risk of
loss or litigation and possible liability and, therefore, harm our business. In
addition, a party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations.
We may need to expend significant resources to protect against security breaches
or to address problems caused by breaches. Security breaches could damage our
reputation. Our insurance policies carry low coverage limits, which may not be
adequate to reimburse us for losses caused by security breaches.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES TO BETTER SERVICE OUR
CUSTOMERS AND MEET THEIR EXPECTATIONS, OUR SERVICES COULD BECOME OBSOLETE
AND WE COULD LOSE CUSTOMERS.
As the Internet and online commerce industry evolve, we must license
leading technologies useful in our business, enhance our existing services,
develop new services and technology 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. We may not be able to successfully implement new technologies or
adapt our Web store, proprietary technology and transaction-processing systems
to customer requirements or emerging industry standards. If we are unable to do
so, it could adversely impact our ability to build the Pets.com brand and
attract and retain customers.
GOVERNMENTAL REGULATION OF THE INTERNET AND DATA TRANSMISSION OVER THE
INTERNET MAY NEGATIVELY AFFECT OUR CUSTOMERS AND RESULT IN A DECREASE IN
DEMAND FOR OUR PRODUCTS, WHICH WOULD CAUSE A DECLINE IN OUR SALES.
Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the U.S.
Congress resulted in Internet laws regarding children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European Union
recently enacted its own privacy regulations. The law of the Internet, however,
remains largely unsettled, even in areas where there has been some legislative
action. It may take years to determine whether and how existing laws such as
those governing privacy, libel and taxation apply to Web stores
17
<PAGE> 21
such as ours. The delays that these governmental processes entail may cause
order cancellations or postponements of product purchases by our customers,
which would seriously harm our business. The rapid growth and development of the
market for online 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 online. The adoption or
modification of laws or regulations relating to the Internet business could
result in a decrease in demand for our products, which would cause a decline in
our revenues.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE WILL FLUCTUATE AFTER THIS OFFERING, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS.
Although the initial public offering price will be determined based on
several factors, the market price for our common stock will vary from the
initial offering price after trading commences. This could result in substantial
losses for investors. The market price of our common stock may fluctuate
significantly in response to a number of factors, some of which are beyond our
control. These factors include:
- Quarterly variations in operating results;
- Changes in financial estimates by securities analysts;
- Announcements by us or our competitors, of new product and service
offerings, significant contracts, acquisitions or strategic
relationships;
- Publicity about our company, our products and services, our
competitors, or e-commerce in general;
- Additions or departures of key personnel;
- Any future sales of our common stock or other securities; and
- Stock market price and volume fluctuations of publicly-traded
companies in general and Internet-related companies in particular,
especially Amazon.com.
The trading prices of Internet-related companies and e-commerce companies,
including Amazon.com, have been especially volatile and many are at or near
historical highs. Investors may be unable to resell their shares of our common
stock at or above the offering price. In the past, securities class action
litigation has often been brought against a company following periods of
volatility in the market price of its securities. We may be the target of
similar litigation in the future. Securities litigation could result in
substantial costs and divert management's attention and resources, which could
seriously harm our business and operating results.
A TOTAL OF 22,044,737 SHARES, OR 74.6%, OF OUR TOTAL OUTSTANDING SHARES
AFTER THE OFFERING ARE RESTRICTED FROM IMMEDIATE RESALE, BUT MAY BE SOLD
INTO THE MARKET IN THE NEAR FUTURE. THIS COULD CAUSE THE MARKET PRICE OF
OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock could cause our stock price to
fall. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional stock.
18
<PAGE> 22
After this offering, we will have outstanding 29,544,737 shares of common
stock. This includes 7,500,000 shares that we are selling in the offering, which
may be resold immediately in the public market. The remaining 22,044,737 shares
will become eligible for resale in the public market as shown in the table
below.
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
SHARES/PERCENT OF
OUTSTANDING AFTER THE
OFFERING DATE OF AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ---------------------- ------------------------------------------------------------
<C> <S>
13,420,045/45.4% 180 days after the date of the final prospectus due to
agreements these stockholders have with us and the
underwriters. However, the underwriters can waive this
restriction without prior notice and allow these
stockholders to sell their shares at any time.
3,134,557/10.6% At various times after 180 days after the date of the final
prospectus and through November 5, 2000 a total of
approximately 3,134,557 additional shares will be eligible
for sale pursuant to Rules 701 and 144.
2,454,941/8.3% At various times after November 5, 2000 and through December
8, 2000, a total of approximately 2,454,941 additional
shares will be eligible for sale pursuant to Rules 701 and
144.
1,195,097/4.0% At various times after December 8, 2001 and through January
18, 2000, a total of approximately 1,195,097 additional
shares will be eligible for sale pursuant to Rules 701 and
144.
1,840,097/6.2% At various times after January 18, 2001, a total of
approximately 1,840,097 additional shares will be eligible
for sale pursuant to Rules 701 and 144.
</TABLE>
NEW STOCKHOLDERS WILL INCUR SUBSTANTIAL DILUTION OF APPROXIMATELY $5.80 PER
SHARE AS A RESULT OF THIS OFFERING
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate
substantial dilution of approximately $5.80 per share. In addition, we have
issued options to acquire common stock at prices significantly below the initial
public offering price. Assuming that outstanding options are exercised in full,
there would be further dilution to investors in this offering of $1.70 per
share. See "Dilution" for a more detailed description of how new stockholders
will incur dilution.
19
<PAGE> 23
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, expect, plan, intend, anticipate,
believe, estimate, predict, potential or continue, the negative of such 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 in
the Risk Factors section above. These factors may cause our actual results to
differ materially from any forward-looking statement. 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.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock we are
offering hereby are estimated to be $68.8 million, or $79.2 million if the
underwriters' option to purchase additional shares is exercised in full, based
on an initial offering price of $10.00 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses.
The principal purposes of this offering are to fund our operating losses,
increase our working capital, fund our capital expenditures, create a public
market for our common stock, and facilitate our future access to the public
capital markets. We currently expect to use the net proceeds of this offering
primarily for working capital and general corporate purposes, including
marketing and brand building efforts, capital expenditures associated with the
expansion and building of distribution centers, and technology and system
upgrades. We are in the process of building a second distribution center which
will require capital investments in facilities and equipment of $7 million to $9
million. We have not yet determined the actual expected expenditures and thus
cannot estimate the amounts to be used for each of these purposes. The amounts
and timing of these expenditures will vary depending on a number of factors,
including the amount of cash generated by our operations, competitive and
technological developments and the rate of growth, if any, of our business. In
addition, we may use a portion of the net proceeds for further development of
our product lines through acquisitions of products, technologies and businesses.
Accordingly, although we have no present commitments or agreements with respect
to any such acquisitions, management will have significant discretion in
applying the net proceeds of this offering. Pending such uses, we will invest
the net proceeds in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and do not anticipate paying any cash dividends
in the foreseeable future.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999.
Our capitalization is presented:
- On an actual basis;
- On a pro forma basis to give effect to the automatic conversion of all of
the outstanding shares of our convertible preferred stock into shares of
common stock upon the closing of this offering; and
- On a pro forma as adjusted basis to reflect the automatic conversion of
all of the outstanding shares of our convertible preferred stock and our
receipt of the estimated net proceeds from the sale of 7,500,000 shares
of common stock in this offering at an estimated price of $10.00 per
share.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations................................... $ 120 $ 120 $ 120
Stockholders' equity:
Preferred stock, $0.00125 par value, no shares authorized,
issued or outstanding, actual and pro forma; 4,000,000
shares authorized, no shares issued or outstanding, pro
forma as adjusted....................................... -- -- --
Convertible Preferred Stock, $0.00125 par value;
Series A -- 5,781,862 shares authorized; 5,781,862
shares issued and outstanding actual; none authorized,
issued or outstanding, pro forma and pro forma as
adjusted.............................................. 7 -- --
Series B -- 11,120,000 shares authorized; 10,518,678
shares issued and outstanding actual; none authorized,
issued or outstanding, pro forma and pro forma as
adjusted.............................................. 13 -- --
Series B-1 -- 1,040,000 shares authorized; no shares
issued and outstanding actual; none authorized issued
or outstanding pro forma and pro forma as adjusted.... -- -- --
Common Stock $0.00125 par value; 28,800,000 shares
authorized, actual and pro forma; 4,641,797 shares issued
and outstanding, actual; 20,942,337 shares issued and
outstanding, pro forma; 150,000,000 shares authorized,
28,442,337 shares issued and outstanding, pro forma as
adjusted.................................................. 6 26 35
Additional paid-in capital.................................. 128,442 128,442 197,183
Accumulated deficit......................................... (61,778) (61,778) (61,778)
Stockholder note receivable................................. (188) (188) (188)
Deferred stock-based compensation........................... (15,382) (15,382) (15,382)
-------- -------- --------
Total stockholders' equity.............................. 51,120 51,120 119,870
-------- -------- --------
Total capitalization............................... $ 51,240 $ 51,240 119,870
======== ======== ========
</TABLE>
On January 18, 2000, we issued 1,102,400 shares of Series C preferred stock
to an investment entity of The Walt Disney Company. These shares will
automatically convert into 1,102,400 shares of our common stock upon
consummation of this offering. For additional information relating to this
transaction see "Business -- Relationship with GO.com."
In addition to the shares of common stock to be outstanding after the
offering, we may issue additional shares of common stock under the following
plans and arrangements:
- 983,400 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $1.86 per share as of December 31,
1999; and
- a total of 2,068,000 shares available for future issuance under our
various stock plans at December 31, 1999, excluding the annual increases
in the number of shares authorized under each of our plans beginning
January 1, 2001. See "Management -- Stock Plans" for a description of how
these annual increases are determined.
Please read this capitalization table together with the sections of this
prospectus entitled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
financial statements and related notes beginning on page F-1.
21
<PAGE> 25
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $50.7 million or $2.42 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities and divided by the total number
of shares of common stock outstanding, after giving effect to the automatic
conversion of our convertible preferred stock. Dilution in pro forma net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of common stock in this offering and the pro
forma net tangible book value per share of common stock immediately after the
completion of this offering. After giving effect to the sale of the 7,500,000
shares of common stock offered by Pets.com at an assumed initial public offering
price of $10.00 per share, and after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of December 31, 1999 would have been approximately $119.5
million or $4.20 per share of common stock. This represents an immediate
increase in pro forma net tangible book value of $1.78 per share to existing
stockholders and an immediate dilution of $5.80 per share to new investors of
common stock. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 10.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $2.42
Increase per share attributable to new investors.......... 1.78
-----
Pro forma net tangible book value per share after this
offering.................................................. 4.20
--------
Dilution per share to new investors......................... $ 5.80
========
</TABLE>
The following table summarizes on a pro forma basis after giving effect to
the offering at an initial public offering price of $10.00 per share, as of
December 31, 1999, the differences between the existing stockholders and new
investors with respect to the number of shares of common stock purchased from
us, the total consideration paid to us and the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 20,942,337 73.6% $110,780,000 59.7% $ 5.29
New investors.......................... 7,500,000 26.4 75,000,000 40.3 10.00
----------- ----- ------------ ------
Totals............................... 28,442,345 100.0% $185,780,000 100.0%
=========== ===== ============ ======
</TABLE>
The foregoing discussions and tables are based upon the number of shares
actually issued and outstanding as of December 31, 1999 and assume no exercise
of options outstanding as of December 31, 1999. As of that date there were
983,400 shares issuable upon exercise of options outstanding at a weighted
average exercise price of $1.86 per share. Assuming the exercise of these
options, the average price per share paid by existing stockholders would have
been $5.14.
Assuming the exercise in full of all outstanding options, our pro forma as
adjusted net tangible book value at December 31, 1999 would be $4.12 per share,
representing an immediate increase in net tangible book value of $1.70 per share
to our existing stockholders, and an immediate decrease in the net tangible book
value per share of $1.70 to the new investors.
22
<PAGE> 26
SELECTED FINANCIAL AND OPERATING DATA
The selected financial and operating data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", our financial statements and the notes thereto and
the other information contained in this prospectus. The selected balance sheet
data as of December 31, 1999 and the selected statement of operations data for
the period from February 17, 1999 (inception) to December 31, 1999 have been
derived from our audited financial statements appearing elsewhere in this
prospectus. The selected balance sheet data as of September 30, 1999 has been
derived from our audited financial statements not included in this prospectus.
The statement of operations data for the quarters ended June 30, 1999, September
30, 1999 and December 31, 1999 have been derived from our unaudited financial
statements not included in this prospectus. We prepared the unaudited financial
statements on substantially the same basis as the audited financial statements
and, in our opinion, they include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of our results of
operations for the quarters ended June 30, 1999, September 30, 1999 and December
31, 1999. The historical results presented below are not necessarily indicative
of future results.
The calculation of pro forma net loss per share gives effect to the
automatic conversion of all of the outstanding shares of our convertible
preferred stock into shares of common stock upon the completion of this
offering.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 17, 1999
QUARTER ENDED QUARTER ENDED (INCEPTION) TO
QUARTER ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
JUNE 30, 1999 1999 1999 1999
------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Net sales...................................... $ 39 $ 568 $ 5,168 $ 5,787
Cost of goods sold............................. (76) (1,766) 11,570 (13,412)
--------- --------- ----------- -----------
Gross margin................................. (37) (1,198) (6,402) (7,625)
Operating expenses:
Marketing and sales....................... 1,122 10,693 30,676 42,491
Product development....................... 1,624 2,194 2,646 6,481
General and administrative................ 838 1,205 2,211 4,254
Amortization of stock-based
compensation............................ -- 1,139 979 2,118
--------- --------- ----------- -----------
Total operating expenses................ 3,584 15,231 36,512 55,344
--------- --------- ----------- -----------
Operating loss............................... (3,621) (16,429) (42,914) (62,969)
Interest income, net......................... 123 577 491 1,191
--------- --------- ----------- -----------
Net loss..................................... $ (3,498) $ (15,852) $ (42,423) $ (61,778)
========= ========= =========== ===========
Basic and diluted net loss per share........... $ (2.41) $ (10.91) $ (28.92) $ (42.42)
Weighted average shares outstanding used to
compute basic and diluted net loss per
share........................................ 1,453,470 1,453,470 1,466,803 1,456,489
Pro forma basic and diluted net loss per
share........................................ $ (3.48)
Weighted average shares outstanding used to
compute pro forma basic and diluted net loss
per share.................................... 17,757,028
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $36,231 $ 30,196
Working capital........................................... 34,913 36,088
Total assets.............................................. 48,399 60,310
Convertible preferred stock and related paid-in capital... 60,382 109,637
Total stockholders' equity, including convertible
preferred stock........................................ 42,584 51,120
</TABLE>
23
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related Notes contained elsewhere in
this prospectus.
OVERVIEW
Pets.com is a leading online retailer of pet products, integrating product
sales with expert information and professional resources. Our broad selection of
approximately 12,000 SKUs transcends the limited product selection of
superstores, specialty stores and grocery stores.
We were formed in February 1999. The assets related to the Web store,
including the Pets.com domain name, were sold to Pets.com, Inc. from a third
party concurrent with our first round of venture capital investment. We had a
small amount of revenue during the second quarter of 1999 from a limited number
of products available on our Web store. From inception through the launch of the
second version of our Web store in July 1999, our operations were concentrated
on the development of our Web store, the opening of a distribution center in San
Francisco and establishing supplier and vendor relationships. Since July 1999,
we have continued these operating activities and have also focused on building
sales momentum, expanding our product offerings, building vendor relationships,
promoting our brand name, improving the efficiency of our order fulfillment
processes and improving our customer service operations.
We derive substantially all of our revenues from the online sale of pet
products. We do not currently sell live animals such as fish or reptiles, but we
may do so in the future. Virtually all of our orders are fulfilled from our
distribution center and either billed to the customer's credit card or payment
is received via check. Generally, we collect cash from credit cards in two to
five days from the date ordered. If the pay-by-check method is selected, the
order is shipped once the customer's check is deposited and funds are available.
If a customer is not satisfied with a particular product or service we provide
within 30 days of the date of purchase, we generally refund all or a portion of
the sale. To date, our refunds have averaged less than 3% of net sales.
We have completed business development for our private label dog and cat
food and cat litter products, which we intend to launch in the first half of
2000. We have completed the marketing plan, vendor selection, product
development, consumer research, packaging development, and trademark search and
registration with regard to these products. Remaining steps to be taken during
2000 include the purchase and stocking of the physical products as well as
expenditures for promotional material. We intend to expand the Pets.com brand
product line in the second half of 2000 to include apparel, bowls, rawhide,
chews, toys and other accessories. This expansion will require additional
development expenditures, which amounts will be determined by the range of
additional products offered, and this has not yet been determined.
We have incurred net losses of $61.8 million from inception to December 31,
1999. We believe that we will continue to incur net losses for at least the next
four years, and possibly longer, and that the rate at which we will incur such
losses will increase significantly from current levels. We anticipate our losses
will increase because we expect to incur additional costs and expenses related
to brand development, marketing, and other promotional activities, distribution,
customer service, content development, technology and infrastructure development
and other capital expenditures. However, because we only began selling products
in February 1999, we have yet to achieve meaningful revenues, and we have a
limited operating history on which to base an evaluation of our business and
prospects.
Net Sales. Net sales consist of product sales and charges to customers for
outbound shipping and handling and are net of allowances for product returns,
promotional discounts and coupons. We recognize product and shipping revenues
when the related product is shipped. In the future, the level of our sales will
depend on a number of factors including, but not limited to, the frequency of
our customers' purchases, the quantity and mix of products, pricing of products
and shipping, sales promotions and discounts, seasonality and customer returns.
24
<PAGE> 28
Cost of Sales and Gross Margin. Cost of sales consists primarily of the
costs of products sold to customers and outbound and inbound shipping costs. We
expect cost of sales to increase in absolute dollars to the extent that our
sales volume increases. Promotional tools include rotating discounts on product
segments as well as online and offline coupons to targeted audiences. We may in
the future expand or increase the coupons and discounts we offer to our
customers and may otherwise alter our pricing structures and policies. These
changes may negatively affect our gross margin. Our gross margin will fluctuate
based on a number of factors, including, but not limited to the cost of our
products, our product and shipping pricing strategy, product mix, our
distribution centers and inventory control. Our product margins currently range
from between 20% and 25% in the aggregate. We expect that our product margins
will nearly double if we are able to achieve our objective over time of
broadening our product mix by adding private label food and accessories which
have higher margins. In addition, our shipping costs currently range from
between 100% and 110% of revenues. We expect these costs, as a percentage of
revenues, to decrease to between 20% and 25% after our second distribution
center in Indianapolis has achieved its target shipping level, and to decrease
further thereafter as we add additional distribution centers. We expect that we
will be able to achieve over time operating margins of more than 15% as we
achieve greater efficiencies in our operations and increases in our gross
margins and revenues.
Marketing and Sales Expenses. Marketing and sales expenses consist
primarily of advertising and promotional expenditures, supplies, payroll and
related expenses for personnel engaged in marketing, merchandising and business
development. We intend to continue to pursue an aggressive branding and
marketing campaign and, therefore, expect marketing and sales expenses to
increase significantly in absolute dollars. Marketing and sales expenses may
also vary considerably as a percentage of net revenues from quarter to quarter,
depending on the timing of our advertising campaigns and our response to
competitive developments in our market.
Product Development Expenses. Product development expenses consist
primarily of payroll and related expenses for our Web store development, systems
personnel, consultants, content and other Web store costs. Over the next several
months, we plan to continue to work on a significant number of development
projects that will result in increased product development expenses. We believe
that continued investment in product development is critical to attaining our
strategic objectives and maintaining our competitive position in our market and,
as a result, we expect product development expenses to increase significantly in
absolute dollars, but to fluctuate as a percentage of net revenue from quarter
to quarter.
General and Administrative Expenses. General and administrative expenses
consist of payroll and related expenses for development, design, production,
finance, human resources, executive and administrative personnel, corporate
facility expenses, professional services expenses, travel and other general
corporate expenses. We expect general and administrative expenses to increase in
absolute dollars as we expand our staff and incur additional costs related to
the anticipated growth of our business and being a public company, but to
fluctuate as a percentage of net revenue from quarter to quarter.
Amortization of Stock-Based Compensation. We recorded total stock-based
compensation of $17.5 million for the period from inception on February 17, 1999
to December 31, 1999 in connection with stock options granted and restricted
stock issued during such periods. In the case of stock options granted, the
stock-based compensation amounts represent the difference between the exercise
price of stock option grants and the deemed fair value of our common stock at
the time of such grants. In the case of restricted stock, the stock-based
compensation represents the difference between the purchase price of the
restricted stock and the deemed fair value of our common stock on the date of
purchase. Such amounts are amortized as an expense over the vesting periods of
the applicable agreements, resulting in amortization of stock-based compensation
totaling $2.1 million for the period from inception on February 17, 1999 to
December 31, 1999. The amortization expense relates to options awarded to
employees in all operating expense categories. Stock-based compensation for
stock options and restricted stock issued through
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December 31, 1999 that will be subsequently recognized as expense for each of
the next four years is estimated to be as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
2000.................................................... $ 4,375
2001.................................................... $ 4,375
2002.................................................... $ 4,375
2003.................................................... $ 2,257
</TABLE>
The amount of stock compensation expense to be recorded in future periods could
decrease if options for which accrued but unvested compensation has been
recorded are forfeited.
Income Taxes. There was no provision or benefit for income taxes for any
period since inception due to our operating losses. As of December 31, 1999, we
had $56.2 million of net operating loss carryforwards for federal income tax
purposes, which expire beginning in 2019. We have not recognized any benefit
from the future use of loss carryforwards for these periods or for any other
period since inception because of uncertainty surrounding their realization. The
amount of net operating losses that we can utilize may be limited under tax
regulations in circumstances including a cumulative stock ownership change of
more than 50% over a three year period. It is possible that such a change may
have already occurred or could occur as a result of this offering. See Note 5 of
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
We have not provided year-to-year comparative quarterly results because we
only commenced operations in February 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of convertible notes payable and preferred stock, which, through December
31, 1999, yielded net cash proceeds of $109.2 million.
Net cash used in operating activities was $65.3 million from inception on
February 17, 1999 to December 31, 1999. Net cash used in operating activities
for this period primarily consisted of net losses, increases in inventories and
other working capital purposes.
Net cash used in investing activities was $14.5 million from inception on
February 17, 1999 to December 31, 1999. Net cash used in investing activities
primarily consisted of leasehold improvements and purchases of equipment and
systems, including computer equipment and fixtures and furniture.
Net cash provided by financing activities was $110.0 million from inception
on February 17, 1999 to December 31, 1999. Net cash provided by financing
activities during each of those periods primarily consisted of cash proceeds
from the issuances of preferred stock. In April 1999 we issued 5,781,862 shares
of Series A preferred stock in exchange for an aggregate purchase price of $10.0
million. In June 1999 we issued 5,298,014 shares of Series B preferred stock for
an aggregate purchase price of $50.0 million. In November and December 1999, we
issued 5,220,664 shares of Series B preferred stock in exchange for an aggregate
purchase price of $49.2 million.
As of December 31, 1999 we had $30.2 million of cash and cash equivalents.
As of that date, our principal commitments consisted of obligations outstanding
under capital and operating leases aggregating approximately $3.3 million
through December 31, 2000. In November 1999 we invested $2 million for an equity
position in PetPlace.com, Inc. and are committed to invest an additional $1.5
million no later than February 2000. Although we have no material commitments
for capital expenditures, we anticipate a increase in our capital expenditures
and lease commitments consistent with anticipated growth in operations,
infrastructure and personnel. In the first half of 2000, we intend to add a
second distribution center to ensure greater control over the distribution
process and to ensure adequate supplies of products to
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our customers. The second distribution center is in the final planning stages
and will require capital investments in facilities and equipment of $7 million
to $9 million. For 2000, we anticipate our total capital expenditures will be at
least $15 million, which will include substantial expenditures toward technology
and systems upgrades to support the distribution centers and increases in
business volume. In January 2000, we issued 1,102,400 shares of Series C
preferred stock to an affiliate of The Walt Disney Company in exchange for $11.0
million of media advertising on ABC, Inc., an affiliate of The Walt Disney
Company.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next 12 months. We
may need to raise additional funds prior to the expiration of such period if,
for example, we pursue business or technology acquisitions or experience
operating losses that exceed our current expectations. If we raise additional
funds through the issuance of equity, equity-related or debt securities, such
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our stockholders may experience additional
dilution. We cannot be certain that additional financing will be available to us
on acceptable terms when required, or at all.
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BUSINESS
OVERVIEW
As a leading online retailer of pet products, we are committed to serving
pets and their owners by combining our product offerings with expert information
on pets and their care. Through our broad selection of products and services we
seek to exceed the more limited selections offered by superstores, specialty
stores and grocery stores in connection with pet product retailing. One of our
primary goals is to help consumers make informed purchasing decisions. For
example, we provide information to help pet owners manage day-to-day needs as
well as the life stages of their pet, and our topical articles and community
bulletin boards focus on these and other pet care issues. Our Web store provides
customers with a convenient, one-stop shopping experience and it is organized to
reflect how consumers think about shopping for their pets. Our Web store
currently focuses on the most popular pets, including dogs, cats, birds, fish,
reptiles, ferrets, and other small pets, and our in-house distribution,
fulfillment, customer service, and technology operations enable us to provide
our customers with rapid turn-around and order fulfillment services. We actively
participate in the pet community both through our Web store and through
Pets.commitment, our charitable foundation that supports the role that pets and
people play in each others' lives, and we also encourage our customers to
participate with us.
INDUSTRY BACKGROUND
THE GROWTH OF THE INTERNET AND ELECTRONIC COMMERCE
The Internet has become an increasingly significant medium for
communication, information exchange, and commerce. International Data
Corporation estimates that there will be approximately 196 million online users
worldwide at the end of 1999 and that this number will grow to approximately 399
million users by the end of 2002. Forrester Research estimates that online
purchases made by consumers in the United States will grow from $20 billion in
1999 to $184 billion by 2004, representing a compound annual growth rate of 56%,
and estimates that the total number of U.S. online consumers will grow from
approximately 17 million in 1999 to 49 million in 2004, representing a compound
annual growth rate of nearly 24%. We believe this increased usage is due to a
number of factors, including a large installed base of personal computers,
advances in the speed of personal computers and modems, easier and cheaper
access to the Internet, improvements in network security, infrastructure and
bandwidth, a broader range of online offerings, and growing consumer awareness
of the benefits of online shopping.
THE PET PRODUCTS RETAIL INDUSTRY
The pet products industry is a large and growing market characterized by a
loyal and emotion-driven customer base whose needs we believe are not adequately
satisfied by traditional retail stores. According to the Pet Industry Joint
Advisory Council, U.S. consumer spending on pet products and services grew at an
annual rate of approximately 9% per year between 1993 and 1997 totaling
approximately $23 billion at the end of 1997. Pets have become an increasingly
important part of U.S. households, numbering over 235 million at the end of
1998, based on a survey conducted by Sloan Trends & Solutions, Inc. More than
60% of U.S. households owned a pet and 40% of those households owned more than
one pet in 1998, according to a recent American Pet Products Manufacturers
Association study. In addition, according to Sloan Trends & Solutions, Inc.,
U.S. households spent on average $350 on their pets in 1998.
Pet owners generally exhibit strong emotional connections to their animals.
For example, according to Sloan Trends & Solutions, Inc., over 80% of pet owners
consider their pets to be members of the family and 67% buy their pets holiday
gifts. In addition, over 80% of pet owners surveyed by the American Animal
Hospital Association stated that in an emergency they would likely risk their
life for their pet. Because of this strong human-animal bond, we believe pet
owners, like parents, represent an attractive base of consumers who seek a wide
variety of products and information for their pets which promote their pets'
health, well being and happiness.
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Store-based pet supply retailers have traditionally served the pet product
market in the United States. These include superstore retailers such as Petco
Animal Supplies, Inc. and PetsMart, Inc., grocery store retailers such as Kroger
Company and Safeway, Inc., mass market retailers such as Wal Mart Stores, Inc.
and Kmart Corporation, and smaller, independent specialty pet products stores.
While in the aggregate these channels provide consumers with a wide
selection of pet related products, we believe traditional store-based retailers
for pet products have the following limitations:
Lack of One-Stop Shopping. The pet products retail market is fragmented,
generally requiring consumers to shop at multiple outlets to find everything
they need for their pets. For example, superstore retailers, grocery stores and
mass market retailers tend to carry a deep selection of well known brand name
pet products from leading vendors, but have fewer specialty products. Specialty
pet stores instead tend to carry a broader selection of specialty products from
smaller vendors, but usually have a limited selection of the more well known
brand name products. On a combined basis, specialty pet stores control the
largest percentage of sales in the U.S. pet product retail market, having 20% of
U.S. sales based on data published by the Pet Industry Joint Advisory Council in
1998. This lack of one-stop shopping also applies to other online retailers who
have chosen to duplicate the traditional retail model in terms of selection and
are offering a subset of a superstore product mix.
Limited Geographic Coverage. The few pet retailers who do tend to offer a
broader selection of products either operate on a regional basis or only in
metropolitan areas. This leaves a significant percentage of the U.S. population
without easy access to all of the products they need for their pets. Opening
additional stores would require substantial investments in real estate and
inventory, as well as in trained personnel, for these chain stores. The high
cost of opening and maintaining additional stores further limits the ability of
retailers to serve geographic areas that are not densely populated.
Inconvenience of Store Design and Layout. We believe consumers value the
opportunity to select items from a broad range of pet products that best fit
their needs. However, the constraints of retail shelf space and store layouts
limit traditional retailers' ability to meet many customers' needs, often
dictating a limited product selection that appeals to the broadest number of
consumers. Products are typically displayed by brand, category or packaging to
maximize stocking efficiencies, especially for bulk products such as dog food,
and to promote fast selling products. Further, because of large investments in
inventory required to keep stores fully stocked, traditional pet retailers often
have limited flexibility to adapt their merchandising strategies to meet
changing consumer demand.
Limited, Inconsistent Information. Consumers buying pet products often seek
information and expert advice to assist them in making purchase decisions.
However, many traditional store-based retailers do not provide consumers with
easy access to useful product information or readily available on-site experts
who can provide assistance. In addition, even where on-site support is
available, the quality of information and expertise may be inconsistent due to
the challenges of hiring, training and maintaining knowledgeable sales staff.
This limits the level of customer service available to consumers.
As a result of these factors, we believe that consumers typically find the
pet product shopping experience to be both inconvenient and unpleasant. Shopping
for pet products in retail stores can involve making trips to multiple stores,
extended searching for desired products, waiting in line to make a purchase and
carrying home heavy bags of pet food, litter or other bulk products.
THE PETS.COM SOLUTION
We are a leading online retailer of pet products integrating product sales
with expert information on pets and their care. Our mission is to serve pets and
their owners with the best care possible through broad product selection, expert
information and superior service. We seek to address the entire pet products
market, transcending the limited product selection of superstores, specialty
stores and grocery stores. Our Web store tightly integrates broad product
selection with highly relevant content, providing consumers with the pet-related
information they need to make informed purchase decisions. Additionally, we
provide information to help pet owners manage the life stages of their pet
coupled with topical articles that address
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their pet care needs. We believe that our Web store provides customers with a
superior one-stop shopping experience, with direct delivery to their doors.
We are distinguished in the online pet retail industry because of our
in-house control over key aspects of our business. Our online design and
editorial team is responsible for the consumer shopping experience, creation and
delivery of pet information, and general usability of our Web store. Our
technology group is responsible for the development and maintenance of our Web
store and back-end transaction processing and fulfillment. Our merchandising
team has more than 90 years of combined buying and merchandising experience and
deep product knowledge which enables them to build and maintain close
relationships with manufacturers and build our private label business. Our
in-house distribution and fulfillment operation enables full control over the
product supply process from product mix to customer shipments. Our customer
service department manages the communication with customers. We believe our
in-house control of these functions is an important strength that enhances our
competitive position in the pet products industry.
We attract and retain consumers by emphasizing the following key
attributes:
Extensive Product Selection Enables One-Stop-Shopping. We provide consumers
with one-stop-shopping for their pet care needs, with direct delivery to their
doors. Our broad selection addresses nearly the entire pet products market,
transcending the limited product selection of superstores, specialty stores and
grocery stores. We cater to the needs and interests of consumers who own dogs,
cats, fish, birds, ferrets, reptiles, and other small pets. As of December 1999,
we had shipped products to approximately 114,000 customers. With only one
distribution center, our SKU count is currently equivalent to the number of SKUs
available at the largest pet superstores, and by the middle of 2000 is projected
to increase to roughly two times the SKUs available at these stores. Our online
business model enables us to aggregate a diverse product selection that is not
generally found in single retail outlets, respond more quickly to new product
introductions than traditional retailers, and dynamically change our mix on a
national basis to meet consumer needs and interests.
Expert Information and Professional Resources. Because of the emotional
attachment consumers have toward their pets, they value extensive information
from experts to give them confidence that they are giving their pets the best
care possible. We offer this information to consumers in several different ways:
- Editorials. Our in-house staff of pet experts, veterinarians, an animal
behavior specialist, and a pet attorney provide consumers with advice on
a wide variety of animal topics. We offer an "Ask the Vet" column hosted
by one of our veterinarians, in which answers are given to customer
questions. In addition, multiple articles are posted weekly spanning
seasonal topics, current events, health, nutrition, and behavior, among
others.
- Periodicals. Our offline print publication, Pets.com, The Magazine For
Pets and Their Humans, is designed to further establish Pets.com in the
lives of consumers and their pets, and to introduce pet owners to the
products and expert information available in our Web store. Our team
contributes high quality, original content spanning lifestyle, health,
behavioral, and product information. The first issue of the magazine was
published in November 1999, the second issue was published in January
2000, and each had a distribution of more than one million copies. We
intend to publish this magazine on a bi-monthly basis.
- Professional Resources. Consumers can use our search tool to find a wide
range of professional pet resources near where they live. These resources
include veterinarians, hospitals and emergency care centers, kennels and
boarding facilities, hotels accepting pets, and pet sitters, among
others.
- Veterinary Relationships. We provide consumers with a comprehensive array
of veterinary information through two exclusive strategic relationships.
We have an exclusive strategic relationship with PetPlace.com which
intends to launch a comprehensive, online educational library through its
Web site in the first quarter of 2000 for pet owners and veterinarians
covering pet illness and wellness. PetPlace.com will provide our
customers with extensive resources through links to
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their Web site to help them increase the quality of healthcare for their
pets. We also have a strategic alliance with the American Veterinary
Medical Foundation which enables us to provide information about our
products in their healthcare information video sent out bi-monthly to
approximately 17,000 veterinarians, who can make this information
available to consumers.
Superior Shopping Experience. We believe that we provide an intuitive,
easy-to-use Web store, offering extensive product selection across the most
popular pet types, supported by tightly integrated, relevant editorial and
searchable resource information. We categorize and organize our products to
reflect how consumers shop for their pets, allowing them to browse by pet type,
category, product line and individual product. Our product presentation is
supported by numerous high resolution photographs of products available for sale
in our Web store. We offer search capabilities across all products and editorial
content. Further convenience advantages of our Web store include:
- Continuous replenishment of food and litter through "Keep It Comin' "
which allows customers to schedule ongoing deliveries of products;
- A gift center, allowing consumers to match gifts to pet lifestyles and
personalities; and
- Advanced personalization features, including the use of wish lists and
address books.
Quality Customer Service. The typical online shopping experience begins
with the search for products that meet specific needs, includes the online
ordering process, and extends through product delivery and post-purchase
support. We believe that the ability to accurately fulfill orders, ship products
quickly to a customer's door, or efficiently handle customer inquiries is as
important to customer satisfaction as product selection. We have invested
significant resources to create our own fulfillment, distribution, and customer
service functions rather than outsourcing these functions to a third party. The
decision to build this operation in-house provides us with the ability to carry
differentiated products, buy direct from manufacturers and improve product
margins, reduce shipping and handling costs and provide customer satisfaction
through better service.
Community. We encourage community participation both through our Web store
and offline community efforts. Online consumers can participate in 60 different
discussion groups covering various topics of interest across a range of pet
types, and sign up to receive our online newsletter which is sent to consumers
every two to three weeks. We offer specific forums for dogs, cats, fish, birds,
reptiles, ferrets, horses, and small pets. Our online newsletter provides timely
information, highlighting current articles and new products that are available
at our Web store, and describes upcoming pet events. More than 230,000 consumers
either receive our online newsletter or participate in our discussion groups
each month. At the community level, we encourage participation through
Pets.commitment, our charitable foundation that supports the role that pets and
people play in each other's lives. Pets.commitment provides direct financial
support and encourages volunteerism across animal shelters, animal therapy and
service dog programs, and pet care and wellness organizations. Our intent is to
contribute more than $1 million to these organizations by the end of 2000.
BUSINESS STRATEGY
Our objective is to become one of the world's leading retailers of pet
products. To achieve this objective, we intend to be the one-stop shop for pet
products and the definitive source for pet information. Key elements of our
business strategy include:
Build Enduring Brand Equity. We have marketed our Web store to consumers
through a wide range of advertising and promotional activities. We intend to
continue to leverage our offline and online marketing strategies to maximize
customer awareness, attract consumers most likely to make online purchases, and
enhance our brand recognition as follows:
- Advertising. We use television, radio, outdoor, and online advertising to
build brand equity and create awareness. At the center of this campaign
is our Pets.com sock puppet brand icon who we
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believe has already made an emotional connection with consumers. Media
campaigns featuring this puppet communicate our key benefits of
convenience, selection, and delivery.
- Online Marketing Relationships. We leverage our relationships with select
online content providers and portals to attract consumers most likely to
make online purchases. These include Blue Mountain Arts and some of the
online properties of GO.com, including the GO Internet portal,
Disney.com, Family.com, and mrshowbiz.com.
- National Events and Local Marketing. We use national sponsorships and
local market efforts to build brand awareness and expand our customer
base. This includes participation in national events such as the 1999
Macy's Thanksgiving Day Parade and promotion of "Take Your Dog To Work
Day." Local market activities such as SPCA events, dog walks, and
adoption fairs reach pet owners in a pet-related context.
Offer Broadest Product Mix. We provide consumers with one-stop shopping for
their pet care needs, with direct delivery to their doors. Our broad selection
addresses nearly the entire pet products market, encompassing the selection of a
superstore, specialty store and grocery store. We plan to grow from a SKU count
of approximately 12,000 by year-end to more than 20,000 SKUs during 2000. We
will continue to purchase products directly from manufacturers in order to
optimize our product selection, enable a highly flexible product mix in response
to new or fast moving items, strengthen our vendor relationships, customize
promotions to specific consumer demographics and purchase patterns, easily test
new items, and substantively improve our margins. We are currently working to
broaden and diversify our product selection. For example, we will begin offering
product in other pet-themed categories such as human apparel, calendars, picture
frames and other home accessories by the first quarter of 2000. We also plan to
introduce live fish during the first half of 2000 and equine-related products
thereafter.
Establish Our Private Label Brands. We plan to introduce a full line of
high quality, private label dog and cat food and cat litter in the first half of
2000, marketed under the Pets.complete brand name targeted to the premium buyer.
Our private label business should provide further margin enhancement, continued
growth of our brand, and enhanced consumer loyalty and repeat purchases. We
intend to expand this product line in the second half of 2000 under the Pets.com
brand name to include apparel, bowls, rawhide, chews, toys, and a range of other
accessories. These private label products will only be available at our Web
store and will further distinguish our product selection.
Provide Comprehensive and Relevant Content. We intend to be the definitive
source of pet information. Our content is designed to address the broadest
possible collection of pet types and a wide array of topics. We will
increasingly deliver pet-related information in a variety of online and offline
media forms, and in conjunction with a range of consumer and veterinary care
partners. We will continue to encourage growing participation in a range of
community forums, events, and newsletters.
Deliver Superior Customer Service and Promote Repeat Purchases. We intend
to continue to deliver a superior online shopping experience that encourages
repeat purchases, beginning with the initial order and continuing through
product delivery and post-purchase support. To accomplish this, we intend to
build features which allow greater personalization and targeting of our Web
store to existing customers, and will continue to invest in people, technology
and distribution facilities which will allow us to continuously improve our
customer service. This in-house competency enables us to distinguish our product
selection from traditional and online retailers, realize better economics
through greater margin control and reduced handling and shipping costs, and
allows for better communication with customers.
Continue to Maintain and Expand our Relationship with
Amazon.com. Amazon.com is currently our largest stockholder and is represented
on our board of directors. Although Amazon.com has no contractual obligation to
provide us with consulting advice or engage in joint marketing activities, as a
result of this equity ownership in our business Amazon.com has historically
provided us with a number of services that have enabled us to benefit from its
extensive online retailing experience. We have been able to consult with our
Amazon.com counterparts across a range of operational and strategic initiatives.
We have engaged
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in a number of joint marketing activities including joint e-mails. In the
future, we intend to work to maintain and expand this relationship to grow our
business.
Continue to Maintain and Expand our Relationship with GO.com. We have a
strategic relationship with GO.com, where we engage in promotions involving its
online properties, including Family.com and Disney.com. We have recently
expanded this relationship to include joint content development, distribution of
Pets.com content on several GO.com online properties, and placement of media
advertising with ABC, Inc. which, along with GO.com, is an affiliate of The Walt
Disney Company. We intend to work to maintain and expand this relationship to
grow our business.
Expand Internationally. We intend to expand our business internationally in
order to better serve pet owners and capitalize on a global market. We intend to
complete the first step in this global expansion by taking an equity stake in
Petspark.com, Ltd. a UK based online pet retailer that intends to offer pet
owners a full range of pet-related services including a broad selection of pet
products, expert information from veterinarians and animal behaviorists, and an
online community of pet owners. In addition, Petspark.com, Ltd. will have the
right to use our name in its marketing in the UK. We also intend to expand into
Canada in the first half of 2000.
THE PETS.COM EXPERIENCE
We offer consumers instant online access to a wide array of products,
expert information and professional resources. We believe that we provide a
convenient, easy-to-use Web store, offering extensive product selection across
the most popular pet types, supported by integrated, relevant editorial and
searchable resource information. From our home page, consumers can access the
shopping area, read pet care articles in "Today's Features," search our store
for products or content, view the "Pet of the Day," access our professional
resources, or participate in one of the community discussion groups. Our Web
store is optimized for fast loading at a range of connection speeds. Key
components of the Pets.com experience include:
Shopping at Pets.com. Our broad product selection offers products for many
of the most popular pet types. We categorize and organize our products the way
people shop for their pets, and support a highly visual shopping experience.
Customers can shop at our online store as follows:
- Pet Type. Our product offering spans a wide selection of products for
dogs, cats, fish, birds, reptiles, ferrets, and small pets like hamsters,
rabbits, and guinea pigs. Our home page allows consumers to select pet
type to help them narrow the choices that follow.
- Category. We provide consumers with the ability to browse categories
based on the key attributes of that particular product category. For
example, consumers shopping for dog food can browse by type of food, such
as dry or canned, by the specific dog food brand, or by stage of their
dog's life, such as puppy, adult or senior. These attributes differ by
category and have been customized in our Web store to match these
shopping patterns. This non-duplicative navigational approach helps
eliminate the problem of consumers becoming overwhelmed as they browse
hundreds of items within a category to find the product that they need.
- Product Line. We enable consumers to browse as many as a dozen product
lines from a single Web page. This browsing approach closely maps the
physical retail experience and highly visual nature of shopping for pet
products. In this category, a pet owner might know the color of the
package or the picture on the front of the box, and then recall more
specific information such as the brand name when they see the package.
- Individual Product. Our product pages feature large, high quality photos
of each item, and allow customers to select flavor, color, size and
quantity from a single Web page. This eliminates the need for consumers
to navigate through multiple Web pages to specify the attributes of a
particular item that they want to purchase. In addition, as consumers
make their specific product selection, this same Web page displays
product availability in real time.
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- Checkout. We offer consumers a highly streamlined checkout experience
requiring a minimal number of steps, only asking them for the information
that is necessary to complete the transaction. The checkout area offers
several convenient features such as the ability to create a personalized
address book and then choose a specific address from the list by
selecting it from a pull down menu.
In addition, we recently opened a gift center, which allows consumers to
match gifts to pet lifestyles and personalities. For example, consumers can find
gifts for "the urban pet," "the dog who has everything," or "the cat in vogue."
This new area also features seasonal baskets, offering consumers gift ideas
tailored to particular holidays and seasons of the year. Overall, the gift
center capitalizes on our belief that consumers consider their pets to be
members of the family, providing consumers with a fun, creative way to shop for
their pets.
Editorial and Resource Information. We provide our customers with expert
information and professional resources, tightly coupled with our product
selection in order to support informed purchase decisions. The information
supports various pet lifestyles from urban to rural, and the full spectrum of
stages from the young pet to the aging pet. The timely, topical, relevant nature
of this editorial information reinforces the emotional connection that pet
owners have with their animals, which we believe will help build loyalty to
Pets.com as consumers return to the store to read the latest news and
information. We offer the following editorial and resource information to our
customers:
- Online Articles. Our current editorial staff of in-house and freelance
experts contributes 15-20 new articles per week which are posted in our
Web store, spanning all pet types and a wide range of topical areas. Our
experts include writers with extensive pet experience, veterinarians, an
animal behaviorist, and a pet attorney. All articles contain a brief
synopsis of the author's credentials in order to help consumers
understand the area of expertise and qualifications of each of our
writers. Our content includes product-specific information, basic pet
information covering topics such as healthcare, nutrition, and behavior,
and information based on seasonal topics and current events. We
supplement the breadth and depth of our original content with licensed
content on topics such as breed profiles and basic pet care information.
Where relevant, our stories contain product references and merchandising
links to support decision-making.
- Resources. Consumers can use the search tool on our Web store to find a
wide range of pet resources specific to the area in which they live. This
resources include veterinarians, hospitals and emergency care clinics,
kennels and boarding facilities, hotels that accept pets, and pet
sitters, among others.
- Pets.com, The Magazine For Pets and Their Humans. We are currently the
only online pet retailer publishing a print magazine, which is designed
to broaden awareness of Pets.com, drive purchase of products sold through
our Web store, and increase current customer loyalty. Many pet owners
will be introduced to our store through this magazine, which was
published for the first time in November 1999 and again in January 2000,
and was distributed to over 760,000 pet owning households. In addition,
over 300,000 copies were distributed to veterinary offices, shelters, pet
sitter organizations, and with our in-box product shipments to customers.
We intend to publish new issues of the magazine bi-monthly.
MERCHANDISING AND PRODUCT SELECTION
Merchandising. We have assembled an in-house merchandising team with pet
industry expertise spanning product design, buying, import sourcing, and retail
experience. This expertise gives us several key advantages. We use our category
knowledge to source a broad assortment of products that encompasses the
selection of a superstore, specialty store and grocery store. We leverage our
vendor relationships to buy direct and realize better pricing, rapidly bring new
products to market, capitalize on promotional opportunities, and easily test new
items on a national basis. We currently offer a majority of the well known
brands in the pet industry such as Science Diet, IAMS, Pedigree and Eukanuba,
and other well-known brands such as Alpo, FreshStep, Friskies and Hartz. We also
offer our premium private label brand
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that includes Pets.complete food and litter and Pets.com supplies and
accessories. Over time, we anticipate that 10-20% of our revenues will come from
our private label products.
Product Offering. Our product offering provides customers with a breadth
and depth of selection across the most popular pet types and product categories
as follows:
<TABLE>
<CAPTION>
DOGS CATS FISH BIRDS
---- ---- ---- -----
<S> <C> <C> <C>
Apparel Beds Aeration & Bubblers Books & Videos
Beds Bells Aquarium & Kits Cage Accessories
Behavior Books Books & Videos Cages & Kits
Modification Bowls Bowls Food
Bones Cages & Accessories Breeding Supplies Hand Feeding
Books Calendars Cleaning Equipment Healthcare & Remedies
Bowls & Supplies Cards Decor Nesting Supplies
Calendars Carriers Filtration Toys
Carriers Catnip & Cat Grass Food & Accessories Treats
Chews Collars Health Care Wild Bird & Wildlife
Collars Doors & Barriers Heaters
Containment Feeders & Waterers Lighting FERRETS
Doors & Barriers Flea & Pest Control Live Plan Supplies Apparel
Ears, Hooves, Etc. Food Nets Food & Treats
Feeders & Waterers Furniture Pond Grooming
Flea & Pest Control Grooming Saltwater Supplies Habitats
Food Hair Lifters & Rollers Thermometers Hammocks & Beds
Food Containers Harnesses Valves & Tubing Health Care
Grooming Health Care & Remedies Water Test Kits Leashes
Hair Lifters & Rollers Holiday Water Treatments Litter
Harnesses I.D. Tags & Belts Litter Pans
Health Care & Remedies Leashes REPTILES Toys
Holiday Litter Books & Videos
Houses & Accessories Litter Box Supplies Bowls & Waterers SMALL PETS
I.D. Tags Litter Boxes Decor Bedding
Leashes New Kitten Food & Treats Books & Videos
New Puppy Repellents Habitats Bowls
Outdoor Clean-Up Scratchers Health Care Cage Accessories
Rawhide Stain & Odor Heating Cage Kits
Repellents Starter Kits Humidifiers Carriers
Safety & First Aid Toys Leashes Collars & Leashes
Stain Odor Training Lighting Exercise
Starter Kits Treats Substrate Feeding Supplies
Tie-Outs Vitamins & Supplements Thermometers Food
Toys Grooming
Training Habitats
Treats & Biscuits Health Care
Videos & CDs Miscellaneous
Vitamins & Supplements Toys
Treats & Chews
</TABLE>
Product Sourcing. As of December 31, 1999, we purchased our products from a
network of approximately 200 manufacturers. For the period from inception
through December 31, 1999, approximately 90% of our total sales were from this
network of manufacturers. In addition, we anticipate adding well over 100 new
direct relationships in the first half of 2000 as we expand our product
selection.
VETERINARY CARE AND SERVICES
The American Pet Products Manufacturers Association cites that seven out of
ten dog and cat owners rely on veterinarians when they need information about
their pet. Given this high degree of reliance on veterinary expertise, we
provide consumers with access to extensive veterinary care information. In
parallel, we reach veterinarians with the most up-to-date research and
information in order to help them better serve pet owners. We accomplish these
objectives in several ways: by providing a wide variety of articles
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written by veterinarians; by allowing consumers to participate in our "Ask the
Vet" column; and, by entering into relationships with accredited veterinary care
organizations that provide consumers with in-depth information on pet illness
and wellness, and that offer veterinarians access to the most current research
and information on pet healthcare. A description of our strategic veterinary
care relationships follows.
PetPlace.com, Inc. We have made an equity investment in PetPlace.com and
entered into a three year exclusive marketing agreement which includes mutual
revenue sharing and new customer bounties which are paid for every new customer
referred from one site to another. PetPlace.com intends to launch an online
comprehensive, interactive, educational library through its Web site in the
first quarter of 2000 for pet owners and veterinarians covering illness and
wellness. Consumers will be able to search for relevant information on the site
before they visit their veterinarian and after the pet's illness is diagnosed.
Consumers will also be able to create a personal history of their pet, which
might include recommendations on food, grooming, worms, or flea control.
PetPlace.com is distinguished by its exclusive relationship with Angell Memorial
Animal Hospital, one of the leading veterinary specialty hospitals, whose
specialists provide content for this site and online consultations for
consumers.
We intend to provide our customers with in-depth veterinary care
information, generate highly qualified customer leads, encourage repeat visits
to our Web store, and build our brand. Our Web store is fully integrated with
PetPlace.com in a number of ways: PetPlace.com consumers will be able to
navigate directly from PetPlace.com articles to relevant products for purchase
at our Web store; consumers who ask our veterinarians questions will be able to
receive answers to the highly specialized healthcare issues from PetPlace.com;
and consumers will be able to have direct access to extensive veterinary
resources available on PetPlace.com.
American Veterinary Medical Foundation. The American Veterinary Medical
Foundation is a renowned professional association of over 60,000 veterinarians.
Our strategic relationship with the American Veterinary Medical Foundation is a
three year exclusive marketing agreement that we believe provides us with
enhanced credibility. We have agreed to provide financial support in an amount
of approximately $1 million to the American Veterinary Medical Foundation for
key activities such as "ClientLink," a video sent out by American Veterinary
Medical Foundation every two months to 17,000 veterinarians that provides
up-to-date news and pet healthcare information. In return for this support, our
Web store will receive bi-monthly coverage of products, services, and key
initiatives, such as the launch of PetPlace.com in "ClientLink" beginning in
January 2000, and we will have the right to use the American Veterinary Medical
Foundation logo on our home page.
MARKETING AND PROMOTIONS
Our marketing strategy is designed to attract customers most likely to shop
online, convert browsers to buyers, meet or exceed customer expectations, drive
loyalty and repeat purchases, build enduring brand equity, and reinforce the
human-animal bond. In order to implement this strategy, we execute an integrated
marketing campaign that includes the following:
- Advertising. Our advertising is designed to build brand equity, create
awareness, and generate initial purchase of products sold through our Web
store. The campaign features the Pets.com sock puppet, who we believe has
become popular with many consumers, and is a strategic icon of our brand.
In this advertising, our sock puppet is a roving advocate for the brand,
and has a playful, enthusiastic, funny, and caring personality. In our
ads, he endears himself to both animals and their owners as he strives to
make sure they get the products that they need. We use a mix of broadcast
media including national network television, local radio in the top
markets with online shoppers, outdoor advertising, online banners, text
links, and e-mail newsletters.
- Amazon.com Joint Marketing. We have implemented joint marketing programs
with Amazon.com. To date, this includes joint e-mails. In addition, links
to our Web page rotate on Amazon.com's home page and on other book
category pages, consistent with their other marketing arrangements.
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In all of these marketing programs, Amazon.com receives a referral fee
for delivering new customers to our Web store.
- GO.com Joint Marketing. As part of our strategic relationship with
GO.com, we plan to implement joint marketing programs with GO.com, which
may include joint promotion of the Pets.com magazine, joint merchandise
development, Pets.com development of exclusive content for Disney.com and
Family.com, and key event sponsorship. In addition we intend to engage in
joint online promotions including newsletters, sweepstakes and product
promotions.
- National Events and Local Marketing. Our national sponsorships are
designed to build brand awareness and expand our customer base. A balloon
float of our Pets.com sock puppet was featured in the 1999 Macy's
Thanksgiving Day Parade. We own the trademark to "Take Your Dog to Work
Day," and will be launching a national publicity campaign in 2000 which
includes a video news release and a "Do It Yourself Kit" that helps
companies structure their own event. We are the presenting sponsor of
"Dog Day Afternoon," an outdoor festival for dogs and their owners
organized by Design Industries Foundation Fighting AIDS. Our local
marketing activities are designed to deliver the Pets.com message in a
pet-related context at the community level. This includes local market
efforts such as SPCA events and dog fashion shows, and grassroots
activities including dog walks and adoption fairs in high Internet
penetration markets.
- Strategic Online Marketing Relationships. We have identified a select
group of online companies who we believe attract buyers more likely to
shop for pet products online. Our strategic relationship with GO.com
allows us to be the exclusive online pet retailer for the Pets & Animals
channel on Disney.com and the Pets category on Family.com. In addition,
we have agreed to purchase online advertising on the GO Internet portal,
and have the right to make placements in online commerce areas within the
GO Network. Our agreement with GO.com expires in January 2003, although
GO.com has the right to terminate the exclusivity provisions of the
agreement at times prior to expiration. We are also the exclusive online
pet retailer for Blue Mountain Arts, and have created special "pet
holiday cards" that are offered to consumers at Bluemountain.com. We are
also the exclusive online pet retailer for PlanetOut. These agreements
expire in September 2000 and April 2000, respectively. We have also
entered a non-exclusive relationship with AOL on their Shopping Channel.
In addition, we have an exclusive relationship with Pet Sitters
International, Inc. until December 2002, under which we list their
approximately 3,000 pet sitters in the resources area of our Web store in
exchange for sales commissions. Furthermore, our Associates Program,
based on Be Free's associate program technology, encourages other Web
sites to link to our store and earn sales commissions. Associates can
earn referral fees on all Pets.com purchases made from the links on their
site, and earn a bounty for each new customer.
- Promotions. We selectively utilize promotional offers to further our
brand building efforts. This includes promotions such as on-site
merchandising of product discounts and pet-themed specials, the "Keep It
Comin' " food subscription program, trial offers at local events such as
organized dog walks, and coupon offers in our online newsletter and in
Pets.com, The Magazine for Pets and Their Humans.
- Philanthropic Marketing. Our philanthropic marketing effort is designed
to deepen our relationship with pet owners and expand our customer base.
Pets.commitment is our charitable foundation, which provides direct
financial support and encourages volunteerism across animal shelters,
animal therapy and service dog programs, and pet care and wellness
organizations. Our intent is to contribute more than $1 million to these
organizations by the end of 2000. We contribute to organizations where
"people help animals," such as SPCAs and humane organizations across the
country including Best Friends Animal Sanctuary in Utah. We also
contribute to organizations where "animals help people," including Design
Industries Foundation Fighting Aids, Canine Assistants, and The North
American Disabled Riders Association.
- Public Relations. We utilize public relations to drive coverage across a
wide array of high profile outlets, spanning television, radio,
magazines, and newspapers.
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FULFILLMENT AND DISTRIBUTION
We have built an in-house fulfillment and distribution operation which is
used to manage the entire supply chain beginning with placement of the
customer's order, and continuing through order processing, fulfillment, and
shipment of product to the customer. In addition, we can improve our economics
through lower shipping and handling costs, and a higher margin product mix
availability.
We currently fulfill all customer orders from our new 143,232 square foot
distribution center in Union City, California and a 84,000 square foot satellite
facility in Hayward, California. We currently receive goods from our suppliers
at the distribution center into an automated system which assigns bin and
storage locations. The inventory system is linked to the Web store which
automatically updates product availability. A team of individuals using the same
automated system picks products to fill orders which are then packed on location
and loaded onto UPS, United States Postal Service or other shipping trucks for
distribution to consumers in all 50 states. We are committed to shipping a high
volume of accurate orders, efficiently and effectively.
We believe our expertise in fulfillment and distribution, developed as the
result of our experience with the original Union City distribution center,
enables us to expand rapidly to our second distribution center. By adding
regional distribution centers, we can significantly increase our SKU count,
improve ship time to customers, and reduce shipping costs. We are in the process
of establishing a second distribution center in Greenwood, Indiana. This 292,500
square foot warehouse is scheduled to open in the first half of 2000, and is
intended to mirror the SKUs carried in the Union City distribution center. We
believe that two distribution centers can likely support our growth into 2001
based on anticipated levels of demand for our products, and expect to add
additional distribution centers in the future.
CUSTOMER SERVICE
We believe that a high level of customer service and support is critical to
retaining and expanding our customer base. Our in-house customer service team is
available via phone from 6 a.m. to 8 p.m. Pacific time, Monday to Friday, and
can also be reached by e-mail or fax. We have approximately 80 full-time
employees in customer service as of December 31, 1999. This team is central to
our ability to deliver a superior customer experience and strives to make a
personal connection with each consumer.
We view Amazon.com's customer service performance to be the standard in the
industry and we seek to emulate their customer service approach. We seek to
exceed customer expectations. We provide proactive customer service which
includes e-mail order confirmation, e-mail ship confirmation with tracking
numbers, notifying customers of out-of-stock situations, and for those orders,
updating customers on order status on a frequent basis. We increase staff to
handle peak periods and train customer service representatives across
departments to help them better understand the business.
We are dedicated to customer satisfaction. One of the ways that we deliver
on this commitment is through our product, customer service, privacy, and
security guarantees. Our product guarantee offers consumers a 30-day refund if
their shipment is not satisfactory. Our customer service guarantee commits to a
one business day response time for all inquiries. Our privacy guarantee commits
that Pets.com will not sell, trade or rent personal information to other
companies, and communicates that this information is used exclusively to process
orders and to provide a more personalized shopping experience. Our security
guarantee ensures protection of personal information and compensation to
consumers for the amount of their liability, up to $50, in the unlikely event of
unauthorized interception and use of their credit card.
TECHNOLOGY AND NETWORK OPERATIONS
We have implemented a broad array of services and systems for site
management, searching, customer interaction, transaction processing, and
fulfillment. We designed our system for scalability, reliability, and
performance, using a set of software applications for:
- Displaying merchandise in a logical, customer-friendly way;
- Accepting and verifying orders;
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- Processing credit card orders;
- Organizing, placing, and managing customer orders;
- Notifying and updating customers of order status;
- Managing shipment of products; and
- Managing community forums and the communication of pet and pet care
information.
These services and systems use a combination of our own proprietary
technologies and commercially available, licensed technologies. We selected
BroadVision as our e-commerce platform, and have a non-exclusive license to use
their commerce application, which has been customized by our internal engineers
for the Pets.com shopping experience. This robust commerce application is
integrated with our Quality Software Systems, Inc. warehouse management system,
enabling a fully automated order fulfillment process. We realize many benefits
from the integration of these front-end and back-end systems, including:
- the ability to track customer orders through the entire supply chain in
real-time;
- make rapid changes to processes such as a change in shipping policy; or
- efficiently expand our infrastructure to support the addition of a new
distribution center.
It is our policy that our vendors meet the requirement of providing
technical support 24 hours a day, 7 days a week, 365 days a year. Our Sun
Microsystems, Inc. servers are Unix-based, and our software platform and
architecture is integrated with an Oracle Corporation database system. Our
Internet servers use Verisign, Inc. digital certificates to help conduct secure
communications and transactions. Our production system is co-located at Exodus
Communications, Inc. in Santa Clara, California, and provides 24-hour
engineering and monitoring support. We anticipate adding an additional
co-location facility in the eastern United States in stages over the course of
2000 for redundancy and performance purposes.
We address the goals of scalability, reliability and performance in a
number of ways. We have replicated key components of our production system
in-house in order to perform load testing that enables us to simulate our Web
store and better support peak shopping periods. We aim to have fast download
times and make use of caching and load balancing at the Web server and
application level for optimal performance. We are implementing vertical hardware
partitioning in early 2000, enabling us to do significant work on the Web store
without having to take it down for maintenance.
We elected to build an in-house development and operations team augmented
by outside consultants to enable faster response to changing market conditions.
We only outsource development work that is considered to be non-strategic. Our
in-house development team builds out new features, focusing on the software and
functionality that is unique to our business. Our in-house operations team
ensures that our Web store is up and running 24 hours a day, seven days a week.
We incurred $6.5 million in product development expenses in the period from
inception to December 31, 1999. We anticipate that we will continue to devote
significant resources to product development in the future as we add new
features and functionality to our Web store. Long term, we believe our in-house
capability will allow us to manage strategic initiatives such as the creation of
a data warehouse enabling our merchandising team to better understand our
customers, and then use this information to modify our product mix and enhance
our margins.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future. In particular,
the pet products, information and services market is intensely competitive and
are also highly fragmented, with no clear dominant leader in any of our market
segments. Our competitors can be divided into several groups, such as:
- online stores that specialize in pet products, such as
Petopia.com, Inc., which is owned in part by Petco Animal Supplies, Inc.
PetsMart.com, Inc., which is owned in part by PetsMart, Inc.
Petstore.com, Inc.;
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- superstore retailers of pet products such as
Petco Animal Supplies, Inc.
PetsMart, Inc.;
- specialty pet stores;
- mass market retailers such as
Wal Mart Stores, Inc.
Kmart Corporation
Target Stores, Inc.;
- supermarkets;
- warehouse clubs such as Costco Companies, Inc.;
- mail order suppliers of pet products; and
- pet supply departments at major department stores.
Each of these competitors operates within one or more of the pet products,
information and services segments.
We believe that the following are principal competitive factors in our
market:
- brand recognition;
- product selection;
- streamlined shopping experience;
- reliability and speed of order shipment;
- customer service;
- quality of Web store content;
- speed and accessibility of Web store;
- personalized service;
- convenience; and
- price.
Many of our current and potential 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, more well-established and financed entities may
acquire, invest in or form joint ventures with online competitors or pet supply
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. Some of our competitors such as Petco
Animal Supplies, Inc. and PetsMart, Inc. have significantly greater experience
than we do in selling pet supplies and pet care products.
RELATIONSHIP WITH AMAZON.COM
We have a strategic relationship with Amazon.com whereby Amazon.com has
provided free consulting services relating to the operation of our business and
has promoted our Web store. Amazon.com is our largest stockholder and has
invested a total of approximately $57.8 million to date in Pets.com.
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Mark Britto, Amazon.com's Vice President of Strategic Alliances, is a member of
our Board of Directors. See "Executive Officers and Directors", "Related Party
Transactions" and "Principal Stockholders" for a further discussion of
Amazon.com's equity ownership of us. As part of our relationship, in April 1999
we entered into an advertising agreement with Amazon.com whereby Amazon.com
provides us with online promotions mutually agreed upon, such as e-mails about
Pets.com, and one or more links from different locations on its Web site to our
Web store, consistent with Amazon.com's other marketing agreements. Under our
agreement, the content, placement, timing, and even the extent of most of these
online promotions are determined at Amazon.com's discretion and can be
terminated by Amazon.com at any time. Under the agreement, we are obligated to
maintain a link on our home page to Amazon.com's Web site, and pay Amazon.com a
referral fee for each new customer referred from Amazon.com's Web site, reduced
by new customers we refer from our Web store to Amazon.com. Unless terminated
earlier for breach by the non-breaching party, the agreement will expire in
October 2000.
In addition to this formal agreement, Amazon.com has provided free
consulting advice to our management team upon request regarding brand building
efforts, Web store design, product merchandising, fulfillment and distribution,
and a variety of other operational and strategic issues that are important to
our business. The existence of this relationship with Amazon.com, Amazon.com's
stockholder position in Pets.com and our advertising agreement with Amazon.com,
has also enabled us to attract the attention of potential corporate partners and
to enter into alliances with corporate partners on favorable terms. While our
relationship with Amazon.com has received significant media attention,
Amazon.com is not obligated to provide any of this advice and support.
RELATIONSHIP WITH GO.COM
We have a strategic relationship with GO.com, and its related online
properties including Disney.com and Family.com, where we engage in promotions
and have agreed to engage in joint content development, and placement of media
advertising with ABC, Inc. The GO Internet portal is operated by Infoseek
Corporation, and Disney.com, Family.com, mrshowbiz.com, and other GO.com online
properties are operated by Buena Vista Internet Group, both of which are
affiliates of The Walt Disney Company. In particular, we entered into a
distribution agreement with Infoseek Corporation and Buena Vista Internet Group
in January 2000 under which we have agreed to provide pets related content for
display in various areas of the GO Network, including Disney.com and Family.com,
and GO.com has agreed to include links from these areas to the Pets.com Web
store. Under the agreement, we have also agreed to purchase online advertising
on the GO.com Internet portal, and have the right to make placements in online
commerce areas within the GO Network. We are also the exclusive online pet
retailer within the Pets & Animals channel on Disney.com and the Pets category
on Family.com. The agreement further provides that Pets.com and GO.com will
engage in joint online and offline marketing and other promotions to be agreed
upon, which may include joint promotion of the Pets.com magazine, joint
merchandise development, Pets.com development of exclusive content for
Disney.com and Family.com, and key event sponsorship. We cannot be certain
however that joint online and offline marketing and other promotions will be
agreed upon between parties at the levels desired by Pets.com. The agreement
will expire in January 2003, unless terminated earlier for breach by the
non-breaching party. In addition, GO.com has the right to terminate the
exclusivity provisions of our agreement at times prior to expiration. As part of
the agreement, we sold shares of Series C preferred stock to Catalyst
Investments, L.L.C., an affiliate of The Walt Disney Company, in exchange for
media rights with ABC, Inc. These shares will be converted to common stock upon
completion of this offering and they represent approximately 3.7% of our
outstanding common stock after this offering, 3.6% if the underwriters'
over-allotment options are exercised in full.
Because we entered into our agreement with GO.com in January 2000, which
expands a prior limited joint marketing relationship, we have little experience
working closely together and cannot be certain that we will be able to
successfully work together in the future. In addition, many of the parties'
obligations under the agreement, including joint marketing and promotional
activities and Pets.com content to be displayed on the GO Internet portal, have
not yet been agreed upon in detail between GO.com and us. We
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cannot be certain that we will be able to agree upon these activities in the
manner or at the times we currently expect.
OTHER STRATEGIC RELATIONSHIPS
We continually seek to form strategic relationships to increase our access
to online customers, build brand recognition, and expand our online presence.
Because of our relationship with Amazon.com, we believe that we can execute
fewer, more focused, and less costly ventures to accomplish our objectives over
the long-term. In addition to our relationship with Amazon.com, we have
established the following relationships:
General Internet Portal Sites. These companies provide an aggregated
audience of Internet users to whom we market our products and services. These
marketing activities drive new customers to our Web site and extend our brand.
These companies are America Online, Inc., Lycos, Inc., Xoom.com, Inc., PlanetOut
Corporation and Snap! L.L.C.
Pet Related Internet Sites. To ensure the strength of our brand among pet
owners we have established exclusive relationships with Petplace.com, Inc. and
Pet Sitters International, Inc., whose pet oriented Internet sites attract large
audiences of pet owners. In addition, through our relationship with Be Free, our
Associates Program encourages other Web sites to link to our store and earn
sales commissions.
Content Providers. To ensure that our site attracts and retains a large
audience of pet product consumers we have established relationships with various
content providers relevant to pet owners of all types. These content providers
are Blue Mountain Arts, Dawbert Press, Inc. and IDG Books Worldwide, Inc.
Pets.com Sponsorships. Our relationships with these organizations not only
increases our brand awareness, but also increases the goodwill associated with
our brand among pet owners and the general population. These organizations are
American Veterinary Medical Foundation, Best Friends Animal Sanctuary, Design
Industries Foundation Fighting AIDS and NADRA Productions.
International Relationships. We have entered into a non-binding term sheet
to make an equity investment in Petspark.com, a UK-based online pet retailer
that intends to offer pet owners a full range of pet-related services. This
relationship will include consultation, marketing support, and use of the
Pets.com name. This agreement, if consummated, should allow us to expand our
business internationally in order to better serve pet owners and capitalize on
the global market.
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 confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with our suppliers 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
licensed in the past, and expect that we may license in the future, certain of
our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of the Pets.com products
brand is maintained by such licensees, we cannot assure that such licensees will
not take actions that might hurt the value of our proprietary rights or
reputation. We also rely on technologies that we license from third parties,
such as BroadVision, Inc., Oracle Corporation, Netscape Communications
Corporation (AOL), Quality Software Systems, Inc., Sun Microsystems, and Compaq
Computer Corporation, the suppliers of key e-commerce software, database
technology, operating system software, and specific hardware components for our
service. We cannot be certain that these third-party technology licenses will
continue to be available to us on commercially reasonable terms. The loss of
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such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could harm our
business.
We have filed applications for the registration of Pets.com(TM), the
Pets.com logo, Because Pets Can't Drive(TM), Keep It Comin'(TM), More Products
Than a Superstore Delivers(TM), People Helping Animals, Animals Helping
People(TM), Pets.commitment(TM) and our sock puppet in the U.S. and in some
other countries, although we have not secured registration of any of our marks
to date. We have been granted the right to use Pets.complete(TM) from a third
party. We may be unable to secure these 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 trademark or trademark infringement claims
brought by owners of other registered trademarks or trademarks that incorporate
variations of the term "Pets.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 U.S.,
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.
GOVERNMENT REGULATION
We are not currently subject to direct federal, state or local regulation
other than regulations applicable to businesses generally or directly applicable
to retailing or electronic commerce. However, 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 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.
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<PAGE> 47
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. On September 21, 1999 Biolink
L.L.C. dba ERI International sued us in Los Angeles County Superior Court for
breach of contract, anticipatory breach of contract, breach of the implied
covenant of good faith and fair dealing, and fraud arising out of a contract
entered into for the shipment of live animals, including fish and reptiles. ERI
International has stated four causes of action, three seeking damages each in an
amount in excess of $2,000,000 and one seeking damages in an amount in excess of
$500,000. We have answered and asserted affirmative defenses to their complaint.
No trial date has been set and discovery has not yet commenced. We believe we
have meritorious defenses against these claims and intend to vigorously defend
against them.
EMPLOYEES
As of December 31, 1999, we had 270 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 17,000 square feet under a lease that expires in
June 2002, with an option to extend until 2004. In April 2000, we plan to
relocate to new executive offices in San Francisco, California, where we have
arranged to lease approximately 40,410 square feet under a lease that expires no
earlier than April 2010. For our Northern California distribution center and
satellite facility, we lease approximately 143,232 square feet in Union City,
California under a sublease that expires in August 2004 and 84,000 square feet
in Hayward, California under a lease that expires in November 2004. In addition,
we lease approximately 15,000 square feet in San Francisco, California for
additional warehouse and distribution purposes under a lease that continues on a
month-to-month basis after December 31, 1999. For our second distribution
center, we have entered into a lease for approximately 292,500 square feet in
Greenwood, Indiana, that expires in December 2005.
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<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Julia L. Wainwright....................... 42 Chairman of the Board of Directors and Chief
Executive Officer
Christopher E. Deyo....................... 40 President
Paul G. Manca............................. 41 Chief Financial Officer
John R. Benjamin.......................... 49 Vice President of Merchandising
John M. Hollon............................ 44 Vice President of Editorial
John A. Hommeyer.......................... 33 Vice President of Marketing
Diane R. Hourany.......................... 45 Vice President of Customer Service
Sue Ann Latterman, V.M.D.................. 42 Vice President of Strategic Alliances
Ralph E. Lewis............................ 53 Vice President of Distribution and Logistics
Paul W. Melmon............................ 38 Vice President of Engineering
Kathryn C. Ringewald...................... 39 Vice President of Human Resources
John B. Balousek(1)....................... 54 Director
Mark J. Britto(1)(2)...................... 35 Director
Matthew T. Cowan.......................... 27 Director
John R. Hummer(1)(2)...................... 51 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Julia L. Wainwright has served as our Chief Executive Officer and one of
our directors since March 1999 and Chairman of the Board since December 1999.
From March 1998 to February 1999, she served as Chief Executive Officer of
Reel.com, Inc. From May 1997 to February 1998, Ms. Wainwright was independently
researching e-commerce opportunities. From December 1996 to April 1997, she
served as Chief Executive Officer of Berkeley Systems, Incorporated, as
President from August 1995 to November 1996 and as Vice President of Sales and
Marketing from January 1995 to August 1995. From June 1994 to December 1994, she
served as Vice President of Marketing of Mindscape, Inc. From October 1993 to
June 1994, she was a partner in Corporate Development Partners, a private
venture capital firm. From August 1991 to October 1993, she served as Vice
President of International for Spinnaker Software, Inc. From October 1988 to
August 1991, she worked for Power Up Software Corporation in several positions,
finishing as Vice President of International. From January 1982 to October 1988,
she served in various management positions at Software Publishing, Inc. and from
January 1980 to December 1982, she worked in brand management at The Clorox
Company. Ms. Wainwright holds a B.S. from Purdue University.
Christopher E. Deyo has served as our President since April 1999. From July
1998 to March 1999, he served as President of Reel.com, Inc. He served as
General Manager of Berkeley Systems, Incorporated from March 1997 to June 1998
and as Vice President of Marketing from September 1996 to February 1997. From
May 1995 to August 1996, Mr. Deyo served as Vice President of Marketing of
Microprose, Inc. From January 1995 to April 1995, Mr. Deyo was independently
researching technology opportunities. From September 1987 to December 1994, he
worked for Kransco Group Companies in several positions, finishing as Vice
President of Marketing. Mr. Deyo co-founded Video Edge, Inc. where he served in
various capacities from May 1986 to August 1987. From August 1983 to April 1986,
he worked in brand management at The Procter & Gamble Company. Mr. Deyo holds a
B.S. and an M.B.A. from Syracuse University.
Paul G. Manca has served as our Chief Financial Officer since September
1999. From May 1995 to September 1999, he served as Chief Financial Officer of
CellNet Data Systems, Inc. From February 1987
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<PAGE> 49
to May 1995, he worked for BZW/Barclays, an investment bank, finishing as
Managing Director and Group Head of the Communications Group within Corporate
Finance. Mr. Manca holds a B.A. from the University of California at Berkeley
and an M.B.A. from Golden Gate University.
John R. Benjamin has served as our Vice President of Merchandising since
May 1999. From September 1990 to April 1999, Mr. Benjamin worked for Petco
Animal Supplies, Inc. in several positions, finishing as Director of Imports and
Global Sourcing. From December 1989 to August 1990, he served as the National
Sales Manager for Suunto, USA and from September 1984 to December 1989, he
worked as a buyer for Oshman's Sporting Goods, Inc. From September 1971 to July
1984, Mr. Benjamin worked for Fedco Membership Department Stores, Inc., in
several positions finishing as a store manager.
John M. Hollon has served as our Vice President of Editorial since April
1999 and as Editor and Publisher of Pets.com, The Magazine for Pets and Their
Humans since September 1999. From November 1996 to April 1999, he served as
Group Editorial Director of Fancy Publications, Inc. Mr. Hollon also worked as a
newspaper editor for 19 years, most recently with Gannett Co., Inc., as Editor
of The Great Falls Tribune in Montana and as Executive Editor of The Honolulu
Advertiser in Hawaii. Mr. Hollon holds a B.A. from California State University
at Long Beach.
John A. Hommeyer, Jr. has served as our Vice President of Marketing since
May 1999. From August 1988 to April 1999, he worked at The Procter & Gamble
Company in several U.S. and international positions, finishing as Marketing
Director of Global Baby Care. Mr. Hommeyer holds an A.B. from Dartmouth College.
Diane R. Hourany has served as our Vice President of Customer Service since
December 1999 and as Vice President of Operations from April 1999 to November
1999. From June 1998 to April 1999, Ms. Hourany served as Vice President of
Operations of Reel.com, Inc. From February 1994 to May 1998, she served as
General Manager of Catalog Fulfillment for Bullock & Jones, a subsidiary of Saks
Fifth Avenue, Inc. and from September 1987 to January 1994, Ms. Hourany served
as Manager of Telemarketing & Customer Services of Power Up Software
Corporation. Ms. Hourany holds an A.A. from Diablo Valley College.
Sue Ann Latterman, V.M.D. has served as our Vice President of Strategic
Alliances since November 1999 and as Vice President of Business Development from
May 1999 to October 1999. From August 1998 to April 1999, she served as Chief
Operating Officer of CrossCart, Inc. From March 1996 to July 1998, Dr. Latterman
worked as a consultant to the medical device industry and from October 1994 to
March 1996, she served as Vice President of Clinical Affairs of Percusurge, Inc.
From July 1993 to September 1994, she worked as an associate at Mohr Davidow
Ventures, a private venture capital firm, and from January 1993 to June 1993, as
a consultant to the biotechnology industry. From November 1990 to December 1992,
she served as Manager of Market Research of Hybritech Incorporated. From July
1989 to August 1990, Dr. Latterman attended business school and from May 1985 to
June 1989, she practiced veterinary medicine in Pittsburgh, Pennsylvania and
Ringoes, New Jersey. Dr. Latterman holds a B.A. and V.M.D. from the University
of Pennsylvania and an M.B.A. from the University of Pittsburgh.
Ralph E. Lewis has served as our Vice President of Distribution and
Logistics since November 1999. From January 1998 to October 1999, he served as
Vice President of Operations for Office Depot, Inc. From June 1995 to December
1997, he served as Vice President and General Manager of Softworld Services,
Inc. and from June 1992 to May 1995, as General Manager of Neodata Services,
Inc. From January 1992 to May 1992, Mr. Lewis served as a consultant to Egghead
Discount Software, Inc. From August 1986 to May 1992, Mr. Lewis served as Vice
President of Distribution for Egghead Discount Software, Inc., from June 1981 to
July 1986, as Divisional Vice President of Operations for Pay 'N Save
Corporation and from April 1977 to May 1981, as Operations Manager of
Distribution for Save On Drugs, Inc. Mr. Lewis holds a B.S. from the University
of Dayton.
Paul W. Melmon has served as our Vice President of Engineering since April
1999. From August 1998 to April 1999, he served as an Entrepreneur in Residence
at Sutter Hill Ventures, L.L.C., a private venture capital firm. From November
1996 to July 1998, Mr. Melmon served as Vice President of
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<PAGE> 50
Engineering of Wallop Software, Inc. and from July 1994 to October 1996, as
Director of Engineering of Scopus Technology, Inc. From October 1989 to July
1994, he held various technical positions at Sybase, Inc. and from November 1984
to October 1989, he served as a member of the technical staff at Hewlett-
Packard Company. Mr. Melmon holds a B.S. from the University of California at
Davis.
Kathryn C. Ringewald has served as our Vice President of Human Resources
since April 1999. From June 1997 to April 1999, she served as Director of Human
Resources of Form Factor, Inc. From August 1996 to May 1997, she served as
Director of Human Resources of Berkeley Systems, Incorporated and from June 1995
to August 1996, as Vice President of Human Resources of Crystal Dynamics, Inc.
From February 1994 to May 1995, Ms. Ringewald worked as a Director of Talent for
Lucas Arts Entertainment Company and from October 1992 to February 1994, as a
human resources consultant to various industries. From January 1990 to October
1992, she worked as a Human Resources Manager for Symantec Corporation and from
June 1985 to January 1990, she served in various capacities at Apple Computer,
Inc. Ms. Ringewald holds a B.A. from Dominican College.
John B. Balousek has served as one of our directors since October 1999. Mr.
Balousek, a founder of PhotoAlley, Inc., served as its Executive Vice President
from July 1998 to March 1999. He served as Chairman and Chief Executive Officer
of True North Technologies, Inc. from March 1996 to June 1996. From March 1979
to March 1996, Mr. Balousek worked for Foote, Cone & Belding Communications,
Inc. and served as its President and Chief Operating Officer from February 1991
to March 1996. He served as a director of Foote, Cone & Belding from May 1989 to
May 1994, and then served as a director of True North Communications, Inc., a
newly-created holding company of Foote, Cone & Belding, from June 1994 to
February 1997. Mr. Balousek is also a director of Micron Electronics, Inc.,
Geoworks Corporation, FreeShop.com, Inc., Transilluminant Corporation, Worldwide
Magnifi, Inc., and EDBH, Inc. He holds a B.A. from Creighton University and an
M.S. from Northwestern University.
Mark J. Britto has served as one of our directors since January 2000,
replacing Randy Tinsley of Amazon.com who served on our board from April 1999
until January 2000. Mr. Britto serves as Vice President of Strategic Alliances
of Amazon.com and oversees Amazon.com's Business and Corporate Development
Departments as well as its Fraud Management Division. Mr. Britto joined
Amazon.com in June 1999 in connection with the acquisition by Amazon.com of
Accept.com Financial Services Corporation, a company co-founded by Mr. Britto in
October 1998, where he served as Vice President of Risk Management. Prior to
that, from October 1994 through October 1998, Mr. Britto served as Executive
Vice President of Credit Policy at FirstUSA, a subsidiary of Bank One
Corporation; and from October 1991 until October 1994 he served as Senior Vice
President of Risk Management at NationsBank Corp. He holds a BS in Industrial
Engineering and Operations Research and an M.S. from the University of
California at Berkeley
Matthew T. Cowan has served as one of our directors since June 1999. Mr.
Cowan has been a general partner of Bowman Capital Management, L.L.C., a private
venture capital firm, since October 1998. From July 1994 until September 1998,
he served as a Director of Corporate Business Development for Intel Corporation.
Mr. Cowan is also a director of Support.com, Inc., ELetter Incorporated and
sixdegrees, Inc. He holds a B.A. from Tufts University.
John R. Hummer has served as one of our directors since April 1999. Mr.
Hummer is a general partner of Hummer Winblad Venture Partners, a private
venture capital firm, which he co-founded in September 1989. From 1980 until
1989 he served as partner of Glenwood Management, a private venture capital
firm. Mr. Hummer is also a director of Extensity, Inc., Industrywide Mortgage
Exchange, Inc., The National Transportation Exchange, Inc., Mambo.com, and
Netcontext, Inc. He holds a B.A. from Princeton University and an M.B.A. from
Stanford University.
BOARD COMPOSITION
Our bylaws currently provide for a board of directors consisting of five
directors. Each director is elected for a period of one year at our annual
meeting of stockholders and serves until the next annual meeting or until his or
her successor is duly elected and qualified. The executive officers serve at the
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<PAGE> 51
discretion of the board of directors. There are no family relationships among
any of our directors or executive officers.
BOARD COMPENSATION
Except for reimbursement for reasonable travel expenses relating to
attendance at board and committee meetings and the grant of stock options,
directors are not compensated for their services as directors. Our directors are
eligible to participate in our 1999 Stock Plan and, upon the closing of this
offering, directors who are employees of Pets.com will also be eligible to
participate in our 2000 Employee Stock Purchase Plan. Julia Wainwright is the
only director who is currently an employee. We have issued and sold to Ms.
Wainwright 925,618 shares of common stock under our 1999 Stock Plan at a price
of $0.01 per share. Ms. Wainwright's shares are subject to our right of
repurchase at the original purchase price in the event that Ms. Wainwright's
employment with Pets.com terminates. Our repurchase right lapses with respect to
25% of the shares purchased by Ms. Wainwright on March 10, 2000 and with respect
to 1/48th of the shares on the 10th day of each month after that date. In
addition, our repurchase right will lapse with respect to 50% of the remaining
unvested shares held by Ms. Wainwright if she is terminated without cause within
twelve months after a merger or sale of Pets.com resulting in a change of
control. We have also granted to Mr. Balousek an option to purchase up to 36,000
shares of common stock at an exercise price of $1.88 per share under our 1999
Stock Plan. Mr. Balousek's stock option vests at the rate of 25% of the shares
subject to this option on October 29, 2000 and 1/48th of the shares subject to
this option on the 29th day of each month after that date. For additional
information, see "Stock Plans."
BOARD COMMITTEES
In May 1999, our board of directors established an audit committee and a
compensation committee. The audit committee reviews our annual audited financial
results and unaudited quarterly results, and meets with our independent auditors
to review our financial statements, internal controls and financial management
practices. Our audit committee currently consists of John Balousek, John Hummer
and Mark Britto. Our compensation committee reviews and recommends to the board
the compensation arrangements for our management team and administers our stock
plans. Our compensation committee currently consists of John Hummer and Mark
Britto.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of our board of directors are
currently John Hummer and Mark Britto. Neither of them has at any time been an
officer or employee of Pets.com or any subsidiary of Pets.com. However, we have
issued and sold in private placement transactions shares of preferred stock to
entities affiliated with Hummer Winblad Venture Partners and to Amazon.com. Mr.
Hummer is a general partner of Hummer Winblad Venture Partners which manages
three investment funds that have purchased shares of our preferred stock, and
Mr. Britto is Vice President of Strategic Alliances of Amazon.com that has
purchased shares of our preferred stock and entered into an advertising
agreement with us. The following is a summary of the stock purchase transactions
between us and entities affiliated with Hummer Winblad Venture Partners, and
between us and Amazon.com.
Entities Affiliated with Hummer Winblad Venture Partners
- March 10, 1999: we issued a convertible promissory note in the principal
amount of $142,500 to Hummer Winblad Venture Partners III, L.P. and a
second convertible promissory note in the principal amount of $7,500 to
Hummer Winblad Technology Fund III, L.P., which notes were canceled and
converted into shares of Series A preferred stock at $1.81 per share on
April 22, 1999.
- March 19, 1999: we issued a convertible promissory note in the principal
amount of $237,500 to Hummer Winblad Venture Partners III, L.P. and a
second convertible promissory note in the principal amount of $12,500 to
Hummer Winblad Technology Fund III, L.P., which notes were canceled and
converted into shares of Series A preferred stock at $1.81 per share on
April 22, 1999.
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- April 22, 1999: we issued and sold to Hummer Winblad Venture Partners
III, L.P. 1,911,602 shares of Series A preferred stock and to Hummer
Winblad Technology Fund III, L.P. 100,610 shares of Series A Preferred
Stock, all at $1.81 per share, which included cancellation and conversion
of the promissory notes issued to each entity respectively on March 10,
1999 and March 19, 1999 (including conversion of accrued interest on the
promissory notes).
- June 18, 1999: we issued and sold to Hummer Winblad Venture Partners III,
L.P. and Hummer Winblad Technology Fund III, L.P. 719,735 shares and
37,881 shares, respectively, of our Series B preferred stock at $9.44 per
share.
- November 5, 1999: we issued and sold to Hummer Winblad Venture Partners
IV, L.P. 807,040 shares of Series B preferred stock at $9.44 per share
and a convertible promissory note in the principal amount of $2,383,565,
which note was cancelled and converted into shares of Series B Preferred
Stock at $9.44 per share on December 8, 1999.
- December 8, 1999: we issued and sold to Hummer Winblad Venture Partners
IV, L.P. 1,100,246 shares of Series B Preferred Stock at $9.44 per share,
which included cancellation and conversion of the promissory note issued
to this investor on November 5, 1999.
Amazon.com
- April 22, 1999: we issued and sold to Amazon.com 3,521,373 shares of
Series A preferred stock at $1.81 per share.
- June 18, 1999: we issued and sold to Amazon.com 3,782,782 shares of
Series B preferred stock at $9.44 per share.
- November 5, 1999: we issued and sold to Amazon.com 1,353,630 shares of
Series B preferred stock at $9.44 per share and a convertible promissory
note in the principal amount of $2,975,115, which note was canceled and
converted into 315,244 shares of Series B preferred stock on December 8,
1999.
For additional information concerning compensation committee interlocks and
insider participation in compensation decisions, please refer to our discussion
of entities affiliated with Hummer Winblad Venture Partners and Amazon.com under
"Related Party Transactions."
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<PAGE> 53
EXECUTIVE COMPENSATION
The following table provides summary information concerning the
compensation to be received for services rendered to us during the fiscal year
ending December 31, 1999 by each person who served as our chief executive
officer, or who acted in a similar capacity, and each of the other four most
highly compensated executive officers, collectively, the "named officers," each
of whose aggregate compensation during our last fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- -------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Julia L. Wainwright.................. $147,568 $ -- $ -- -- $ --
Chief Executive Officer
Christopher E. Deyo.................. 134,009 -- -- 523,175 --
President
Paul W. Melmon....................... 111,009 -- -- 223,160 --
Vice President, Engineering
John A. Hommeyer..................... 103,395 20,000 -- 140,000 25,000
Vice President, Marketing
Diane R. Hourany..................... 99,802 10,000 -- 125,763 320
Vice President, Operations
Gregory McLemore..................... 39,231 -- -- -- --
President
</TABLE>
Mr. McLemore served as President of Pets.com from February 1999 until April
1999. On an annualized basis, Mr. McLemore's salary would have been $150,000.
Paul Manca was hired as our Chief Financial Officer in August 1999. On an
annualized basis, Mr. Manca's salary would have been $175,000.
Ralph Lewis was hired as our Vice President of Distribution and Logistics
in November 1999. On an annualized basis, Mr. Lewis' salary would have been
$200,000.
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OPTION GRANTS
The following table provides summary information regarding stock options
granted to each of the named officers during the fiscal year ended December 31,
1999. The options were granted pursuant to our 1999 Stock Plan. All options are
immediately exercisable; however, the underlying shares are subject to our right
of repurchase at the original purchase price. Our repurchase right will lapse
with respect to 25% of the shares on the one year anniversary of the vesting
commencement date, and with respect to 1/48th of the shares each month
thereafter. Stock price appreciation of 5% and 10% is assumed pursuant to rules
promulgated by the Securities and Exchange Commission and does not represent our
prediction of our stock performance. There is no assurance provided to any
holder of our securities that the actual stock price appreciation over the
ten-year option terms will be at the assumed 5% and 10% levels or at any other
defined level.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Julia L. Wainwright........ -- --% $ -- -- $ -- $ --
Christopher E. Deyo........ 523,175 15.7 0.19 05/12/09 8,422,566 13,470,409
Paul W. Melmon............. 191,160 5.8 0.19 05/12/09 3,077,475 4,921,878
32,000 1.0 0.94 07/29/09 491,166 799,918
John A. Hommeyer........... 120,000 3.6 0.19 05/18/09 1,931,874 3,089,691
20,000 0.6 1.88 11/06/09 288,179 481,148
Diane R. Hourany........... 125,760 3.8 0.19 05/12/09 2,024,652 3,238,073
Gregory McLemore........... -- -- -- -- -- --
</TABLE>
In August 1999, we granted the right to purchase 200,000 shares of our
common stock to Paul Manca, our Chief Financial Officer at an exercise price of
$0.94 per share, which shares are subject to our right of repurchase at the
original purchase price in the event that Mr. Manca's employment with us
terminates. Our repurchase right lapses with respect to 25% of the shares in
August 2000 and with respect to 1/48th of the shares monthly thereafter. In
November 1999, we granted an option exercisable for 140,000 shares of our common
stock to Ralph Lewis, our Vice President of Distribution and Logistics. We
granted options and restricted stock awards for an aggregate of 4,253,128 shares
to our employees and consultants under our 1999 Stock Plan during our fiscal
year ended December 31, 1999. See "Stock Plans." Options were granted at an
exercise price equal to the fair market value of the common stock, as determined
by our board of directors on the date of grant.
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<PAGE> 55
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR OPTION VALUES
The following table provides summary information concerning the shares of
common stock acquired in the year ended December 31, 1999, the value realized
upon exercise of stock options during that period, and the number and value of
unexercised options with respect to each of the named officers as of December
31, 1999. The value was calculated by determining the difference between the
fair market value of underlying common stock and the exercise price. All options
are immediately exercisable; however, the underlying shares are subject to our
right of repurchase at the original purchase price. Our repurchase right will
lapse with respect to 25% of the shares on the one year anniversary of the
vesting commencement date, and with respect to 1/48th of the shares each month
thereafter.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Julia L. Wainwright............. -- $-- -- -- $ -- $--
Christopher E. Deyo............. 523,175 0 -- -- -- --
Paul W. Melmon.................. 191,160 0 32,000 -- 289,920 --
John A. Hommeyer................ 120,000 0 20,000 -- 162,400 --
Diane R. Hourany................ 125,763 0 -- -- -- --
Gregory McLemore................ -- -- -- -- -- --
</TABLE>
STOCK PLANS
1999 Stock Plan. Our 1999 Stock Plan was adopted by our board of directors
in February 1999 and approved by our stockholders in March 1999. The plan was
amended at various times after February 1999 to increase the number of shares
reserved for issuance thereunder. These amendments were approved by our
stockholders. A total of 5,815,327 shares of common stock has been reserved for
issuance under our stock plan. As of December 31, 1999, options to purchase
3,163,927 shares of common stock had been exercised, options to purchase a total
of 983,400 shares at a weighted average exercise price of $1.86 per share were
outstanding and 1,668,000 shares remained available for future grants under the
plan.
In connection with this offering, our board amended the stock plan to
provide for, among other things, an automatic annual increase in the number of
shares of common stock reserved for issuance on the first day of each of our
fiscal years beginning in 2001 and ending in 2009 equal to the lesser of:
- 800,000 shares;
- 3% of the shares outstanding on the last day of the immediately preceding
fiscal year; or
- a lesser number of shares as determined by our board of directors.
The purposes of our stock plan are to attract and retain the best available
personnel, to provide additional incentives to our employees and consultants and
to promote the success of our business. Our stock plan provides for the granting
to employees, including officers and employee directors, of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and for the granting to employees and consultants, including
non-employee directors, of nonstatutory stock options and stock purchase rights.
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 (under all plans of Pets.com and 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 nonstatutory stock options.
If not terminated earlier, our stock plan will terminate in February 2009.
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<PAGE> 56
Our stock plan may be administered by the board of directors or a committee
of the board. Our stock plan is currently administered by our board of
directors. The administrator determines the terms of options granted under our
stock plan, including the number of shares subject to the option, exercise
price, term and exercisability. In no event, however, may an individual employee
receive option grants for more than 2,000,000 shares under the stock plan in any
fiscal year. The exercise price of all incentive stock options granted under our
stock plan must be at least equal to the fair market value of our common stock
on the date of grant. The exercise price of any incentive stock option granted
to an optionee who owns stock representing more than 10% of the total combined
voting power of all classes of our outstanding capital stock must equal at least
110% of the fair market value of the common stock on the date of grant. The
exercise price of all nonstatutory stock options and stock purchase rights shall
be the price determined by the administrator, provided, however, that the
exercise price of any nonstatutory stock option or stock purchase right granted
to a named officer must equal at least 100% of the fair market value of the
common stock on the date of grant in order for that grant to qualify as
performance-based compensation under applicable tax law. Payment of the exercise
price may be made in cash or other consideration as determined by the
administrator.
The administrator determines the term of options, which may not exceed 10
years (5 years in the case of an incentive stock option granted to an optionee
who owns stock representing more than 10% of the total combined voting power of
all classes of our outstanding capital stock). Options and stock purchase rights
are generally nontransferable. The administrator may grant nonstatutory stock
options and stock purchase rights with limited transferability rights in
circumstances specified in the stock plan. Each option and stock purchase right
may generally be exercised during the lifetime of the optionee only by the
optionee or a permitted transferee. The administrator determines the vesting
terms of options and stock issued pursuant to stock purchase rights. Options
granted under the 1999 Stock Plan generally 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 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. Options granted under the 1999 Stock Plan generally vest at the rate of
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.
In addition to stock options, the administrator may issue stock purchase
rights under the 1999 Stock Plan to employees, non-employee directors and
consultants. The administrator determines the number of shares, price, terms,
conditions and restrictions related to the grant of stock purchase rights. The
purchase price of a stock purchase right granted under the 1999 Stock Plan will
be determined by the administrator. The period during which the stock purchase
right is held open is determined by the administrator, but in no case shall this
period exceed 30 days. Unless the administrator determines otherwise, the
recipient of a stock purchase right must execute a restricted stock purchase
agreement granting Pets.com an option to repurchase unvested shares at cost upon
termination of recipient's relationship with us.
In the event of a change of control due to the sale of all or substantially
all of our assets or merger of Pets.com with another corporation, then each
option may be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation does not agree to an assumption or
substitution, each outstanding stock option will terminate on the effective date
of the transaction. Some option agreements issued by the administrator provide
for limited acceleration of vesting following a change of control transaction.
The administrator has the authority to amend or terminate our stock plan as
long as this action would not adversely affect any outstanding option or stock
purchase right and provided that stockholder approval is required for some
amendments to the extent required by applicable law.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan
was adopted by the board of directors in December 1999 and approved by our
stockholders in December 1999. A total of 400,000 shares of common stock have
been reserved for issuance under our purchase plan, plus an
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<PAGE> 57
automatic annual increase on the first day of each of our fiscal years beginning
in 2001 and ending in 2010 equal to the lesser of:
- 240,000 shares;
- 1% of the shares outstanding on the last day of the immediately preceding
fiscal year; or
- a lesser number of shares as determined by our board.
Our purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, will be implemented by a series of overlapping offering
periods of 24 months' duration, with new offering periods (other than the first
offering period) commencing on February 1 and August 1 of each year. Each
offering period will consist of four consecutive purchase periods of six months
duration. The initial offering period is expected to commence on the date of
this offering and end on January 31, 2002, and the initial purchase period is
expected to end on July 31, 2000. The purchase plan will be administered by the
board of directors or by a committee appointed by the board. Our employees
(including officers and employee directors), and the employees of any
majority-owned subsidiary designated by the 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 20% of an employee's compensation, at a price equal to the
lower of 85% of the fair market value of our common stock at the beginning of
each offering period or at the end of each purchase period. In circumstances
described in the purchase plan, the purchase price may be adjusted during an
offering period to avoid our incurring adverse accounting charges. 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. If
not terminated earlier, the purchase plan will have a term of ten years.
The purchase plan provides that in the event of our merger 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
does not agree to assume or substitute stock purchase rights, our board of
directors will shorten the offering periods then in effect so that employees'
rights to purchase stock under the purchase plan are exercised prior to the
merger or sale of assets. The board of directors has the power to amend or
terminate the purchase plan as long as such action does not adversely affect any
outstanding rights to purchase stock thereunder, provided however, that the
board of directors may amend or terminate the purchase plan or an offering
period even if it would adversely affect outstanding options in order to avoid
our incurring adverse accounting charges.
EMPLOYEE BENEFIT PLANS
401(k) Plan. We maintain a 401(k) tax-qualified employee savings and
retirement plan covering all employees who satisfy eligibility requirements
relating to minimum age and length of service. Pursuant to our 401(k) plan,
eligible employees may elect to contribute up to 20% 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 the 401(k) plan
contributions are not taxable until withdrawn. The 401(k) plan is available to
our executive officers on terms not more favorable than those offered to other
employees. We may elect to make contributions to the 401(k) plan at the
discretion of our board of directors. No contributions have been made by us as
of December 31, 1999. All employee contributions are 100% vested.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
We have entered into the following employment and change of control
arrangements with our current officers. For a description of arrangements with
our former officers, directors and substantial stockholders, see "Related Party
Transactions."
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<PAGE> 58
In March 1999, we entered into a letter agreement with Julia Wainwright,
our Chief Executive Officer. Under the agreement, Ms. Wainwright receives an
annual salary of $185,000 and she was granted the right to purchase 925,618
shares of common stock at a purchase price of $0.01 per share, which shares are
subject to our right of repurchase at the original purchase price in the event
that Ms. Wainwright's employment with us terminates. Our repurchase right lapses
with respect to 25% of the shares on March 10, 2000 and with respect to 1/48th
of the shares monthly thereafter. In the event of a change of control, 50% of
any remaining unvested shares held by Ms. Wainwright will accelerate and vest.
In March 1999, we entered into a letter agreement with Christopher Deyo,
our President. Under the agreement, Mr. Deyo receives an annual salary of
$185,000 and was granted an option to purchase 523,175 shares of common stock at
an exercise price of $0.19 per share, 25% of which vest after one year of
service, and 1/48th of the shares subject to the option vest every month
thereafter. In the event of a change of control, 50% of any remaining unvested
shares will accelerate and vest.
In August 1999, we entered into a letter agreement with Paul Manca, our
Chief Financial Officer. Mr. Manca receives an annual salary of $175,000 and was
granted the right to purchase 200,000 shares of common stock at an exercise
price of $0.94 per share, which shares are subject to our right of repurchase at
the original purchase price in the event that Mr. Manca's employment with us
terminates. Our repurchase right lapses with respect to 25% of the shares in
August 2000 and with respect to 1/48th of the shares monthly thereafter.
In April 1999, we entered into a letter agreement with John Benjamin, our
Vice President of Merchandising. Under the agreement, Mr. Benjamin receives an
annual salary of $125,000, relocation expenses of $25,000 and was granted an
option to purchase 72,000 shares of common stock at an exercise price of $0.19
per share, 25% of which vest after one year of service and 1/48th of the shares
subject to the option vest every month thereafter.
In March 1999, we entered into a letter agreement with John Hollon, our
Vice President of Editorial. Under the agreement, Mr. Hollon receives an annual
salary of $100,000, received a signing of bonus of $10,000 and was granted an
option to purchase 100,000 shares of common stock at an exercise price of $0.19
per share, 25% of which vest after one year of service and 1/48th of the shares
subject to the option vest every month thereafter.
In May 1999, we entered into a letter agreement with John Hommeyer, our
Vice President of Marketing. Under the agreement, Mr. Hommeyer receives an
annual salary of $165,000 and received a bonus of $20,000 and relocation
expenses of $25,000. Mr. Hommeyer also was granted an option to purchase 120,000
shares of common stock at an exercise price of $0.19 per share, 25% of which
vest after one year of service and 1/48th of the shares subject to the option
vest every month thereafter. In the event Mr. Hommeyer is terminated with or
without cause within one year after a change of control in connection with our
merger or sale or if our office is moved more than fifty miles from our current
San Francisco location, Mr. Hommeyer will receive severance equal to three
months of his current monthly salary.
In April 1999, we entered into a letter agreement with Diane Hourany, our
Vice President of Customer Service. Under the agreement, Ms. Hourany receives an
annual salary of $150,000, received a bonus of $10,000 and an option to purchase
125,763 shares of common stock at an exercise price of $0.19 per share, 25% of
which vest after one year of service and 1/48th of the shares subject to the
option vest every month thereafter. In the event of a change in control, 25% of
Ms. Hourany's remaining unvested shares will accelerate and become fully vested.
In the event Ms. Hourany is terminated with or without cause within one year
after a change of control in connection with our merger or sale or if our office
is moved more than fifty miles from our current San Francisco location, Ms.
Hourany will receive severance equal to three months of her current monthly
salary.
In May 1999, we entered into a letter agreement with Sue Ann Latterman, our
Vice President of Strategic Alliances. Under the agreement, Ms. Latterman
receives an annual salary of $150,000, received a bonus of $10,000 and was
granted an option to purchase 120,000 shares of common stock at an exercise
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<PAGE> 59
price of $0.19 per share, 25% of which vest after one year of service and 1/48th
of the shares subject to the option vest every month thereafter. In the event
Ms. Latterman is terminated with or without cause within one year after a change
of control in connection with our merger or sale or if our office is moved more
than fifty miles from our current San Francisco location, Ms. Latterman will
receive severance equal to three months of her current monthly salary.
In November 1999, we entered into a letter agreement with Ralph Lewis, our
Vice President of Distribution and Logistics. Under the agreement, Mr. Lewis
receives an annual salary of $200,000, received a bonus of $20,000, relocation
expenses of $75,000, and was granted an option to purchase 140,000 shares of
common stock at an exercise price of $1.88 per share, 25% of which vest after
one year of service and 1/48th of the shares subject to the option vest every
month thereafter. In the event of a change of control, 50% of any remaining
unvested shares held by Mr. Lewis will accelerate and vest. In the event Mr.
Lewis is terminated with or without cause within one year after a change of
control in connection with our merger or sale or if our office is moved more
than fifty miles from our current San Francisco location, Mr. Lewis will receive
severance equal to three months of his current salary.
In April 1999, we entered into a letter agreement with Paul Melmon, our
Vice President of Engineering. Under the agreement, Mr. Melmon receives an
annual salary of $160,000 and was granted an option to purchase 191,160 shares
of common stock at an exercise price of $0.19 per share, 25% of which vest after
one year of service and 1/48th of the shares subject to the option vest every
month thereafter.
In March 1999, we entered into a letter agreement with Kathryn Ringewald,
our Vice President of Human Resources. Under the agreement, Ms. Ringewald
receives an annual salary of $120,000 and was granted an option to purchase
100,610 shares of common stock at an exercise price of $0.19 per share, 25% of
which vest after one year of service and 1/48th of the shares subject to the
option vest every month thereafter.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, we have included in
our restated certificate of incorporation a provision to eliminate the personal
liability of our officers and directors for monetary damages for breach or
alleged breach of their fiduciary duties as officers or directors, respectively,
subject to exceptions set forth in the restated certificate. In addition, our
bylaws provide that we are required to indemnify our officers and directors
under circumstances specified in our bylaws, including those circumstances in
which indemnification would otherwise be discretionary, and we are required to
advance expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. We have entered into
indemnification agreements with our officers and directors and those provisions
in the indemnification agreements permitting indemnification for settlement
payments in shareholder derivative suits and the payment of partial
indemnification, are broader than the statutory indemnification specifically
provided for in Delaware law. The indemnification agreements require that we,
among other things, indemnify such officers and directors against liabilities
that may arise by reason of their status or service as officers and directors
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. We intend to obtain directors' and
officers' liability insurance prior to the completion of this offering. At
present, we are not aware of any pending or threatened litigation or proceeding
involving any of our directors, officers, employees or agents in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
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<PAGE> 60
RELATED PARTY TRANSACTIONS
The following describes the significant transactions entered into between
us and our directors, executive officers, stockholders and affiliates of our
stockholders. All future transactions, other than compensation, stock options
pursuant to our plans and other benefits to employees, generally will be
approved by a majority of our board of directors including a majority of our
independent and disinterested directors. If required by law, future transactions
will be approved by a majority of our stockholders.
STOCK ISSUANCES TO OUR DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
Some stock option grants to our directors and executive officers are
described under the caption "Management -- Executive Compensation."
Since our inception, we have issued and sold shares of our common stock and
granted options to purchase common stock to our employees, directors and
consultants from time to time. In addition, we have issued in private placement
transactions, shares of preferred stock as follows: an aggregate of 5,781,862
shares of Series A preferred stock at $1.81 per share in April 1999, an
aggregate of 10,518,678 shares of Series B preferred stock at $9.44 per share in
June, November and December 1999, and an aggregate of 1,102,400 shares of Series
C preferred stock at $10.00 per share in January 2000. The following table
summarizes the shares of common stock and preferred stock purchased by our named
executive officers, directors and 5% stockholders and persons and entities
associated with them:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
COMMON PREFERRED PREFERRED PREFERRED
STOCKHOLDER STOCK STOCK STOCK STOCK
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Amazon.com, Inc. (Mark J. Britto)........ -- 3,521,373 5,451,656 --
Entities Affiliated with Bowman Capital
Management, L.L.C. (Matthew T.
Cowan)................................. -- -- 1,382,782 --
Entities Affiliated with Hummer Winblad
Venture Partners (John R. Hummer)...... -- 2,012,213 2,664,902 --
Gregory McLemore......................... 1,288,470 220,690 -- --
Catalyst Investments, L.L.C.............. -- -- -- 1,102,400
</TABLE>
DEBT FINANCINGS
In March 1999 we issued and sold convertible promissory notes to our
following named executive officers, directors and 5% stockholders and persons
and entities associated with them, in the amounts set forth opposite each
party's name. The promissory notes were canceled and converted into shares of
our Series A preferred stock at $1.81 per share on April 22, 1999.
<TABLE>
<CAPTION>
AMOUNT OF
STOCKHOLDER PROMISSORY NOTE(S)
----------- ------------------
<S> <C>
Entities Affiliated with Hummer Winblad Venture Partners
(John R. Hummer).......................................... $450,000.00
</TABLE>
In November 1999 we issued and sold convertible promissory notes to our
following named executive officers, directors and 5% stockholders and persons
and entities associated with them, in the amounts set forth opposite each
party's name. The promissory notes were cancelled and converted into shares of
our Series B preferred stock at $9.44 per share on December 8, 1999.
<TABLE>
<CAPTION>
AMOUNT OF
STOCKHOLDER PROMISSORY NOTE(S)
----------- ------------------
<S> <C>
Amazon.com, Inc............................................. $2,975,115.25
Entities Affiliated with Bowman Capital Management,
L.L.C....................................................... $1,430,136.10
Entities Affiliated with Hummer Winblad Venture Partners.... $2,383,565.20
</TABLE>
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<PAGE> 61
TRANSACTIONS WITH DIRECTORS AND OFFICERS
Affiliate Relationships. The following members of our board of directors
are affiliated with investors that participated in the transactions listed
above: Mark J. Britto (Amazon.com, Inc.), Matthew T. Cowan (entities affiliated
with Bowman Capital Management, L.C.C.) and John Hummer (entities affiliated
with Hummer Winblad Venture Partners).
In April 1999, we entered into an advertising agreement with Amazon.com
pursuant to which we and Amazon.com agreed to display advertising of the other
party on our respective Web sites and to provide other related promotional
services. For more information on this relationship, see
"Business -- Relationship with Amazon.com" and "Risk Factors -- We Depend on Our
Relationship with Amazon.com to Provide Operational Expertise, Attract and
Retain a Significant Number of Our Customers and Build Our Brand."
In connection with our Series A, Series B and Series C preferred stock
financings, we entered into an agreement, as amended, dated January 18, 2000
with our preferred stockholders and a holder of our common stock in which we
agreed, among other things and subject to applicable laws, rules and
regulations, to use reasonable efforts to cause the underwriters in this
offering to offer to Amazon.com that number of shares of our common stock such
that Amazon.com would hold 46% of our outstanding common stock immediately after
this offering and to entities affiliated with Bowman Capital Management, L.L.C.
2.5% of the shares offered in this offering. Both Amazon.com and the Bowman
parties have waived their respective rights to purchase shares of our capital
stock in this offering, and they have thereby extinguished any successive rights
of first refusal to purchase shares of our capital stock after this offering to
which they might otherwise have been entitled. Pursuant to the agreement,
Amazon.com also may not increase its ownership of our stock above the 46%
threshold until the earliest to occur of the second anniversary of the closing
date of our initial public offering, immediately following a change of control
in connection with our merger or sale, or April 22, 2003. Until this occurs, we
are required to provide notice to Amazon.com of any merger or sale that would
result in our change of control. Additional terms of the agreement require that
Amazon.com gives us notice of its purchase of any additional shares of our stock
and complies with restrictions to allow us to qualify for pooling accounting
treatment in the event of our merger or sale. In connection with proxy contests,
tender offers or exchange offers, however, Amazon.com is not subject to the 46%
threshold limit.
For information on employment and change in control arrangements with our
officers, see "-- Employment and Change of Control Arrangements."
OTHER TRANSACTIONS
In February 1999, we issued 1,288,470 shares of our common stock to Greg
McLemore in consideration of the transfer to us of the Pets.com Web store and
certain domain names and software assets pursuant to a bill of sale and
assignment by Mr. McLemore and Koala Computer Products, a sole proprietorship of
which Mr. McLemore is sole proprietor.
In April 1999, we issued 220,690 shares of our Series A preferred stock to
Mr. McLemore in consideration of the transfer to us by Mr. McLemore of domain
names previously registered by Mr. McLemore that are relevant to our business
and agreements concerning domain names pursuant to a bill of sale and
assignment.
We have reimbursed operating expenses of approximately $175,000 that were
paid on our behalf by Koala Computer Products, of which Mr. McLemore is the sole
proprietor, between February 1999 and the relocation of our executive offices to
San Francisco in April 1999.
Mr. McLemore and Webmagic, a corporation of which Mr. McLemore is the sole
shareholder, have agreed to indemnify us for up to $500,000 in connection with a
third-party online promotional agreement entered into by Webmagic and the third
party relating to the Pets.com business conducted by Mr. McLemore and Webmagic
prior to April 1999.
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<PAGE> 62
In November 1999, we loaned $187,500 to Paul Manca, our Chief Financial
Officer. Mr. Manca used the loan proceeds to exercise in November 1999 options
held by him to purchase 200,000 shares of our common stock at an exercise price
of $0.94 per share. These shares are subject to our right of repurchase at the
original purchase price in the event that Mr. Manca's employment with us
terminates. Our repurchase right lapses with respect to 25% of the shares in
August 2000 and with respect to 1/48th of the shares monthly thereafter. The
loan is full recourse, accrues interest at the rate of 6.08% compounded
annually, and matures in November 2003 or on Mr. Manca's termination of
employment. The loan is secured by the 200,000 shares of common stock held by
Mr. Manca.
In January 2000, we entered into a distribution agreement with Infoseek
Corporation and Buena Vista Internet Group pursuant to which we engage in
promotions involving GO.com online properties and have agreed to engage in
future joint content development and placement of media advertising with ABC,
Inc. which, along with GO.com, is an affiliate of The Walt Disney Company. As
part of the agreement, we sold 1,102,400 shares of Series C preferred stock to
Catalyst Investments, L.L.C., an affiliate of Disney, in exchange for placement
of media advertising on ABC, Inc.
Each of the related party transactions described in this section was
negotiated at "arms-length" and we believe that each of the foregoing
transactions has been made pursuant to terms that are no less favorable to us
than would have been reasonably available from non-affiliated third parties.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with our officers and
directors that contain provisions which may require us, among other things, to
indemnify our officers and directors against 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. See "Management -- Limitation of Liability and
Indemnification Matters."
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 18, 2000 and as adjusted to reflect
the sale of the common stock offered by us under this prospectus and upon
conversion of all outstanding shares of preferred stock into common stock by:
- each stockholder known to us to own beneficially more than 5% of our
common stock;
- each of our directors and named officers; and
- all directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table
is c/o Pets.com, Inc., 435 Brannan Street, Suite 100, San Francisco, California
94107. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. To our knowledge, except under applicable community property
laws or as otherwise indicated, the persons named in the table have sole voting
and sole investment control with respect to all shares beneficially owned by
each stockholder as of January 18, 2000. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of January 18, 2000 are deemed
outstanding. Those shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. The percent of
beneficial ownership for each stockholder is based on 22,044,737 shares of
common stock outstanding as of January 18, 2000 on an as converted basis, and
29,544,737 shares of common stock outstanding after this offering.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING OFFERING
---------------- ------------ -------- --------
<S> <C> <C> <C>
Amazon.com, Inc............................................. 8,973,029 40.7% 30.4%
1200 12th Avenue South, Suite 1200
Seattle, WA 98108-1226
Entities Affiliated with Hummer Winblad Venture Partners.... 4,677,115 21.2% 15.8%
2 South Park, 2nd Floor
San Francisco, CA 94107
Gregory McLemore............................................ 1,449,360 6.8% 5.1%
Entities Affiliated with Bowman Capital Management,
L.L.C..................................................... 1,382,782 6.3% 4.7%
1875 South Grant Street, Suite 600
San Mateo, CA 94402-7013
Catalyst Investments, L.L.C. ............................... 1,102,400 5.0% 3.7%
500 South Buena Vista Street
Burbank, CA 91521
Mark J. Britto.............................................. 8,973,029 40.7% 30.4%
John R. Hummer.............................................. 4,677,115 21.2% 15.8%
Matthew T. Cowan............................................ 1,382,782 6.3% 4.7%
John B. Balousek............................................ 36,000 * *
Julia L. Wainwright......................................... 925,618 4.2% 3.1%
Christopher E. Deyo......................................... 523,175 2.4% 1.8%
Paul W. Melmon.............................................. 223,160 1.0% *%
John A. Hommeyer............................................ 120,000 * *
Diane R. Hourany............................................ 125,763 * *
All executive officers and directors as a group (15
persons).................................................. 17,719,252 79.4% 59.4%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
The beneficial ownership for entities affiliated with Hummer Winblad
Venture Partners is comprised of 2,631,338 shares held by Hummer Winblad Venture
Partners III, L.P., 138,491 shares held by Hummer
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<PAGE> 64
Winblad Technology Fund III, L.P., and 1,907,286 shares held by Hummer Winblad
Venture Partners IV, L.P. The general partner of each of the first two funds
listed in the first sentence of this paragraph is Hummer Winblad Equity Partners
III, LLC, and the general partner of the third fund is Hummer Winblad Equity
Partners IV, LLC. The members of each of the foregoing general partners are
principals of Hummer Winblad Venture Partners.
The beneficial ownership for entities affiliated with Bowman Capital
Management, L.L.C. is comprised of 486,346 shares held by Spinnaker Technology
Fund, L.P., 297,411 shares held by Spinnaker Founders Fund, L.P., 19,921 shares
held by Spinnaker Clipper Fund, L.P., 410,158 shares held by Spinnaker
Technology Offshore Fund Limited, and 168,946 shares held by Spinnaker Offshore
Founders Fund Cayman Limited. Bowman Capital Management, L.C.C. is the general
partner of each of the first three entities and investment adviser to the last
two offshore entities listed in the first sentence of this paragraph.
The beneficial ownership for Mark J. Britto is comprised of 8,973,029
shares held by Amazon.com. Mr. Britto is a director of Pets.com and Vice
President of Strategic Alliances of Amazon.com and he disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
these shares.
The beneficial ownership for John R. Hummer is comprised of 2,631,338
shares held by Hummer Winblad Venture Partners III, L.P., 138,491 shares held by
Hummer Winblad Technology Fund III, L.P., and 1,907,286 shares held by Hummer
Winblad Venture Partners IV, L.P. Mr. Hummer is a director of Pets.com and a
member of each of Hummer Winblad Equity Partners III, LLC and Hummer Winblad
Equity Partners IV, LLC, the general partners for the three investment funds
listed in the first two sentences of this paragraph, and he disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
these shares.
The beneficial ownership for Matthew T. Cowan is comprised of 486,346
shares held by Spinnaker Technology Fund, L.P., 297,411 shares held by Spinnaker
Founders Fund, L.P., 19,921 shares held by Spinnaker Clipper Fund, L.P., 410,158
shares held by Spinnaker Technology Offshore Fund Limited, and 168,946 shares
held by Spinnaker Offshore Founders Fund Cayman Limited. Mr. Cowan is a director
of Pets.com and a member of Bowman Capital Management, L.C.C., the general
partner of each of the first three entities listed in the first sentence of this
paragraph and investment adviser to the last two entities listed in the first
sentence of this paragraph, and he disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in these shares.
The beneficial ownership for John B. Balousek includes 36,000 shares under
outstanding stock options that are currently exercisable or exercisable within
60 days of January 18, 2000.
The beneficial ownership for Paul W. Melmon includes 32,000 shares under
outstanding stock options that are currently exercisable or exercisable within
60 days of January 18, 2000.
The beneficial ownership for our executive officers and directors as a
group includes 280,000 shares under outstanding stock options that are currently
exercisable or exercisable within 60 days of January 18, 2000.
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<PAGE> 65
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of 150,000,000 shares of common stock, $0.00125 par value per share, and
5,000,000 shares of undesignated preferred stock, $0.00125 par value per share.
COMMON STOCK
As of January 18, 2000, there were 22,044,737 shares of common stock
outstanding held of record by 139 stockholders. Options to purchase an aggregate
of 973,000 shares of common stock were also outstanding. There will be
29,544,737 shares of common stock outstanding, assuming no exercise of the
underwriter's option to purchase additional shares, or exercise of outstanding
options under our stock plans after January 18, 2000, after giving effect to the
sale of the shares of common stock offered to the public in this prospectus.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for that
purpose. In the event of liquidation, dissolution or winding up of Pets.com, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to the prior distribution rights of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of common
stock are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of the offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock. The board of directors will also have the authority
to designate the rights, preferences, privileges and restrictions of each series
of preferred stock, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series.
The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change of control of Pets.com without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
some circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of the
offering, no shares of preferred stock will be outstanding and we currently have
no plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
As of January 18, 2000, the holders of 18,691,410 shares of common stock or
their transferees are entitled to rights with respect to the registration of
those shares under the Securities Act. These rights are provided under the terms
of an agreement between the holders of these registrable securities and us.
Subject to limitations in the agreement, the holders of at least 33 1/3% of the
then outstanding registrable securities may require, on two occasions beginning
six months after the date of this prospectus, that we use our best efforts to
register these securities for public resale if Form S-3 is not available. If we
register any of our common stock either for our own account or for the account
of other security holders, all holders of these securities are entitled to
include their shares of common stock in that registration, subject to the
ability of the underwriters to limit the number of shares included in the
offering. The holders of at least 30% of the then outstanding registrable
securities may also require that we, not more than twice in any twelve-month
period, register all or a portion of such securities on Form S-3 when the use of
that form becomes available to us, provided, among other limitations, that the
proposed aggregate selling price, net
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<PAGE> 66
of any underwriters' discounts or commissions, is at least $1,000,000. We will
be responsible for paying all registration expenses, and the holders selling
their shares will be responsible for paying all selling expenses.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND OUR CHARTER DOCUMENTS
Provisions of Delaware law and our charter documents could make the
acquisition of Pets.com and the removal of incumbent officers and directors more
difficult. These provisions are expected to discourage coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of Pets.com to negotiate with us first. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure
Pets.com outweigh the disadvantages of discouraging such proposals because,
among other things, negotiation of such proposals could result in an improvement
of their terms.
Delaware Law. We are subject to the provisions of Section 203 of the
Delaware law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, subject to exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior, did own, 15% or more of the corporation's voting
stock. These provisions may have the effect of delaying, deferring or preventing
a change of control of Pets.com without further action by the stockholders.
Charter Documents. Our amended and restated certificate of incorporation
provides that stockholder action can be taken only at an annual or special
meeting of stockholders and may not be taken by written consent. Our bylaws
provide that special meetings of stockholders can be called only by the board of
directors, the chairman of the board, if any, the president and holders of 50%
of the votes entitled to be cast at a meeting. Moreover, the business permitted
to be conducted at any special meeting of stockholders is limited to the
business brought before the meeting by the board of directors, the chairman of
the board, if any, the president or any 50% holder. Our bylaws set forth an
advance notice procedure with regard to the nomination, other than by or at the
direction of the board of directors, of candidates for election as directors and
with regard to business to be brought before a meeting of stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is U.S. Stock
Transfer Corporation. The transfer agent's address and telephone number is 1745
Gardena Avenue, 2nd Floor, Glendale, California 91204, (818) 502-1404.
NASDAQ STOCK MARKET LISTING
We intend to apply for listing for quotation on the Nasdaq National Market
under the trading symbol "IPET."
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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 adversely affect prevailing market prices. Furthermore, only a limited
number of shares will be available for sale shortly after this offering because
of pre-existing contractual and legal restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of the offering, we will have 29,544,737 outstanding shares
of common stock, based on the number of shares outstanding as of January 18,
2000. Of these shares, the shares sold in the offering, plus any shares issued
upon exercise of the underwriters' option to purchase additional shares, will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates," as that term is defined in Rule 144 under the Securities
Act. In general, affiliates include officers, directors or 10% stockholders.
The remaining 22,044,737 shares of our common stock outstanding are
"restricted securities" within the meaning of Rule 144. These 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 of the Securities Act, which are
summarized below. Sales of these shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
our common stock.
Our directors, officers, employees and other stockholders have entered into
lock-up agreements in connection with this offering generally providing that
they will not, without the prior written consent of Merrill Lynch, Pierce,
Fenner & Smith Incorporated, directly or indirectly, offer, pledge, sell,
contract to sell or sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of their shares of our common stock or any securities
exercisable for or convertible into shares of our common stock for a period of
180 days following the effective date of the registration statement filed
pursuant to this offering. 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
saleable until these agreements expire or are waived by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
Taking into account the lock-up agreements, and assuming Merrill Lynch,
Pierce, Fenner & Smith Incorporated does not release stockholders from these
agreements, the following approximate number of additional shares will be
eligible for sale in the public market at the following times:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
DATE OF AVAILABILITY FOR SALE ADDITIONAL SHARES
----------------------------- -----------------
<S> <C>
30 days after the date of the final prospectus............
180 days after the date of the final prospectus........... 13,420,045
At various times after the date 180 days after the date of
the final prospectus and through November 5, 2000...... 3,134,557
At various times after November 5, 2000 and through
December 8, 2000....................................... 2,454,941
At various times after December 8, 2000 and through
January 18, 2001....................................... 1,195,097
At various times after January 18, 2001 upon the
expiration of applicable holding periods............... 1,840,097
</TABLE>
Under Rule 144, the number of shares that may be sold by affiliates of our
stockholders are subject to volume restrictions. In general, under Rule 144, and
beginning after the expiration of the lock-up agreements, a person who has
beneficially owned restricted shares, including shares that are aggregated to
such person or persons, for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding
which will equal approximately 295,447 shares immediately after the
offering; or
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<PAGE> 68
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.
In order to sell shares under Rule 144, the selling stockholder must comply
with manner of sale provisions and notice requirements and current public
information about us must be available. 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.
The holders of approximately 18,691,410 shares of common stock or their
transferees are also entitled to rights with respect to registration of their
shares of common stock for offer or sale to the public. If the holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, the sales could have a material
adverse effect on the market price of our common stock.
As part of the lock-up agreements, all of our employees holding common
stock or stock options may not sell shares acquired upon exercise of their
options until 180 days after the effective date. Beginning 180 days after the
effective date, any of our employees, officers, directors of or consultants who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell their 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 one or more registration
statements under the Securities Act as promptly as possible after the effective
date to register shares to be issued under our employee benefit plans. As a
result, any options exercised under our stock option plans or any other benefit
plan after the effectiveness of a registration statement will also be freely
tradable in the public market, unless the shares are held by affiliates of ours.
Shares held by our affiliates will still be subject to the volume limitation,
manner of sale, notice and public information requirements of Rule 144 unless
the shares may otherwise be sold under Rule 701. As of January 18, 2000 there
were outstanding options for the purchase of 973,000 shares, of which no shares
subject to those options were vested and exercisable. No shares have been issued
to date under our purchase plan or directors plan. See "Risk Factors -- Shares
Eligible for Future Sale," "Management -- Stock Plans" and "Description of
Capital Stock -- Registration Rights."
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UNDERWRITING
GENERAL
We are offering our shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc., Thomas Weisel
Partners LLC, and Warburg Dillon Read LLC are acting as U.S. representatives of
the U.S. underwriters named below. Subject to the terms and conditions described
in a U.S. purchase agreement among us and the U.S. underwriters, and
concurrently with the sale of 1,500,000 shares to the international managers, we
have agreed to sell to the U.S. underwriters, and the U.S. underwriters
severally have agreed to purchase from us the number of shares listed opposite
their names below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Bear, Stearns & Co. Inc.....................................
Thomas Weisel Partners LLC..................................
Warburg Dillon Read LLC.....................................
----------
Total.......................................... 6,000,000
==========
</TABLE>
We have also entered into an international purchase agreement with the
international managers for sale of the shares outside the U.S. and Canada for
whom Merrill Lynch International is acting as lead manager. Subject to the terms
and conditions in the international purchase agreement, and concurrently with
the sale of 6,000,000 shares to the U.S. underwriters pursuant to the U.S.
purchase agreement, we have agreed to sell to the international managers, and
the international managers severally have agreed to purchase 1,500,000 shares
from us. The initial public offering price per share and the total underwriting
discount per share are identical under the U.S. purchase agreement and the
international purchase agreement.
The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
U.S. underwriters and the international managers are conditioned on one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the U.S. underwriters and international
managers may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares to the public at the initial public offering price
set forth on the cover page of this prospectus and to dealers at that price less
a concession not in excess of $ per share. The U.S. underwriters may allow,
and the dealers may reallow, a discount not in excess of $ per share to
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
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The following table shows the per share and total public offering price,
underwriting discount and proceeds before expenses to Pets.com. The information
assumes either no exercise or full exercise by the U.S. underwriters and the
international managers of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price...................................... $ $ $
Underwriting discount...................................... $ $ $
Proceeds, before expenses, to Pets.com..................... $ $ $
</TABLE>
The total expenses of the offering, not including the underwriting
discount, are estimated at $1,000,000 and are payable by Pets.com.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom
they sell shares will not offer to sell or sell shares to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, except in the case of
transactions under the intersyndicate agreement. Similarly, the international
managers and any dealer to whom they sell shares will not offer to sell or sell
shares to U.S. persons or Canadian persons or to persons they believe intend to
resell to U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement.
OVER-ALLOTMENT OPTION
We have granted an option to the U.S. underwriters to purchase up to
900,000 additional shares at the public offering price less the underwriting
discount. The U.S. underwriters may exercise this option for 30 days from the
date of this prospectus solely to cover any over-allotments. If the U.S.
underwriters exercise this option, each will be obligated, subject to conditions
contained in the purchase agreements, to purchase a number of additional shares
proportionate to that U.S. underwriter's initial amount reflected in the above
table.
We have also granted an option to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to 225,000
additional shares to cover any over-allotments on terms similar to those granted
to the U.S. underwriters.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered by this prospectus for
sale to some of our directors, officers, employees, business associates and
related persons. If these persons purchase reserved shares, the number of shares
available for sale to the general public will be reduced accordingly. Any
reserved shares that are not orally confirmed for purchase within one business
day of the pricing of this offering will be offered by the underwriters to the
general public on the same terms as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors and all existing stockholders
have agreed, with exceptions, not to sell or transfer any common stock for 180
days after the date of this prospectus without first
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obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. Specifically, we and these other individuals have agreed not to
directly or indirectly
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the
common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
QUOTATION ON THE NASDAQ NATIONAL MARKET
We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "IPET."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined through negotiations among
us and the U.S. representatives and lead managers. In addition to prevailing
market conditions, the factors to be considered in determining the initial
public offering price are
- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us,
- our financial information,
- the history of, and the prospects for, our company and the industry in
which we compete,
- an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues,
- the present state of our development, and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares being
offered in this offering to accounts over which they exercise discretionary
authority.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 110
filed public offerings of equity securities, of which 79 have been completed,
and has acted as a syndicate member in an additional 54 public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or controlling persons,
except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
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PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit
underwriters from bidding for and purchasing our common stock. However, the U.S.
representatives may engage in transactions that stabilize the price of the
common stock, such as bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short position may cause the price of the
common stock to be higher than it might be in the absence of such purchases.
The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriter's short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Pets.com by Venture Law Group, A Professional Corporation, Menlo Park,
California. John V. Bautista, a director at Venture Law Group, is Secretary of
Pets.com. Legal matters specified by the underwriters in connection with this
offering will be passed upon for the underwriters by Shearman & Sterling, Menlo
Park, California. As of the date of this prospectus, an investment partnership
associated with Venture Law Group owns an aggregate of 45,502 shares of our
common stock, and individual directors and attorneys of Venture Law Group
beneficially own a total of 48,575 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1999 and for the period from February 17, 1999
(inception) to December 31, 1999, as set forth in their report. The financial
statements audited by Ernst & Young LLP have been included in reliance on their
report given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1, including the exhibits and schedules filed with the
registration statement, 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 and
schedules thereto. For further information with respect to us and our common
stock, we refer you to the registration statement. 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
the contract or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by that 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. 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.
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PETS.COM, INC.
FINANCIAL STATEMENTS
PERIOD FROM FEBRUARY 17, 1999 (INCEPTION)
TO DECEMBER 31, 1999
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Audited Financial Statements
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
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pets.com, Inc.
We have audited the accompanying balance sheet of Pets.com, Inc. as of December
31, 1999, and the related statements of operations, stockholders' equity, and
cash flows for the period from February 17, 1999 (inception) to December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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
from 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 Pets.com, Inc. at December 31,
1999, and the results of its operations and its cash flows for the period from
February 17, 1999 (inception) to December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
San Francisco, California
January 14, 2000, except for Note 10 as to
which the date is January 19, 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon ratification
by the Company's stockholders of the reverse stock split described in footnote
10 to the financial statements.
/s/ Ernst & Young LLP
San Francisco, California
January 19, 2000
F-2
<PAGE> 76
PETS.COM, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 30,196
Inventories............................................... 6,756
Prepaid advertising expenses.............................. 7,223
Other prepaid expenses and current assets................. 999
--------
Total current assets........................................ 45,174
Certificate of deposit...................................... 845
Fixed assets, net........................................... 11,327
Intangible assets........................................... 399
Other assets................................................ 2,565
--------
Total assets................................................ $ 60,310
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,563
Accrued expenses.......................................... 2,137
Payable to related parties................................ 370
Capital lease obligations................................. 16
--------
Total current liabilities................................... 9,086
Capital lease obligations................................... 104
Stockholders' equity:
Convertible preferred stock, $.00125 par value:
Authorized shares -- 17,941,862
Series A preferred stock, designated 5,781,862 shares
Issued and outstanding shares -- 5,781,862
(aggregate liquidation preference of $10,480)..... 7
Series B preferred stock, designated 11,120,000
shares
Issued and outstanding shares -- 10,518,678
(aggregate liquidation preference of $99,270)..... 13
Series B1 preferred stock, designated 1,040,000
shares
No issued or outstanding shares................... --
Common stock, $.00125 par value:
Authorized shares -- 28,800,000
Issued and outstanding shares -- 4,641,797........... 6
Additional paid-in capital................................ 128,442
Accumulated deficit....................................... (61,778)
Stockholder note receivable............................... (188)
Deferred stock-based compensation......................... (15,382)
--------
Total stockholders' equity.................................. 51,120
--------
Total liabilities and stockholders' equity.................. $ 60,310
========
</TABLE>
See accompanying notes.
F-3
<PAGE> 77
PETS.COM, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
PERIOD FROM FEBRUARY 17, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Net sales................................................... $ 5,787
Cost of goods sold.......................................... 13,412
----------
Gross margin................................................ (7,625)
Operating expenses:
Marketing and sales....................................... 42,491
Product development....................................... 6,481
General and administrative................................ 4,254
Amortization of deferred stock-based compensation......... 2,118
----------
Total operating expenses.................................... 55,344
----------
Operating loss.............................................. (62,969)
Interest income, net........................................ 1,191
----------
Net loss.................................................... $ (61,778)
==========
Basic and diluted net loss per share........................ $ (42.42)
==========
Weighted average shares outstanding used to compute basic
and diluted net loss per share............................ 1,456,489
==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 78
PETS.COM, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
PERIOD FROM FEBRUARY 17, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
----------------------------------------
SERIES A SERIES B COMMON STOCK ADDITIONAL
------------------ ------------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------ ---------- ------ --------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial issuance of common
shares to founders in
exchange for cash and
intellectual property...... -- $-- -- $-- 1,449,470 $2 $ 16 $ --
Issuance of restricted shares
to employee.................. -- -- -- -- 925,618 1 11 --
Issuance of restricted shares
to consultants for
services................... -- -- -- -- 4,000 -- 1 --
Issuance of Series A
preferred stock, net of
offering costs of $59...... 5,781,862 7 -- -- -- -- 10,414 --
Issuance of Series B
preferred stock, net of
offering costs of $53...... -- -- 10,518,678 13 -- -- 99,203 --
Exercise of common stock
options.................... -- -- -- -- 2,222,709 3 973 --
Issuance of restricted shares
for asset purchase......... -- -- -- -- 40,000 -- 324 --
Compensation related to
issuance of stock options
and restricted common
stock...................... -- -- -- -- -- -- 17,500 --
Amortization of deferred
stock-based compensation... -- -- -- -- -- -- -- --
Net loss and comprehensive
loss....................... -- -- -- -- -- -- -- (61,778)
--------- -- ---------- -- --------- -- -------- --------
Balance at December 31,
1999....................... 5,781,862 $7 10,518,678 $13 4,641,797 $6 $128,442 $(61,778)
========= == ========== == ========= == ======== ========
<CAPTION>
STOCKHOLDER DEFERRED TOTAL
NOTE STOCK-BASED STOCKHOLDERS'
RECEIVABLE COMPENSATION EQUITY
----------- ------------ -------------
<S> <C> <C> <C>
Initial issuance of common
shares to founders in
exchange for cash and
intellectual property...... $ -- $ -- $ 18
Issuance of restricted shares
to employee.................. -- -- 12
Issuance of restricted shares
to consultants for
services................... -- -- 1
Issuance of Series A
preferred stock, net of
offering costs of $59...... -- -- 10,421
Issuance of Series B
preferred stock, net of
offering costs of $53...... -- -- 99,216
Exercise of common stock
options.................... (188) -- 788
Issuance of restricted shares
for asset purchase......... -- -- 324
Compensation related to
issuance of stock options
and restricted common
stock...................... -- (17,500) --
Amortization of deferred
stock-based compensation... -- 2,118 2,118
Net loss and comprehensive
loss....................... -- -- (61,778)
----- -------- --------
Balance at December 31,
1999....................... $(188) $(15,382) $ 51,120
===== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 79
PETS.COM, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM FEBRUARY 17, 1999 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(61,778)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 997
Amortization of deferred stock-based compensation......... 2,118
Common and preferred stock issued for intellectual
property............................................... 416
Common stock issued for services.......................... 1
Changes in:
Inventories............................................ (6,756)
Prepaid marketing expenses............................. (7,223)
Other prepaid expenses and current assets.............. (999)
Certificate of deposit................................. (845)
Other assets........................................... (330)
Accounts payable, accrued expenses and other........... 8,700
Payable to related parties............................. 370
--------
Net cash used in operating activities....................... (65,329)
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (12,188)
Purchase of preferred stock in PetPlace.com................. (2,085)
Issuance of note receivable................................. (150)
Purchase of intangible software and intangible assets....... (75)
--------
Net cash used in investing activities....................... (14,498)
FINANCING ACTIVITIES
Proceeds from issuances of common stock..................... 14
Proceeds from exercise of stock options..................... 788
Proceeds from issuance of convertible notes payable......... 7,385
Net proceeds from issuances of Series A preferred stock..... 10,021
Net proceeds from issuances of Series B preferred stock..... 91,831
Repayments on capital lease................................. (16)
--------
Net cash provided by financing activities................... 110,023
--------
Net increase in cash and cash equivalents................... 30,196
Cash and equivalents at beginning of period................. --
--------
Cash and equivalents at end of period....................... $ 30,196
========
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING
ACTIVITIES
Property and equipment acquired under capital lease
obligations............................................... $ 136
========
Common stock issued for notes receivable.................... $ 188
========
Issue of series A preferred stock for rights to certain
internet domain names..................................... $ 400
========
Conversion of convertible notes payable to convertible
preferred stock........................................... $ 7,385
========
Issue of common stock for assets............................ 324
========
</TABLE>
See accompanying notes.
F-6
<PAGE> 80
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Pets.com, Inc. (the Company) was incorporated in the state of California on
October 7, 1998 and began its commercial operations on February 17, 1999 with
the acquisition of certain assets and internet domain names. For purposes of
disclosure, the Company has elected to use February 17, 1999 as the inception
date for reporting, as no activities were undertaken and no costs were incurred
prior to that date. The Company is engaged in the sale over the Internet of pet
products, services, and information primarily in the United States.
In December 1999, the board of directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, all of the outstanding shares of preferred
stock will automatically convert into common stock upon the closing of the
initial public offering. The board of directors also authorized the
reincorporation of the Company in Delaware. In conjunction with the
reincorporation, the number of authorized shares will be increased to
155,000,000 shares, of which 150,000,000 will be common stock and 5,000,000 will
be undesignated preferred stock.
FISCAL YEAR
The Company's fiscal year begins on January 1 and ends on December 31 of
each year.
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 of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues on product sales, net of discounts, coupons and allowances, are
recognized upon shipment of the related goods. Outbound shipping and handling
fees are included in net sales upon shipment. The Company provides for an
estimated allowance for sales returns in the period of sale.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of payroll and related
expenses for website development, systems personnel, consultants, and other
website costs. As the Company believes that its website is subject to continual
and substantial change, expenditures relating to product development are
expensed as incurred.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was
$26,934,000 for the period from February 17, 1999 (inception) to December 31,
1999.
MARKETING AGREEMENTS
The Company enters into various advertising, marketing and co-marketing
agreements which provide for certain advertising, reciprocal advertising,
promotional and customer acquisition activities for terms generally not in
excess of 12 months.
F-7
<PAGE> 81
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents. The
Company's cash equivalents consist mainly of money market funds.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market.
CERTIFICATE OF DEPOSIT
The certificate of deposit is restricted and secures a letter of credit
related to the Company's lease agreement (see Note 4). The carrying amount
approximates fair value.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is provided using the straight-line method over the estimated useful lives of
the related assets, which range from three to seven years.
The Company capitalizes certain internal use software costs in accordance
with Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Capitalized internal use software costs
with an expected useful life in excess of one year are amortized on a
straight-line basis over their estimated useful lives. Internal use software
costs, which are subject to continual and substantial change, are expensed as
incurred.
FULFILLMENT EXPENSES
The Company includes fulfillment expenses in marketing and sales in the
accompanying statement of operations.
INTANGIBLE ASSETS
Intangible assets, consisting primarily of website design and customer
lists acquired, are recorded at cost. Amortization is provided using the
straight-line method over the estimated useful lives of the related intangible
assets of 3 years.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Recoverability of assets is measured by comparison of the carrying amount of the
asset to net future cash flows expected to be generated from the asset. No
impairment has been recognized in the accompanying financial statements.
NET LOSS PER SHARE
Net loss per share is computed using the weighted-average number of shares
of common stock outstanding less the number of shares subject to repurchase.
Shares associated with stock options, warrants and the convertible preferred
stock are not included in the calculation of diluted net loss per share because
they are antidilutive. At December 31, 1999, there were 3,152,327 unvested or
restricted common shares
F-8
<PAGE> 82
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that are subject to repurchase and 983,400 stock options that were excluded from
the computation of diluted net loss per share. If the Company had reported net
income, the calculation of these per share amounts would have included the
dilutive effect of these common stock equivalents using the treasury stock
method.
CONCENTRATION OF CREDIT RISK
The Company is subject to concentrations of credit risk from its cash
investments. The Company's credit risk is managed through monitoring the
stability of the financial institutions utilized and diversification of its
financial resources.
The Company's financial instruments consist of cash and cash equivalents.
The fair value of all financial instruments approximates the carrying amount
based on the current rate offered to the Company for similar instruments.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). APB
No. 25 provides that the compensation expense relative to the Company's employee
stock options is measured based on the intrinsic value of the stock option. SFAS
No. 123 requires companies that continue to follow APB No. 25 to provide a pro
forma disclosure of the impact of applying the fair value method of SFAS No. 123
(see Note 6).
INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to be recovered. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which
requires that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The items of
other comprehensive income that are typically required to be displayed are
foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investments in debt and equity securities. There
were no items of other comprehensive income in 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designed as part of a
hedge transaction and, if it is, the type of hedge
F-9
<PAGE> 83
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
transaction. The Company does not expect that the adoption of SFAS No. 133 will
have a material impact on its financial statements because the Company does not
currently hold any derivative instruments.
2. ACQUISITIONS
In November 1999, the Company purchased 2,150,537 shares of Series A
convertible preferred stock of PetPlace.com, Inc., representing a 10% ownership
interest, for consideration of approximately $2.0 million. The Company is
obligated to purchase an additional 1,612,903 shares of Series A convertible
stock for approximately $1.5 million, by February 1, 2000, concurrent with the
launch of PetPlace.com, Inc.'s web site. This investment will be accounted for
on the basis of cost.
In December 1999, the Company acquired the website and certain intangible
assets from Coolpetstuff.com for $399,000, consisting of $75,000 in cash and
40,000 shares of common stock. The common stock issued in the acquisition is
subject to an escrow agreement which allows for the release of 3,334 shares per
quarter for 12 quarters, to the seller.
3. FIXED ASSETS
Fixed assets at December 31, 1999 consists of the following:
<TABLE>
<S> <C>
(In thousands)
Computers and equipment..................................... $ 5,100
Purchased software.......................................... 2,557
Furniture and fixtures...................................... 432
Plant and equipment......................................... 2,365
Leasehold improvements...................................... 1,870
-------
12,324
Less accumulated depreciation and amortization.............. (997)
-------
$11,327
=======
</TABLE>
4. LEASE COMMITMENTS
The Company leases equipment under noncancelable lease agreements that are
accounted for as capital leases. Equipment under capital lease arrangements, and
included in property and equipment aggregated approximately $136,000 at December
31, 1999. Related accumulated amortization was approximately $4,000 at December
31, 1999. The capital leases are secured by the related equipment, and the
Company is required to maintain liability and property damage insurance under
the terms of the agreement.
The Company leases its office and warehouse facilities under various
operating leases, which call for fixed rental payments through 2011. The lease
arrangements require letters of credit totaling $1,520,000 in the event the
Company defaults on any of its lease payments of which $770,000 is secured by a
certificate of deposit. Provided the Company is not in default, the letters of
credit shall be reduced over the terms of the leases. Total rent expense under
operating leases for the period ended December 31, 1999 approximated $482,000.
F-10
<PAGE> 84
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. LEASE COMMITMENTS (CONTINUED)
Future minimum commitments under capital lease and operating leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
(In thousands)
2000...................................................... $ 31 $ 3,231
2001...................................................... 31 3,666
2002...................................................... 31 3,465
2003...................................................... 31 3,523
2004...................................................... 21 3,281
Thereafter................................................ -- 9,395
---- -------
Total minimum lease payments.............................. 145 $26,561
=======
Less amount representing interest......................... 25
----
Present value of minimum lease payments................... 120
Less current obligations.................................. 16
----
Long-term obligations..................................... $104
====
</TABLE>
5. INCOME TAXES
There has been no provision for U.S. federal, U.S. state, or foreign income
taxes for any period as the Company has incurred operating losses in all periods
and for all jurisdictions.
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate:
<TABLE>
<S> <C>
Statutory federal income tax benefit........................ (34)%
State income tax benefit.................................... (6)%
Valuation allowance......................................... 38%
Non-deductible stock-based compensation..................... 2%
---
Income tax provision........................................ --
===
</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:
<TABLE>
<S> <C>
(In thousands)
Deferred tax assets:
Net operating loss carryforward........................... $ 22,475
Other temporary differences............................... 1,354
--------
Total deferred tax assets................................... 23,829
Less valuation allowance.................................... (23,829)
--------
Net deferred tax assets..................................... $ --
========
</TABLE>
Net deferred tax assets have been fully offset by a valuation allowance due
to a lack of operating history combined with risks and uncertainties surrounding
the Company's ability to generate future taxable income. The valuation allowance
increased by $23,829 for the period from February 17, 1999 (inception) to
December 31, 1999.
F-11
<PAGE> 85
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. INCOME TAXES (CONTINUED)
As of December 31, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $56,187,000, which expire in
the year 2019. The Company also had net operating loss carryforwards for state
income tax purposes of approximately $56,187,000 expiring in the year 2007.
Utilization of the Company's net operating loss 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 the net operating loss before
utilization.
6. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
In April 1999, the Company issued 5,781,862 shares of Series A preferred
stock in a private placement offering in exchange for cash proceeds of
$10,079,624 and rights to certain internet domain names valued at $400,001.
In connection with the issuance of the Series A preferred stock, the
Articles of Incorporation were amended to increase the total authorized number
of common shares from the original 8,000,000 to 20,000,000, and to authorize a
series of preferred stock consisting of 6,000,000 shares.
In June 1999, the Company issued 5,298,014 shares of Series B preferred
stock in a private placement offering in exchange for cash proceeds of
$50,000,003. In connection with the issuance of the Series B preferred stock,
the Articles of Incorporation were amended to increase the total authorized
number of common shares to 24,000,000 and preferred shares to 11,301,862.
In November 1999, the Company issued 2,848,774 additional shares of Series
B convertible preferred stock and notes payable totaling $7,384,705, in a
private placement offering in exchange for cash proceeds of $34,270,000. The
notes payable were conditionally convertible, depending on the structure of the
second closing of the Series B offering.
In connection with the issuance of additional Series B convertible
preferred stock, the Articles of Incorporation were amended to increase the
total authorized number of common shares to 28,800,000, and authorized preferred
stock to 17,941,862 shares, including authorization of 1,040,000 Series B-1
preferred non-voting shares.
In December 1999, the Company completed the second closing of the November
1999 Series B convertible preferred stock private placement offering. In
conjunction with the closing, 1,589,405 shares of Series B convertible preferred
stock were issued in exchange for $15,000,008. An additional 782,486 shares of
Series B convertible preferred stock were issued in connection with the
conversion of the convertible notes payable issued at the initial closing.
Each share of the Company's Series A and B preferred stock is convertible
into one share of common stock at the option of the holder, subject to certain
antidilution adjustments, in accordance with the conversion formula provided in
the Company's Articles (currently on a 1:1 ratio). Outstanding preferred shares
automatically convert into common stock at the option of the holder and upon the
closing of an initial public offering of the Company's common stock. Holders of
each share of preferred stock are entitled to the number of votes per share that
would be equivalent to the number of shares of common stock into which a share
of preferred stock is convertible and are entitled to dividends in preference to
common stock, if and when declared by the Board of Directors. The Company also
granted the preferred stockholders certain registration rights and agreed not to
carry out certain actions without prior approval of
F-12
<PAGE> 86
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. STOCKHOLDERS' EQUITY (CONTINUED)
the holders of not less than two-thirds of the outstanding preferred shares,
voting together as a single class. As a condition to the Series A and B
preferred stock agreements, one shareholder agreed to restrict its acquisitions
of Company shares to no more than a 46% interest for a period of up to 4 years.
The Company's Series B1 preferred stock has substantially the same rights
as the Series A and B preferred stock, except that it is non-voting.
COMMON STOCK
Under certain conditions, 40,000 shares of common stock issued to the
Company's founders are subject to repurchase at the greater of the price
originally paid or the fair market value of the stock at the time of repurchase.
The repurchase provisions expire at the earlier of 36 months from the issuance
date of the common stock or an initial public offering of the Company.
On February 17, 1999, the Company issued 1,288,470 common shares, for total
consideration of $16,106 to a founder in exchange for certain tangible and
intangible assets. In connection with subsequent upgrades to the Company's
website, these costs were recorded to general and administrative expense in the
accompanying statement of operations.
1999 STOCK PLAN
Under the terms of the 1999 Stock Plan (the 1999 option plan), the Board of
Directors may grant incentive and nonqualified stock options to employees,
officers, directors, agents, consultants, and independent contractors of the
Company. In connection with the introduction of the 1999 Stock Plan, 2,829,734
shares of common stock were reserved for future issuance. During 1999, the
Company increased the number of shares reserved for issuance under such plan to
5,815,327 shares, plus an evergreen provision which allows for an increase in
the authorized number of shares on the first day of each of the fiscal years
from 2001 to 2009, equal to the lesser of (i) 800,000 shares, (ii) 3% of the
Company's outstanding common stock on the last day of the preceding fiscal year,
or (iii) a lesser number of shares as determined by the board of directors.
Generally, the Company grants stock options with exercise prices equal to
the fair market value of the common stock on the date of grant, as determined by
the Company's Board of Directors. Options generally vest over a four-year period
and expire ten years from the date of grant. The 1999 stock plan also contains a
restricted stock purchase feature which provides the employee the opportunity to
exercise their options immediately and vest over the original vesting period as
set out in their stock option award. If the employee terminates before vesting,
the Company may repurchase the unvested options at the original strike price.
F-13
<PAGE> 87
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------
SHARES WEIGHTED-
AVAILABLE NUMBER AVERAGE
FOR OF EXERCISE
GRANT OPTIONS PRICE
---------- ---------- ---------
<S> <C> <C> <C>
1999 Plan introduction........................... 2,829,734 -- $ --
Restricted stock awards issued................. (929,618) -- .01
Additional authorizations...................... 2,985,594 -- --
Options granted................................ (3,323,509) 3,323,509 .88
Options exercised.............................. -- (2,234,309) .44
Options canceled............................... 105,800 (105,800) .98
---------- ---------- -----
Outstanding at December 31, 1999................. 1,668,001 983,400 $1.86
========== ========== =====
</TABLE>
The following table summarizes information regarding stock options
outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OF OPTIONS LIFE
- ------------ ---------- -----------
<S> <C> <C>
$.19 92,000 9.4 years
$.94 164,800 9.6 years
$1.88 568,800 9.8 years
$3.75 157,800 9.9 years
- ------------ ------- ---------
$.19 - $3.75 983,400 9.8 years
============ ======= =========
</TABLE>
Of the total options outstanding at December 31, 1999, 256,800 shares are
exercisable, and 2,234,309 shares previously exercised are subject to
repurchase. At December 31, 1999, none of the above employee option awards had
reached their first vesting tranche.
The per share weighted-average fair value of $4.06 for options granted
through December 31, 1999 was recorded in connection with the accrual of the
deferred stock-based compensation.
2000 EMPLOYEE STOCK PURCHASE PLAN
In December 1999, the Company established the 2000 employee stock purchase
plan, which will become effective upon completion of the Company's initial
offering of its common stock. A total number of 400,000 shares has been reserved
for issuance under the employee stock purchase plan. The plan also contains an
evergreen provision which allows for an annual increase in the authorized number
of shares on the first day of each fiscal year from 2001 to 2010, equal to the
lesser of (i) 240,000 shares, (ii) 1% of the Company's outstanding common stock
on the last day of the preceding fiscal year, or (iii) a lesser number of shares
as determined by the board of directors.
F-14
<PAGE> 88
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The following shares of common stock were reserved at December 31, 1999:
<TABLE>
<S> <C>
Stock option plan........................................... 2,651,400
Stock purchase plan......................................... 400,000
Conversion of Series A preferred stock...................... 5,781,862
Conversion of Series B preferred stock...................... 10,518,678
----------
19,351,940
==========
</TABLE>
DEFERRED STOCK-BASED COMPENSATION
During the period from February 17, 1999 to December 31,1999, the Company
recorded a charge for deferred compensation expense of $17,500,000. Amortization
of deferred stock-based compensation for the period from February 17, 1999 to
December 31, 1999 is included as a single line item in the Company's statement
of operations. For the period from February 17, 1999 to December 31, 1999 this
amount can be allocated to the other expense categories in the statement of
operations as follows:
<TABLE>
<S> <C>
(In thousands)
Marketing and sales......................................... $ 764
Product development......................................... 479
General and administrative.................................. 875
------
$2,118
======
</TABLE>
STOCKHOLDER NOTE RECEIVABLE
In September 1999, the Board of Directors approved the issuance of 200,000
shares of common stock to a key officer in exchange for a note receivable in the
amount of $187,500. The note receivable has been recorded as a reduction of
stockholders' equity in the balance sheet at December 31, 1999. The note is full
recourse, bears interest at 6.08% and is due with all accrued interest on
November 22, 2003.
7. DEFINED CONTRIBUTION PLAN
In October 1999, the Company adopted a defined contribution retirement plan
under Section 401(k) of the Internal Revenue Code which covers substantially all
employees. Eligible employees may contribute amounts to the plan, via payroll
withholding, subject to certain limitations. Under the 401(k) plan, employees
may elect to reduce their current compensation by up to the statutorily
prescribed annual limit ($10,000 in 1999) and to have the amount of such
reduction contributed to the 401(k) plan. The 401(k) plan permits, but does not
require, additional matching contributions to the 401(k) plan by the Company on
behalf of all participants in the plan. No contributions were made by the
Company during the period from February 17, 1999 to December 31, 1999.
8. LEGAL PROCEEDINGS
On September 2, 1999 Biolink LLC dba ERI International filed suit against
the Company in Los Angeles County Superior Court for breach of contract, breach
of the implied covenant of good faith and fair dealing, and fraud arising out of
a contract entered into for the shipment of live fish. ERI International has
stated three causes of action, each seeking damages in an amount in excess of
$2,000,000 and one cause of action seeking damages in an amount in excess of
$500,000. The Company has answered and
F-15
<PAGE> 89
PETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. LEGAL PROCEEDINGS (CONTINUED)
asserted affirmative defenses to their complaint. No trial date has been set up
and discovery has not yet commenced. Management believes that any liability that
may ultimately result from the resolution of these matters will not have a
material adverse effect on the Company's financial position, operating results,
or cash flows.
From time to time, the Company is subject to other legal proceedings and
claims in the ordinary course of business, including claims of alleged
infringement of trademarks and other intellectual property rights. The Company
currently is not aware of any such legal proceedings or claims that it believes
will have, individually or in the aggregate, a material adverse effect on its
business, prospects, financial condition and operating results.
9. RELATED-PARTY TRANSACTIONS
In conjunction with the sale of its Series A preferred stock, the Company
entered into an agreement with a shareholder, which allows for certain
reciprocal advertising, promotional and customer acquisition activities for an
initial term of 18 months. Under the agreement, both the Company and the
shareholder will reimburse each other in equal amounts for customers acquired as
a result of the marketing agreement. Under this marketing agreement, the Company
incurred customer acquisition expenses of $255,000, all of which are outstanding
as of December 31, 1999. In addition, the contract allows for unspecified
informal consulting and advisory services to be provided to the Company by the
Shareholder.
In connection with the above mentioned sale of Series A preferred stock,
the Company issued 275,863 Series A preferred shares with a total consideration
of $400,001 to a founder in exchange for certain internet domain names.
For the period from February 17, 1999 (inception) to December 31, 1999, a
preferred stockholder provided legal services to the Company totaling
approximately $429,000 of which $115,000 is outstanding as of December 31, 1999.
10. SUBSEQUENT EVENTS
On January 7, 2000 the Company's board of directors amended its articles of
incorporation to increase the total number of authorized preferred stock shares
to 18,101,862, and to designate 1,200,000 shares of preferred stock as Series C.
On January 15, 2000, the Company entered into an agreement with GO.com, an
affiliate of The Walt Disney Company, to perform joint marketing, content
development and other promotional activities. An affiliate of The Walt Disney
Company will also purchase 1,102,400 shares of Series C convertible preferred
stock in exchange for media rights valued at approximately $11 million on ABC,
Inc.
On January 19, 2000 the Company's board of directors authorized, subject to
stockholders' approval, a .8 for 1 reverse stock split. All share and per share
amounts in the accompanying financial statements have been retroactively
adjusted to reflect this split.
F-16
<PAGE> 90
[OUTSIDE OF FRONT GATEFOLD]
The outside page of the front gatefold contains a picture of the Pets.com sock
puppet icon with four of our boxes and the following accompanying text: "Let us
fetch for a change."
<PAGE> 91
[INSIDE OF FRONT GATEFOLD]
The first page of the inside of the front gatefold contains "Pets.com" at the
top of the page, with the sock puppet icon poking through the "O" in "Pets.com."
The following text and pictures are located on the first page:
"Shopping and Selection" followed by a picture of the Pets.com Gift Center
shopping page and a picture of a product category page on the Pets.com Web store
showing dog food bowls available through our Web store. These pictures are
described by the following text: "The Pets.com shopping pages."
The second page of the inside of the front gatefold contains a picture of a
woman and child sitting on a chair looking at a laptop computer screen with a
dog sitting next to them. The following text and pictures are located on the
second page:
A picture of products such as cat litter, pet food and pet toys available
through the Pets.com Web store. The accompanying text describing the picture
says "Some of our Products."
Another picture of Pets.com's distribution center, with two lines of
accompanying text describing the picture that says: "Fulfillment and Service"
and "Our Union City distribution center."
<PAGE> 92
[INSIDE OF BACK COVER OF PROSPECTUS]
The inside of the back cover of the prospectus contains the word "Information"
with a picture of the Pets.com magazine and accompanying text describing the
picture which says "Pets.com, the magazine for pets and their humans."
Below this, the inside of the back cover of the prospectus contains the word
"Community" with two pictures.
The first picture is of a message board on the Pets.com Web store and the second
picture is of the Pets.commitment page on the Pets.com Web store.
<PAGE> 93
[BACK PAGE OF PROSPECTUS]
The outside page of the prospectus contains the Pets.com logo at the bottom of
the page.
<PAGE> 94
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including 2000 (the 25th day after the date of this
prospectus), all dealers effecting 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.
7,500,000 SHARES
LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
THOMAS WEISEL PARTNERS LLC
WARBURG DILLON READ LLC
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Pets.com in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 26,400
NASD filing fee............................................. $ 10,500
Nasdaq National Market listing fee.......................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky qualification fees and expenses.................... *
Transfer Agent and Registrar fees........................... *
Miscellaneous fees and expenses............................. *
----------
Total............................................. 1,000,000
==========
</TABLE>
- ---------------
* to be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "Delaware 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 (the "Securities Act"). Article XII of our proposed Amended and
Restated Certificate of Incorporation (Exhibit 3.2 hereto) and Article VI of our
proposed Amended and Restated Bylaws (Exhibit 3.4 hereto) 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 U.S. Purchase Agreement (Exhibit 1.1) also provides for
cross-indemnification among Pets.com and the Underwriters with respect to
certain matters, including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since our formation on February 17, 1999, we have issued and sold (without
payment of any selling commission to any person) the following unregistered
securities:
1. On March 10, 1999, we issued two convertible promissory notes in the
principal amounts of $142,500 and $7,500 to two accredited investors. The notes
were canceled and converted into shares of Series A preferred stock on April 22,
1999.
2. On March 19, 1999, we issued two convertible promissory notes in the
principal amounts of $237,500 and $12,500 to two accredited investors. The notes
were canceled and converted into shares of Series A preferred stock on April 22,
1999.
3. On April 22, 1999, we issued 5,781,862 shares of our Series A preferred
stock to eight accredited investors for an aggregate cash consideration of
$10,479,625.60, which included conversion of the
II-1
<PAGE> 96
convertible promissory notes described in items 1 and 2 above into a total of
221,702 shares of our Series A preferred stock (including conversion of accrued
interest on the promissory notes).
4. On June 18, 1999, we issued 5,298,014 shares of our Series B preferred
stock to nine accredited investors for an aggregate cash consideration of
$50,000,003.35.
5. On November 5, 1999, we issued 2,848,774 shares of our Series B
preferred stock for cash consideration of $26,885,300.85 to eight accredited
investors; six convertible promissory notes in the aggregate principal amount of
$4,409,592.60 to six accredited investors, which notes were cancelled and
converted into 467,242 shares of our Series B preferred stock on December 8,
1999; and one convertible promissory note in the principal amount of
$2,975,115.25 to one accredited investor, which note was cancelled and converted
into 315,244 shares of our Series B preferred stock on December 8, 1999.
6. On December 8, 1999, we issued to a total of twenty-five accredited
investors 2,371,890 shares of our Series B preferred stock for cash
consideration of $15,000,007.80 and conversion of outstanding convertible
promissory notes in the aggregate principal amount of $7,384,707.85.
7. On January 18, 2000, we issued 1,102,400 shares of our Series C
preferred stock to one qualified institutional buyer as defined in Rule 144A of
the rules and regulations promulgated under the Securities Act.
8. As of January 18, 2000, an aggregate of approximately 4,641,797 shares
of common stock had been issued upon exercise of options or pursuant to
restricted stock purchase agreement and an aggregate of approximately 973,000
shares of common stock were issuable upon exercise of outstanding options under
the registrant's stock plans.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 8 above were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 under the
Securities Act. 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 Pets.com.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of U.S. Purchase Agreement.
3.1 Fifth Amended and Restated Articles of Incorporation of
Pets.com.
3.2 Form of First Amended and Restated Certificate of
Incorporation of Pets.com, to be filed and effective upon
completion of this offering.
3.3* Bylaws of Pets.com, as amended.
3.4 Form of Bylaws of Pets.com, to be effective upon completion
of this offering.
4.1 Form of Pets.com common stock certificate.
5.1 Opinion of Venture Law Group, a Professional Corporation.
10.1* Form of Indemnification Agreement between Pets.com and each
of its officers and directors.
10.2.1 1999 Stock Plan, as amended.
10.2.2 2000 Employee Stock Purchase Plan.
10.3* Common Stock Purchase Agreement with Greg McLemore dated
February 17, 1999.
10.4* Restricted Stock Purchase Agreement dated March 10, 1999
with Julia Wainwright.
10.5* Bill of Sale and Assignment with Greg McLemore and Koala
Computer Products dated February 17, 1999.
10.6* Offer Letter dated March 4, 1999 with Julia L. Wainwright.
</TABLE>
II-2
<PAGE> 97
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.7* Offer Letter dated March 19, 1999 with Kathryn C. Ringewald.
10.8* Offer Letter dated March 24, 1999 with Christopher E. Deyo.
10.9* Offer Letter dated March 26, 1999 with John M. Hollon.
10.10* Offer Letter dated April 7, 1999 with Paul G. Melmon.
10.11* Offer Letter dated April 21, 1999 with John R. Benjamin.
10.12* Offer Letter dated April 22, 1999 with Diane R. Hourany.
10.13* Offer Letter dated May 1, 1999 with Sue Ann Latterman.
10.14* Offer Letter dated May 5, 1999 with John A. Hommeyer.
10.15* Offer Letter dated August 20, 1999 with Paul G. Manca.
10.16 Revised Offer Letter, as amended, dated November 15, 1999
with Ralph E. Lewis.
10.17* Series A Preferred Stock Purchase Agreement dated April 22,
1999.
10.18*+ Advertising Agreement with Amazon.com dated April 22, 1999.
10.19*+ Software License and Service Agreement with BroadVision,
Inc. dated May 15, 1999.
10.20* Series B Preferred Stock Purchase Agreement dated June 18,
1999
10.21*+ License and Integration Agreement with Quality Software
Systems, Inc. dated June 25, 1999.
10.22* PetPlace.com, Inc. Series A Preferred Stock Purchase
Agreement dated November 12, 1999.
10.23* Series B Preferred Stock and Convertible Note Purchase
Agreement dated November 5, 1999.
10.24 Amended and Restated Investors' Rights Agreement dated
January 18, 2000.
10.25*+ Lease Agreement, as amended, with the Paulsen Family
Partnership dated April 8, 1999 for offices at 435 Brannan
Street, San Francisco, California.
10.26*+ Sublease Agreement, as amended, with National Distribution
Agency, Inc. dated July 1, 1999 for a warehouse and
distribution center at 33201 Dowe Avenue, Union City,
California.
10.27*+ Lease Agreement with Bryant Springs L.L.C. dated September
20, 1999 for offices at 945 Bryant Street, San Francisco,
California.
10.28*+ Lease Agreement with Rosenburg SOMA Investments IV, L.L.C.
dated September 27, 1999 for a warehouse and distribution
center at 150-160 King Street, San Francisco, California.
10.29* Lease Agreement with Whipple Properties 1001, L.L.C. dated
November 5, 1999 for a warehouse and distribution center at
1035 Whipple Road, Hayward, California.
10.30*+ Lease Agreement with Precedent Industrial Group L.L.C. dated
December 7, 1999 for a warehouse and distribution center at
Building Number 1, Precedent South Business Center,
Greenwood, Indiana.
10.31 Pledge and Security Agreement with Paul Manca dated November
23 1999.
10.32+ Exclusive Cross Marketing Agreement with PetPlace.com, Inc.
dated September 17, 1999.
10.33+ Sponsorship Agreement with American Veterinary Medical
Foundation
dated October 21, 1999.
10.34+ Exclusive Sponsorship Agreement with American Veterinary
Medical Foundation dated October 21, 1999.
10.35+ Content Partnership/Distribution Agreement with Buena Vista
Internet Group and Infoseek Corporation dated January 15,
2000.
10.36 Series C Preferred Stock Purchase Agreement dated January
18, 2000.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney (see page II-5)
27.1* Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed by the registrant with the Commission.
+ Material has been omitted pursuant to a request for confidential treatment.
II-3
<PAGE> 98
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements 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 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, State of California on January 20, 2000.
PETS.COM, INC.
By: /s/ JULIA L. WAINWRIGHT
------------------------------------
Julia L. Wainwright
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that Mark Britto hereby appoints,
jointly and severally, Julia Wainwright and Paul Manca, and each of them, as his
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments), and any and all Registration Statements,
and amendments to the same, filed pursuant to Rule 462 under the Securities Act
of 1933, as amended, in connection with or related to the offering contemplated
by this Registration Statement and its amendments, if any, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming his
signatures as it may be signed by his said attorney to any and all amendments to
this Registration Statement.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ JULIA L. WAINWRIGHT Chief Executive Officer and January 20, 2000
- ----------------------------------------------------- Director
Julia L. Wainwright
/s/ PAUL G. MANCA Chief Financial Officer January 20, 2000
- ----------------------------------------------------- (Principal Financial and
Paul G. Manca Accounting Officer)
* Director January 20, 2000
- -----------------------------------------------------
John B. Balousek
/s/ MARK J. BRITTO Director January 20, 2000
- -----------------------------------------------------
Mark J. Britto
* Director January 20, 2000
- -----------------------------------------------------
Matthew T. Cowan
* Director January 20, 2000
- -----------------------------------------------------
John R. Hummer
</TABLE>
*By: /s/ JULIA L. WAINWRIGHT
---------------------------------
Julia L. Wainwright,
Attorney-in-Fact
II-5
<PAGE> 100
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of U.S. Purchase Agreement.
3.1 Fifth Amended and Restated Articles of Incorporation of
Pets.com.
3.2 Form of First Amended and Restated Certificate of
Incorporation of Pets.com, to be filed and effective upon
completion of this offering.
3.3* Bylaws of Pets.com, as amended.
3.4 Form of Bylaws of Pets.com, to be effective upon completion
of this offering.
4.1 Form of Pets.com common stock certificate.
5.1 Opinion of Venture Law Group, a Professional Corporation.
10.1* Form of Indemnification Agreement between Pets.com and each
of its officers and directors.
10.2.1 1999 Stock Plan, as amended.
10.2.2 2000 Employee Stock Purchase Plan.
10.3* Common Stock Purchase Agreement with Greg McLemore dated
February 17, 1999.
10.4* Restricted Stock Purchase Agreement dated March 10, 1999
with Julia Wainwright.
10.5* Bill of Sale and Assignment with Greg McLemore and Koala
Computer Products dated February 17, 1999.
10.6* Offer Letter dated March 4, 1999 with Julia L. Wainwright.
10.7* Offer Letter dated March 19, 1999 with Kathryn C. Ringewald.
10.8* Offer Letter dated March 24, 1999 with Christopher E. Deyo.
10.9* Offer Letter dated March 26, 1999 with John M. Hollon.
10.10* Offer Letter dated April 7, 1999 with Paul G. Melmon.
10.11* Offer Letter dated April 21, 1999 with John R. Benjamin.
10.12* Offer Letter dated April 22, 1999 with Diane R. Hourany.
10.13* Offer Letter dated May 1, 1999 with Sue Ann Latterman.
10.14* Offer Letter dated May 5, 1999 with John A. Hommeyer.
10.15* Offer Letter dated August 20, 1999 with Paul G. Manca.
10.16 Revised Offer Letter, as amended, dated November 15, 1999
with Ralph E. Lewis.
10.17* Series A Preferred Stock Purchase Agreement dated April 22,
1999.
10.18*+ Advertising Agreement with Amazon.com dated April 22, 1999.
10.19*+ Software License and Service Agreement with BroadVision,
Inc. dated May 15, 1999.
10.20* Series B Preferred Stock Purchase Agreement dated June 18,
1999
10.21*+ License and Integration Agreement with Quality Software
Systems, Inc. dated June 25, 1999.
10.22* PetPlace.com, Inc. Series A Preferred Stock Purchase
Agreement dated November 12, 1999.
10.23* Series B Preferred Stock and Convertible Note Purchase
Agreement dated November 5, 1999.
10.24 Amended and Restated Investors' Rights Agreement dated
January 18, 2000.
10.25*+ Lease Agreement, as amended, with the Paulsen Family
Partnership dated April 8, 1999 for offices at 435 Brannan
Street, San Francisco, California.
10.26*+ Sublease Agreement, as amended, with National Distribution
Agency, Inc. dated July 1, 1999 for a warehouse and
distribution center at 33201 Dowe Avenue, Union City,
California.
10.27*+ Lease Agreement with Bryant Springs L.L.C. dated September
20, 1999 for offices at 945 Bryant Street, San Francisco,
California.
10.28*+ Lease Agreement with Rosenburg SOMA Investments IV, L.L.C.
dated September 27, 1999 for a warehouse and distribution
center at 150-160 King Street, San Francisco, California.
10.29* Lease Agreement with Whipple Properties 1001, L.L.C. dated
November 5, 1999 for a warehouse and distribution center at
1035 Whipple Road, Hayward, California.
10.30*+ Lease Agreement with Precedent Industrial Group L.L.C. dated
December 7, 1999 for a warehouse and distribution center at
Building Number 1, Precedent South Business Center,
Greenwood, Indiana.
10.31 Pledge and Security Agreement with Paul Manca dated November
23 1999.
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.32+ Exclusive Cross Marketing Agreement with PetPlace.com, Inc.
dated September 17, 1999.
10.33+ Sponsorship Agreement with American Veterinary Medical
Foundation
dated October 21, 1999.
10.34+ Exclusive Sponsorship Agreement with American Veterinary
Medical Foundation dated October 21, 1999.
10.35+ Content Partnership/Distribution Agreement with Buena Vista
Internet Group and Infoseek Corporation dated January 15,
2000.
10.36 Series C Preferred Stock Purchase Agreement dated January
18, 2000.
21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney (see page II-5)
27.1* Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed by the registrant with the Commission.
+ Material has been omitted pursuant to a request for confidential treatment.
<PAGE> 1
EXHIBIT 1.1
PETS.COM, INC.
(a Delaware corporation)
6,000,000 Shares of Common Stock
(Par Value $0.00125 Per Share)
U.S. PURCHASE AGREEMENT
*, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Ltd.
Thomas Weisel Partners LLC
Warburg Dillon Read LLC
as U.S. Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Pets.com, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other U.S. Underwriters named in
Schedule A hereto (collectively, the "U.S. Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Bear, Stearns & Co. Ltd., Thomas Weisel
Partners LLC and Warburg Dillon Read LLC, are acting as representatives (in such
capacity, the "U.S. Representatives"), with respect to the issue and sale by the
Company and the purchase by the U.S. Underwriters, acting severally and not
jointly, of the respective numbers of shares of Common Stock, par value $0.001
per share, of the Company ("Common Stock") set forth in said Schedule A, and
with respect to the grant by the Company to the U.S. Underwriters, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of 900,000 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid 6,000,000 shares of Common Stock (the
"Initial U.S. Securities") to be purchased by the U.S. Underwriters and all or
any part of the 900,000 shares of Common Stock subject to the option
<PAGE> 2
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "U.S. Securities".
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of 1,500,000 shares of
Common Stock (the "Initial International Securities") through arrangements with
certain underwriters outside the United States and Canada (the "International
Managers") for which Merrill Lynch International is acting as lead manager (the
"Lead Manager") and the grant by the Company to the International Managers,
acting severally and not jointly, of an option to purchase all or any part of
the International Managers' pro rata portion of up to 225,000 additional shares
of Common Stock solely to cover over-allotments, if any (the "International
Option Securities" and, together with the U.S. Option Securities, the "Option
Securities"). The Initial International Securities and the International Option
Securities are hereinafter called the "International Securities". It is
understood that the Company is not obligated to sell and the U.S. Underwriters
are not obligated to purchase, any Initial U.S. Securities unless all of the
Initial International Securities are contemporaneously purchased by the
International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities", and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities".
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company understands that the U.S. Underwriters propose to make a
public offering of the U.S. Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
The Company and the U.S. Underwriters agree that up to 5% of the shares
of the Initial U.S. Securities to be purchased by the U.S. Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to certain
eligible employees and persons having business relationships with the Company,
as part of the distribution of the Securities by the Underwriters, subject to
the terms of this Agreement, the applicable rules, regulations and
interpretations of the National Association of Securities Dealers, Inc. and all
other applicable laws, rules and regulations. To the extent that such Reserved
Securities are not orally confirmed for purchase by such eligible employees and
persons having business relationships with the Company by the end of the first
business day after the date of this Agreement, such Reserved Securities may be
offered to the public as part of the public offering contemplated hereby.
<PAGE> 3
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-92433) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical to
the Form of U.S. Prospectus, except for the front cover and back cover pages and
the information under the caption "Underwriting" and the inclusion in the Form
of International Prospectus of a section under the caption "Certain United
States Tax Considerations for Non-United States Holders." The information
included in any such prospectus or in any such Term Sheet, as the case may be,
that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each Form of U.S. Prospectus and Form of
International Prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus." Such registration statement, including the exhibits
thereto and schedules thereto at the time it became effective and including the
Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final Form
of U.S. Prospectus and the final Form of International Prospectus in the forms
first furnished to the Underwriters for use in connection with the offering of
the Securities is herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated January 21, 2000 and preliminary
International Prospectus dated January 21, 2000, respectively, each together
with the applicable Term Sheet and all references in this Agreement to the date
of such Prospectuses shall mean the date of the Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
<PAGE> 4
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each U.S. Underwriter as of the date hereof, as of
the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each U.S.
Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information has
been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and
did not and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and the Prospectuses, any
preliminary prospectuses and any supplement thereto or prospectus
wrapper prepared in connection therewith, at their respective times of
issuance and at the Closing Time, complied and will comply in all
material respects with any applicable laws or regulations of foreign
jurisdictions in which the Prospectuses and such preliminary
prospectuses, as amended or supplemented, if applicable, are distributed
in connection with the offer and sale of Reserved Securities. Neither of
the Prospectuses nor any amendments or supplements thereto (including
any prospectus wrapper), at the time the Prospectuses or any amendments
or supplements thereto were issued and at the Closing Time (and, if any
U.S. Option Securities are purchased, at the Date of Delivery), included
or will include an untrue statement of a material fact or omitted or
will omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If Rule 434 is used, the Company will comply
with the requirements of Rule 434 and the Prospectuses shall not be
"materially different", as such term is used in Rule 434, from the
prospectuses included in the Registration Statement at the time it
became effective. The representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or the U.S. Prospectus made in reliance upon and in conformity
with information furnished to the Company in writing by any U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement or the U.S. Prospectus.
<PAGE> 5
Each preliminary prospectus and the prospectuses filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) Independent Accountants. To the Company's knowledge, the
accountants who certified the financial statements and supporting
schedules included in the Registration Statement are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included in
the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated and
the statement of operations, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
selected financial data and the summary financial information included
in the Prospectuses present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement.
(iv) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been
no material adverse change in the condition, financial or otherwise, or
in the earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business (a "Material Adverse
Effect"), (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses and to enter into and perform
<PAGE> 6
its obligations under this Agreement; and the Company is duly qualified
as a foreign corporation to transact business and is in good standing in
each other jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each "significant subsidiary"
of the Company (as such term is defined in Rule 1-02 of Regulation S-X)
(each a "Subsidiary" and, collectively, the "Subsidiaries") has been
duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectuses and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the conduct
of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any
Subsidiary was issued in violation of the preemptive or similar rights
of any securityholder of such Subsidiary. The only subsidiaries of the
Company are the subsidiaries listed on Exhibit 21 to the Registration
Statement.
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or
options referred to in the Prospectuses). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.
(viii) Authorization of Agreements. This Agreement and the
International Purchase Agreement have been duly authorized, executed and
delivered by the Company.
(ix) Authorization and Description of Securities. The Securities
to be purchased by the U.S. Underwriters and the International Managers
from the Company have been duly authorized for issuance and sale to the
U.S. Underwriters pursuant to this Agreement, the International Managers
pursuant to the International Purchase Agreement, respectively and, when
issued and delivered by the Company pursuant to this Agreement and the
International Purchase Agreement, respectively, against payment of the
<PAGE> 7
consideration set forth herein and the International Purchase Agreement,
respectively, will be validly issued and fully paid and non-assessable;
the Common Stock conforms to all statements relating thereto contained
in the Prospectuses and such description conforms to the rights set
forth in the instruments defining the same; no holder of the Securities
will be subject to personal liability by reason of being such a holder;
and the issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party
or by which it or any of them may be bound, or to which any of the
property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the International
Purchase Agreement and the consummation of the transactions contemplated
in this Agreement, the International Purchase Agreement and in the
Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities
as described in the Prospectuses under the caption "Use of Proceeds")
and compliance by the Company with its obligations under this Agreement
and the International Purchase Agreement have been duly authorized by
all necessary corporate action and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or Repayment Events, or liens, charges
or encumbrances that would not result in a Material Adverse Effect), nor
will such action result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any subsidiary or any of their
assets, properties or operations (except for violations of any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, that would not, singly or in the aggregate, result in a
Material Adverse Effect or in any way inhibit the ability of the Company
to consummate the transactions specified in this Agreement). As used
herein, a "Repayment Event" means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by the Company or any subsidiary.
<PAGE> 8
(xi) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case, may reasonably be expected to result
in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in this Agreement and the International Purchase Agreement
or the performance by the Company of its obligations hereunder or
thereunder; the aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary is a party or of
which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or documents
which are required to be described in the Registration Statement or the
Prospectuses or to be filed as exhibits thereto which have not been so
described and filed as required.
(xiv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the
<PAGE> 9
Company of its obligations under this Agreement and the International
Purchase Agreement, in connection with the offering, issuance or sale of
the Securities under this Agreement and the International Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the International Purchase Agreement, except (i) such as
have been already obtained or as may be required under the 1933 Act or
the 1933 Act Regulations and foreign or state securities laws or blue
sky laws and (ii) such as have been obtained under the laws and
regulations of jurisdictions outside the United States in which the
Reserved Securities are offered.
(xvi) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the failure to possess such Governmental Licenses would not,
singly or in the aggregate, have a Material Adverse Effect; the Company
and its subsidiaries are in compliance with the terms and conditions of
all such Governmental Licenses, except where the failure so to comply
would not, singly or in the aggregate, have a Material Adverse Effect;
all of the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure
of such Governmental Licenses to be in full force and effect would not
have a Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xvii) Title to Property. The Company and its subsidiaries have
good and marketable title to all real property owned by the Company and
its subsidiaries and good title to all other properties owned by them,
in each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectuses or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company or any of its subsidiaries; and all of the leases and
subleases material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectuses, are in full
force and effect, and neither the Company nor any subsidiary has any
notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such subsidiary to the continued possession
of the leased or subleased premises under any such lease or sublease.
(xviii) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds
<PAGE> 10
therefrom as described in the Prospectuses will not be, an "investment
company" or an entity "controlled" by an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
(xix) Environmental Laws. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in
a Material Adverse Effect to the Company's knowledge, (A) neither the
Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices
of noncompliance or violation, investigation or proceedings relating to
any Environmental Law against the Company or any of its subsidiaries and
(D) there are no events or circumstances that might reasonably be
expected to form the basis of an order for clean-up or remediation, or
an action, suit or proceeding by any private party or governmental body
or agency, against or affecting the Company or any of its subsidiaries
relating to Hazardous Materials or any Environmental Laws.
(xx) Registration Rights. Except as described in the
Prospectuses, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xxi) Internal Accounting Controls. The Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
<PAGE> 11
(xxii) Year 2000 Problem. The Company has reviewed its operations
and that of its subsidiaries and any third parties with which the
Company or any of its subsidiaries has a material relationship to
evaluate the extent to which the business or operations of the Company
or any of its subsidiaries will be affected by the Year 2000 Problem. As
a result of such review, the Company has no reason to believe, and does
not believe, that the Year 2000 Problem will have a material adverse
effect on the general affairs, management, the current or future
consolidated financial position, business prospects, stockholders'
equity or results of operations of the Company and its subsidiaries or
result in any material loss or interference with the Company's business
or operations. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000.
(xxiii) Compliance with Laws. Each of the Company and its
subsidiaries is to their knowledge in compliance with the requirements
of all laws, regulations and orders applicable to the Company or such
subsidiaries or their business, and has filed all notices, reports,
documents or other information required to be filed thereunder, except
where the failure to comply with such requirement could not reasonably
be expected to have a Material Adverse Effect.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each U.S. Underwriter, severally and not
jointly, and each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Company, at the price per share set forth in Schedule B, the
number of Initial U.S. Securities set forth in Schedule A opposite the name of
such U.S. Underwriter, plus any additional number of Initial U.S. Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the U.S. Underwriters,
severally and not jointly, to purchase up to an additional 900,000 shares of
Common Stock at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable
<PAGE> 12
on the Initial U.S. Securities but not payable on the U.S. Option Securities.
The option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Company setting forth the number of U.S. Option Securities as
to which the several U.S. Underwriters are then exercising the option and the
time and date of payment and delivery for such U.S. Option Securities. Any such
time and date of delivery (a "Date of Delivery") for the U.S. Option Securities
shall be determined by the Global Coordinator, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the U.S. Option Securities, each of the U.S. Underwriters,
acting severally and not jointly, will purchase that proportion of the total
number of U.S. Option Securities then being purchased which the number of U.S.
Initial Securities set forth in Schedule A opposite the name of such U.S.
Underwriter bears to the total number of U.S. Initial Securities, subject in
each case to such adjustments as the Global Coordinator in its discretion shall
make to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Venture
Law Group, 2775 Sand Hill Road, Menlo Park, CA 94025, or at such other place as
shall be agreed upon by the Global Coordinator and the Company, at 7:00 A.M.
(California time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Global Coordinator and the Company (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities
are purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representatives for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. It is understood
that each U.S. Underwriter has authorized the U.S. Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial U.S. Securities and the U.S. Option Securities, if any,
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Initial U.S. Securities or the U.S. Option
Securities, if any, to be purchased by any U.S. Underwriter whose funds have not
been received by the Closing Time or the relevant Date of Delivery, as the case
may be, but such payment shall not relieve such U.S. Underwriter from its
obligations hereunder.
<PAGE> 13
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
U.S. Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator promptly, (i) when any post- effective amendment
to the Registration Statement shall become effective, or any supplement
to the Prospectuses or any amended Prospectuses shall have been filed,
(ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectuses or for
additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes.
The Company will promptly effect the filings necessary pursuant to Rule
424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order
and, if any stop order is issued, to obtain the lifting thereof at the
earliest possible moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any
Term Sheet or any amendment, supplement or revision to any prospectus
included in the Registration Statement at the time it became effective
or to the Prospectuses, will furnish the Global Coordinator with copies
of any such documents a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file or use any such
document to which the Global Coordinator or counsel for the U.S.
Underwriters shall object.
(c) Delivery of Registration Statements. The Company has
furnished or will
<PAGE> 14
deliver to the U.S. Representatives and counsel for the U.S.
Underwriters, without charge, copies of all consents and certificates of
experts, and will also deliver to the U.S. Representatives, without
charge, a conformed copy of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) for each of the
U.S. Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the U.S. Underwriters will be identical
to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
U.S. Underwriter, without charge, as many copies of each preliminary
prospectus as such U.S. Underwriter reasonably requested, and the
Company hereby consents to the use of such copies for purposes permitted
by the 1933 Act. The Company will furnish to each U.S. Underwriter,
without charge, during the period when the U.S. Prospectus is required
to be delivered under the 1933 Act or the Securities Exchange Act of
1934 (the "1934 Act"), such number of copies of the U.S. Prospectus (as
amended or supplemented) as such U.S. Underwriter may reasonably
request. The U.S. Prospectus and any amendments or supplements thereto
furnished to the U.S. Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit
the completion of the distribution of the Securities as contemplated in
this Agreement, the International Purchase Agreement and in the
Prospectuses. If at any time when a prospectus is required by the 1933
Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the U.S. Underwriters or for
the Company, to amend the Registration Statement or amend or supplement
any Prospectus in order that the Prospectuses will not include any
untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the Prospectuses
comply with such requirements, and the Company will furnish to the U.S.
Underwriters such number of copies of such amendment or supplement as
the U.S. Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the U.S. Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws of
such states and other jurisdictions (domestic or
<PAGE> 15
foreign) as the Global Coordinator may designate and to maintain such
qualifications in effect for a period of not less than one year from the
later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall
not be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to
its securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market
and will file with the Nasdaq National Market all documents and notices
required by the Nasdaq National Market of companies that have securities
that are traded in the over-the-counter market and quotations for which
are reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 180
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of
any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Securities to be sold hereunder or under the International
Purchase Agreement, (B) any shares of Common Stock issued by the Company
upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the
Prospectuses, (C) any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to existing
<PAGE> 16
employee benefit plans of the Company referred to in the Prospectuses or
(D) any shares of Common Stock issued pursuant to any non-employee
director stock plan or dividend reinvestment plan.
(k) Reporting Requirements. The Company, during the period when
the Prospectuses are required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that it
will ensure that the Reserved Securities will be restricted as required
by the National Association of Securities Dealers, Inc. (the "NASD") or
the NASD rules from sale, transfer, assignment, pledge or hypothecation
for a period of three months following the date of this Agreement. The
Underwriters will notify the Company as to which persons will need to be
so restricted. At the request of the Underwriters, the Company will
direct the transfer agent to place a stop transfer restriction upon such
securities for such period of time. Should the Company release, or seek
to release, from such restrictions any of the Reserved Securities, the
Company agrees to reimburse the Underwriters for any reasonable expenses
(including, without limitation, legal expenses) they incur in connection
with such release.
(m) Compliance with Rule 463. The Company will file with the
Commission such reports on Form SR as may be required pursuant to Rule
463 of the 1933 Act Regulations.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters and the transfer of
the Securities between the U.S. Underwriters and the International Managers,
(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary
<PAGE> 17
prospectus, any Term Sheets and of the Prospectuses and any amendments or
supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities, (x) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq National Market and (y) all costs and
expenses of the Underwriters, including the fees and disbursements of counsel
for the Underwriters, in connection with matters related to the Reserved
Securities which are designated by the Company for sale to employees and others
having a business relationship with the Company.
(b) Termination of Agreement. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The obligations
of the several U.S. Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, shall have
become effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction
of counsel to the U.S. Underwriters. A prospectus containing the Rule
430A Information shall have been filed with the Commission in accordance
with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance
with the requirements of Rule 430A) or, if the Company has elected to
rely upon Rule 434, a Term Sheet shall have been filed with the
Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Venture Law Group, counsel for the Company, in form and
substance reasonably satisfactory to counsel for the U.S. Underwriters,
together with signed or reproduced copies of such letter for each of the
other U.S. Underwriters to the effect set forth in Exhibit A hereto and
to such further effect as counsel to the U.S. Underwriters may
<PAGE> 18
reasonably request.
(c) Opinion of Counsel for U.S. Underwriters. At Closing Time,
the U.S. Representatives shall have received the favorable opinion,
dated as of Closing Time, of Shearman & Sterling, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters with respect to the matters set
forth in clauses (i), (ii), (v), (vi) (solely as to preemptive or other
similar rights arising by operation of law or under the charter or
by-laws of the Company), (viii) through (x), inclusive, (xii), (xiv)
(solely as to the information in the Prospectus under "Description of
Capital Stock--Common Stock") and the penultimate paragraph of Exhibit A
hereto. In giving such opinion such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of
New York and the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the U.S. Representatives. Such counsel may also state
that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of
the Company and its subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in
the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary
course of business, and the U.S. Representatives shall have received a
certificate of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company, dated as
of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has complied
with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or,
to such officer's knowledge are pending or are contemplated by the
Commission.
(e) Accountants' Comfort Letter. At the time of the execution of
this Agreement, the U.S. Representatives shall have received from Ernst
& Young LLP a letter dated such date, in form and substance reasonably
satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other U.S. Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectuses.
<PAGE> 19
(f) Bring-down Comfort Letter. At Closing Time, the U.S.
Representatives shall have received from Ernst & Young LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject
only to official notice of issuance.
(h) No Objection. The NASD has confirmed that it has not raised
any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the
form agreed to by the U.S. Representatives signed by the directors and
executive officers of the Company and stockholders that own more than
___ shares of the Company.
(j) Purchase of Initial International Securities.
Contemporaneously with the purchase by the U.S. Underwriters of the
Initial U.S. Securities under this Agreement, the International Managers
shall have purchased the Initial International Securities under the
International Purchase Agreement.
(k) Conditions to Purchase of U.S. Option Securities. In the
event that the U.S. Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the U.S. Option
Securities, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Company
or any subsidiary of the Company hereunder shall be true and correct as
of each Date of Delivery and, at the relevant Date of Delivery, the U.S.
Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date
of Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company confirming that the certificate delivered at Closing Time
pursuant to Section 5(d) hereof remains true and correct as of
such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion
of Venture Law Group, A Professional Corporation, counsel for the
Company, in form and substance reasonably satisfactory to counsel
for the U.S. Underwriters, dated such Date of Delivery, relating
to the U.S. Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required
by Section 5(b) hereof.
<PAGE> 20
(iii) Opinion of Counsel for U.S. Underwriters. The
favorable opinion of Shearman & Sterling, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the
U.S. Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from Ernst &
Young LLP, in form and substance reasonably satisfactory to
the U.S. Representatives and dated such Date of Delivery,
substantially in the same form and substance as the letter
furnished to the U.S. Representatives pursuant to Section 5(f)
hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more
than five days prior to such Date of Delivery.
(l) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished
with such documents and opinions as they may reasonably require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities as
herein contemplated shall be satisfactory in form and substance to the
U.S. Representatives and counsel for the U.S. Underwriters.
(m) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of U.S. Option Securities, on a Date of Delivery which is
after the Closing Time, the obligations of the several U.S.
Underwriters to purchase the relevant Option Securities, may be
terminated by the U.S. Representatives by notice to the Company at any
time at or prior to Closing Time or such Date of Delivery, as the case
may be, and such termination shall be without liability of any party to
any other party except as provided in Section 4 and except that
Sections 1, 6, 7 and 8 shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of U.S. Underwriters. The Company agrees
to indemnify and hold harmless each U.S. Underwriter and each person,
if any, who controls any U.S. Underwriter within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or the omission or
<PAGE> 21
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the Prospectuses
(or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of any
applicable laws or regulations of foreign jurisdictions where Reserved
Securities have been offered and (B) any untrue statement or alleged
untrue statement of a material fact included in the supplement or
prospectus wrapper material distributed in connection with the
reservation and sale of the Reserved Securities to eligible employees
and directors, officers, business associates and related persons of the
Company or the omission or alleged omission therefrom of a material fact
necessary to make the statements therein, when considered in conjunction
with the Prospectuses or preliminary prospectuses, and in the light of
the circumstances under which they were made not misleading;
(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 6(a)(ii)(A) hereof;
provided that (subject to Section 6(d) below) any such settlement is
effected with the written consent of the Company; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission [or in connection with any
violation of the nature referred to in Section 6(a)(ii)(A) hereof, to
the extent that any such expense is not paid under (i), (ii) or (iii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) provided
further, that the Company will
<PAGE> 22
not be liable to any Underwriter with respect to any preliminary prospectus to
the extent that any such loss, liability, claim, damage, or expense would not
have been incurred, but for the fact that such Underwriter, in contravention of
a requirement of applicable law, sold Securities to a person to whom such
Underwriter failed to send or give, at or prior to the written confirmation of
the sale of such Securities (the "Confirmation"), a copy of the Prospectus, as
then amended or supplemented if the Company has previously furnished copies
thereof to the Underwriters (sufficiently in advance of the Confirmation and in
sufficient quantity to allow for distribution by the Confirmation) and the loss,
liability, claim, damage or expense of such Underwriter resulted from an untrue
statement or omission of a material fact contained in or omitted from the
preliminary prospectus that was corrected in the Prospectus as, if applicable,
amended or supplemented prior to the Confirmation and such Prospectus was
required by law to be delivered at or prior to the Confiramtion.
(b) Indemnification of Company, Directors and Officers. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense whatsoever described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary U.S.
prospectus or the U.S. Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such U.S. Underwriter through the U.S. Representatives expressly for
use in the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto).
(c) Actions Against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written
<PAGE> 23
consent of the indemnified parties, settle or compromise or consent to the entry
of any judgment with respect to any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever in respect of which indemnification or contribution could be
sought under this Section 6 or Section 7 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request in writing, to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of eligible employees and directors,
officers, business associates and related persons of the Company to pay for and
accept delivery of Reserved Securities which, by the end of the first business
day following the date of this Agreement, were subject to a properly confirmed
agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the U.S. Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the U.S.
Underwriters on the other hand in connection with the statements or omissions,
or in connection with any violation of the nature referred to in Section
6(a)(ii)(A) hereof, which resulted in such losses, liabilities, claims, damages
or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
U.S. Underwriters
<PAGE> 24
on the other hand in connection with the offering of the U.S. Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the U.S. Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the U.S. Underwriters, in each
case as set forth on the cover of the U.S. Prospectus, or, if Rule 434 is used,
the corresponding location on the Term Sheet, bear to the aggregate initial
public offering price of the U.S. Securities as set forth on such cover.
The relative fault of the Company on the one hand and the U.S.
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission or any violation of the nature referred to in Section
6(a)(ii)(A) hereof.
The Company and the U.S. Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section were determined by pro
rata allocation (even if the U.S. Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The U.S.
Underwriters' respective obligations to contribute pursuant to this Section are
several in proportion to the number of Initial
<PAGE> 25
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the Nasdaq
National Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal, California or New York
authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one or
more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and
<PAGE> 26
upon the terms herein set forth; if, however, the U.S. Representatives shall not
have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of U.S. Securities to be purchased on such date, the
non-defaulting U.S. Underwriters shall be obligated, each severally and
not jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of U.S. Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after Closing
Time, the obligation of the U.S. Underwriters to purchase and of the
Company to sell the Option Securities to be purchased and sold on such
Date of Delivery shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after Closing
Time, which does not result in a termination of the obligation of the U.S.
Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectuses or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at 101 California
Street, Suite 1420, San Francisco, California 94111, attention of Curtis Akey;
and notices to the Company shall be directed to it at Pets.com, Inc., 435
Brannan Street, San Francisco, CA 94017, attention of Paul Manca.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and
<PAGE> 27
provisions hereof are intended to be for the sole and exclusive benefit of the
U.S. Underwriters and the Company and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any U.S. Underwriter shall be deemed to be a
successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
<PAGE> 28
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.
Very truly yours,
PETS.COM, INC.
By
--------------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BEAR, STEARNS & CO. LTD.
THOMAS WEISEL PARTNERS LLC
WARBURG DILLON READ LLC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------------
Authorized Signatory
For themselves and as U.S. Representative of the other U.S. Underwriters named
in Schedule A hereto.
<PAGE> 29
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial U.S.
Name of Underwriter Securities
------------------- -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
Bear, Stearns & Co. Ltd....................................................
Thomas Weisel Partners LLC.................................................
Warburg Dillon Read LLC....................................................
---------
Total...................................................................... 6,000,000
=========
</TABLE>
<PAGE> 30
SCHEDULE B
PETS.COM, INC.
900,000 Shares of Common Stock
(Par Value $0.00125 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $*.
2. The purchase price per share for the U.S. Securities to be paid by
the several U.S. Underwriters shall be $*, being an amount equal to the initial
public offering price set forth above less $* per share; provided that the
purchase price per share for any U.S. Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial U.S. Securities but not payable on the U.S.
Option Securities.
<PAGE> 1
EXHIBIT 3.1
FIFTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PETS.COM, INC.
The undersigned, Julia L. Wainwright and John V. Bautista, hereby
certify that:
1. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of Pets.com, Inc., a California corporation.
2. The Articles of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is Pets.com, Inc. (the "Corporation").
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) CLASSES OF STOCK. 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
Fifty-Eight Million Six Hundred Twenty-Seven Thousand Three Hundred Twenty-Eight
(58,627,328) shares, each with a par value of $0.001 per share. Thirty-Six
Million (36,000,000) shares shall be Common Stock and Twenty-Two Million Six
Hundred Twenty-Seven Thousand Three Hundred Twenty-Eight (22,627,328) shares
shall be Preferred Stock.
(B) RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK. The
Preferred Stock authorized by these Fifth Amended and Restated Articles 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 Seven Million Two Hundred Twenty-Seven Thousand Three Hundred
Twenty-Eight (7,227,328) shares, the second series of Preferred Stock
<PAGE> 2
shall be designated "Series B Preferred Stock" and shall consist of Thirteen
Million Nine Hundred Thousand (13,900,000) shares and the third series of
Preferred Stock shall be designated "Series C Preferred Stock" and shall consist
of One Million Five Hundred Thousand (1,500,000) shares. The rights,
preferences, privileges, and restrictions granted to and imposed on the Series
A, Series B and Series C Preferred Stock are as set forth below in this Article
III(B).
1. DIVIDEND PROVISIONS. The holders of shares of Series A, Series
B and Series C 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, at the rate of (a) $0.15
per share (appropriately adjusted to reflect subsequent stock splits, stock
dividends, combinations or other recapitalizations) per annum on each
outstanding share of Series A Preferred Stock, (b) $0.75 per share
(appropriately adjusted to reflect subsequent stock splits, stock dividends,
combinations or other recapitalizations) per annum on each outstanding share of
Series B Preferred Stock and (c) $0.85 per share (appropriately adjusted to
reflect subsequent stock splits, stock dividends, combinations or other
recapitalizations) per annum on each outstanding share of Series C Preferred
Stock, payable when, as and if declared by the Board of Directors. Such
dividends shall not be cumulative. No dividend shall be paid on the Common Stock
in any fiscal year unless a dividend shall first have been paid in full on the
Preferred Stock in an amount for each such share of Preferred Stock equal to or
greater than the aggregate amount of dividends for all Common Stock into which
each such share of Preferred Stock could then be converted. The holders of
outstanding Series A Preferred Stock can waive any dividend preference that such
holders shall be entitled to receive under this Section 1 upon the affirmative
vote or written consent of the holders of at least seventy percent (70%) of the
Series A Preferred Stock then outstanding. The holders of outstanding Series B
Preferred Stock can waive any dividend preference that such holders shall be
entitled to receive under this Section 1 upon the affirmative vote or written
consent of the holders of at least seventy percent (70%) of the Series B
Preferred Stock then outstanding. The holders of outstanding Series C Preferred
Stock can waive any dividend preference that such holders shall be entitled to
receive under this Section 1 upon the affirmative vote or written consent of the
holders of at least seventy percent (70%) of the Series C Preferred Stock then
outstanding.
2. LIQUIDATION.
(a) PREFERENCE. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Series A, Series B and Series C Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Common Stock by reason of their ownership thereof,
an amount per share equal to (i) $1.45 per share (appropriately adjusted to
reflect subsequent stock splits, stock dividends, combinations or other
recapitalizations) for each share of Series A Preferred Stock then held by them,
plus declared but unpaid dividends (appropriately adjusted to reflect subsequent
stock splits, stock dividends, combinations or other
<PAGE> 3
recapitalizations), (ii) $7.55 per share (appropriately adjusted to reflect
subsequent stock splits, stock dividends, combinations or other
recapitalizations) for each share of Series B Preferred Stock then held by them,
plus declared but unpaid dividends (appropriately adjusted to reflect subsequent
stock splits, stock dividends, combinations or other recapitalizations) and (i)
$8.55 per share (appropriately adjusted to reflect subsequent stock splits,
stock dividends, combinations or other recapitalizations) for each share of
Series C Preferred Stock then held by them, plus declared but unpaid dividends
(appropriately adjusted to reflect subsequent stock splits, stock dividends,
combinations or other recapitalizations),. If, upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series A,
Series B and Series C Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then, the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A, Series B and
Series C Preferred Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
(b) REMAINING ASSETS. Upon the completion of the
distribution required by Section 2(a) above, the remaining assets of the
Corporation available for distribution to shareholders shall be distributed
among the holders of the Series A Preferred Stock and the Common Stock pro rata
based on the number of shares of Common Stock held by each (assuming conversion
of all such Series A Preferred Stock) until the holders of the Series A
Preferred Stock shall have received an aggregate of $5.80 per share (including
amounts paid pursuant to Section 2(a) above)(appropriately adjusted to reflect
subsequent stock splits, stock dividends, combinations or other
recapitalizations); thereafter, if assets remain in the Corporation, the holders
of the Common Stock of the Corporation shall receive all of the remaining assets
of the Corporation pro rata based on the number of shares of Common Stock held
by each.
(c) CERTAIN ACQUISITIONS.
(i) DEEMED LIQUIDATION. For purposes of this Section 2,
a liquidation, dissolution or winding up of the Corporation shall be deemed to
occur if the Corporation shall 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 other transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Corporation is disposed of,
provided that this Section 2(c)(i) shall not apply to a merger effected solely
for the purpose of changing the domicile of the Corporation.
(ii) VALUATION OF CONSIDERATION. In the event of a
deemed liquidation as described in Section 2(c)(i) above, 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:
<PAGE> 4
(1) If traded on a securities exchange or The
Nasdaq Stock Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day (30) period ending
three (3) 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 (30) period ending three (3) days
prior to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(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 shareholder'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 mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock.
(iii) NOTICE OF TRANSACTION. The Corporation shall give
each holder of record of Series A Preferred Stock, each holder of record of
Series B Preferred Stock and each holder of record of Series C Preferred Stock
written notice of such impending transaction not later than fifteen (15) days
prior to the shareholders' meeting called to approve such transaction, or
fifteen (15) days prior to the closing of such transaction, whichever is
earlier, and shall also notify such holders 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 such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than
fifteen (15) 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 Preferred Stock that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
(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 Series A Preferred
Stock, Series B Preferred Stock and Series C 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. REDEMPTION. The Preferred Stock is not redeemable.
<PAGE> 5
4. CONVERSION. The holders of the Series A, Series B and Series C
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) RIGHT TO CONVERT. Subject to Section 4(c), each share of
Series A, Series B and Series C Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (i) $1.45 in the case of Series A Preferred Stock, (ii)
$7.55 in the case of Series B Preferred Stock and (iii) $8.55 in the case of
Series C Preferred Stock by the Conversion Price applicable to such share,
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 $1.45, per share of Series B Preferred Stock shall be
$7.55, and per share of Series C Preferred Stock shall be $8.55. Such initial
Conversion Prices shall be subject to adjustment as set forth in Section 4(d).
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall automatically
be converted into shares of Common Stock at the Conversion Price at the time in
effect for such share immediately upon the earlier of (i) except as provided
below in Section 4(c), 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") (an "IPO"),
the public offering price of which is not less than $10.00 per share
(appropriately adjusted to reflect subsequent stock splits, stock dividends,
combinations or other recapitalizations) and which results in aggregate cash
proceeds to the Corporation of $10,000,000 (net of underwriting discounts and
commissions); provided, however, if an IPO has not occurred by January 31, 2001,
then the IPO price provided in the preceding clause shall thereafter be $11.00
per share (appropriately adjusted to reflect subsequent stock splits, stock
dividends, combinations or other recapitalizations), or (ii) if the IPO price is
not less than $8.55 per share (appropriately adjusted to reflect subsequent
stock splits, stock dividends, combinations or other recapitalizations), the
date specified by written consent or agreement of the holders of at least
seventy percent (70%) of the then outstanding shares of Preferred Stock.
(c) MECHANICS OF CONVERSION. Before any holder of Series A,
Series B or Series C Preferred Stock shall be entitled to convert the same into
shares of Common Stock, it shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for such series of 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, a
certificate or certificates for the number of shares of Common Stock to which
such holder 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 such series of 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
<PAGE> 6
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 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 Preferred Stock shall not be deemed to have converted such
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 Conversion Price of the
Series A, Series B and Series C 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 or Series C Preferred Stock were first issued (the "Purchase Date"
with respect to such series), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior to each
such issuance shall automatically be adjusted as set forth in this Section
4(d)(i), unless otherwise provided in this Section 4(d)(i).
(A) ADJUSTMENT FORMULA. Whenever the Conversion
Price is adjusted pursuant to this Section (4)(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. For
purposes of the foregoing calculation, the term "Outstanding Common" shall
include shares of Common Stock deemed issued pursuant to Section 4(d)(i)(E)
below.
(B) DEFINITION OF "ADDITIONAL STOCK". For purposes
of this Section 4(d)(i), "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to Section 4(d)(i)(E)) by
the Corporation after the Purchase Date) other than
(1) Common Stock issued pursuant to a
transaction described in Section 4(d)(ii) hereof,
(2) Up to 7,769,159 shares of Common Stock or
such additional number of shares of Common Stock as shall have been approved
unanimously by the Corporation's Board of Directors (appropriately adjusted to
reflect subsequent stock splits, stock dividends, combinations or other
recapitalizations) issuable or issued to employees, consultants or directors of
the Corporation directly or pursuant to a stock option plan or restricted stock
plan approved by the Board of Directors of the Corporation,
<PAGE> 7
(3) Capital stock, or options or warrants to
purchase capital stock, issued to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions, provided (i) that such transactions have been approved by the
Board of Directors of the Corporation and are not primarily for purposes of an
equity financing, and (ii) that any options or warrants for Preferred Stock of
the Corporation issued in connection therewith are exercisable for a price that
is equal to or greater than the Conversion Price set forth in Section 4(a)
above,
(4) Shares of Common Stock or Preferred Stock
issuable upon exercise of warrants outstanding as of the date of these Amended
and Restated Articles of Incorporation,
(5) 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, and provided that any warrants or options for
Preferred Stock of the Corporation issued in connection therewith are
exercisable for a price that is equal to or greater than the Conversion Price
set forth in Section 4(a) above,
(6) Shares of Common Stock issued or issuable
upon conversion of the Preferred Stock, and
(7) Shares of Common Stock issued or issuable
in a public offering in which all outstanding shares of Preferred Stock will be
converted to Common Stock immediately prior to consummation of such public
offering.
(C) NO FRACTIONAL ADJUSTMENTS. No adjustment of
the Conversion Price for the Series A, Series B or Series C Preferred Stock
shall be made in an amount less than one cent per share, provided that any
adjustments that 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 (3) years from the date of the event giving rise
to the adjustment being carried forward, or shall be made at the end of three
(3) 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 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
<PAGE> 8
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 4(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)(to the
extent then exercisable) 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 4(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)(to the extent convertible or
exchangeable) 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 4(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 each of the Series A Preferred Stock, the Series B Preferred
Stock and the Series C 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.
(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 each of the Series A Preferred
Stock, Series B Preferred Stock and the Series C Preferred Stock, to the
<PAGE> 9
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 4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to
reflect any change, termination or expiration of the type described in either
Section 4(d)(i)(E)(3) or 4(d)(i)(E)(4).
(F) NO INCREASED CONVERSION PRICE.
Notwithstanding any other provisions of this Section (4)(d)(i), except to the
limited extent provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4), no
adjustment of the Conversion Price pursuant to this Section 4(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 of the Series A Preferred
Stock, Series B Preferred Stock and the Series C Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series 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 4(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 of
the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in outstanding shares.
(e) OTHER DISTRIBUTIONS. In the event the
Corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the
<PAGE> 10
Corporation or other persons, assets (excluding cash dividends) or options or
rights not referred to in Section 4(d)(ii), then, in each such case for the
purpose of this Section 4(e), the holders of Series A Preferred Stock, the
holders of Series B Preferred Stock and the holders of Series C 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 4 or Section 2) provision shall be made so that the
holders of the Series A Preferred Stock, the holders of the Series B Preferred
Stock and the holders of the Series C Preferred Stock shall thereafter be
entitled to receive upon conversion of such 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 4 with
respect to the rights of the holders of such Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of such 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 Articles 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 4 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 Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. The number of
shares issuable upon such conversion shall be determined on the basis of the
total number of shares of Series A Preferred Stock, Series B Preferred Stock or
Series C 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 Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock pursuant to this Section 4, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
<PAGE> 11
holder of such Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of 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
such series of 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 Series A, Series B or Series C
Preferred Stock, at least ten (10) 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 Series A, Series B or Series C
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 such
series 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 such series of Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Preferred Stock,
the Corporation will take such corporate action as may, in the 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
shareholder approval of any necessary amendment to these articles.
(k) NOTICES. Any notice required by the
provisions of this Section 4 to be given to the holders of shares of Series A,
Series B or Series C Preferred Stock shall be deemed given if 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.
5. VOTING RIGHTS. Except as otherwise required by law, the holder
of each share of Series A, Series B or Series C Preferred Stock shall have the
right to one vote for each share of Common Stock into which such Preferred Stock
could then be converted, and with respect to such vote, such holder 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 shareholders' meeting in accordance with the bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect
<PAGE> 12
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 Series A, Series B or Series C Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
6. PROTECTIVE PROVISIONS.
(a) So long as any shares of Preferred Stock are outstanding
(as adjusted for stock splits, stock dividends or recapitalizations), the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least seventy percent (70%) of
the then outstanding shares of Preferred Stock, voting together as a class:
(i) effect a transaction described in Section 2(c)(i)
above;
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of any class or series of
capital stock of the Corporation;
(iii) redeem, purchase or otherwise acquire (or pay
into or set funds aside for a sinking fund for such purpose) any share or shares
of Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock not in excess of $250,000 in any fiscal
year 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 cost
upon the occurrence of certain events, such as the termination of employment, or
through the exercise of any right of first refusal;
(iv) authorize the payment of a cash dividend to
holders of any class or series of capital stock of the Corporation;
(v) increase the number of directors comprising the
Corporation's Board of Directors; or
(vi) undertake any action that would result in taxation
of the holders of Preferred Stock pursuant to Section 305 of the Internal
Revenue Code of 1986, as amended.
(b) So long as shares of Series A Preferred Stock are
outstanding (as adjusted for stock splits, stock dividends or
recapitalizations), 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 two-thirds (2/3rds) of the then outstanding shares of Series A Preferred
Stock, voting together as a series:
<PAGE> 13
(i) alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock so as to affect adversely
the shares of such series; or
(ii) 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 any rights, preferences or
privileges over the Series A Preferred Stock.
(c) So long as shares of Series B Preferred Stock are
outstanding (as adjusted for stock splits, stock dividends or
recapitalizations), 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 seventy-two percent (72%) of the then outstanding shares of Series B
Preferred Stock, voting together as a series:
(i) alter or change the rights, preferences or
privileges of the shares of Series B Preferred Stock so as to affect adversely
the shares of such series; or
(ii) 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 any rights, preferences or
privileges over the Series B Preferred Stock.
(d) So long as shares of Series C Preferred Stock are
outstanding (as adjusted for stock splits, stock dividends or
recapitalizations), 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 C Preferred Stock,
voting together as a series:
(i) alter or change the rights, preferences or
privileges of the shares of Series C Preferred Stock so as to affect adversely
the shares of such series; or
(ii) 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 any rights, preferences or
privileges over the Series C Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be cancelled and shall not be issuable by the Corporation. The
Articles of Incorporation of the Corporation shall be appropriately amended to
effect the corresponding reduction in the Corporation's authorized capital
stock.
8. REPURCHASE OF SHARES. In connection with repurchases by the
Corporation of its Common Stock pursuant to its agreements with certain of the
holders thereof, Sections 502 and 503 of the California General Corporation Law
shall not apply in whole or in part with respect to such repurchases.
<PAGE> 14
(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 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 III.
3. REDEMPTION. The Common Stock is not redeemable.
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 shareholders'
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 IV
(A) The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(B) The Corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the California Corporations Code) to the fullest
extent permissible under California law.
(C) Any amendment or repeal or modification of the foregoing provisions
of this Article IV by the shareholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
* * *
3. The foregoing amendment has been approved by the Board of Directors
of this corporation.
4. The foregoing amendment was approved by the holders of the requisite
number of shares of this corporation in accordance with Sections 902 and 903 of
the California General Corporation Law. The total number of outstanding shares
entitled to vote with respect to the foregoing amendment was 5,802,246 shares of
Common Stock, 7,227,328 shares of Series A Preferred Stock, and 13,148,347
shares of Series B Preferred Stock. The number of shares voting in favor of the
foregoing amendment equaled or exceeded the vote required. The percentage vote
required was a majority of the outstanding shares of Common Stock, at least
seventy percent (70%) of the outstanding shares of Preferred Stock voting
together as a class,
<PAGE> 15
two-thirds (2/3rds) of the outstanding shares of Series A Preferred Stock, 72%
of the Series B Preferred Stock, and a majority of the outstanding shares of
Series C Preferred Stock. There are no shares of Series C Preferred Stock
outstanding.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 16
The undersigned certify under penalty of perjury under the laws of the
State of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Executed at San Francisco, California, on January 18, 2000.
\s\ Julia L. Wainwright
--------------------------------------------
Julia L. Wainwright, Chief Executive Officer
\s\ John V. Bautista
--------------------------------------------
John V. Bautista, Secretary
-16-
<PAGE> 1
EXHIBIT 3.2
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PETS.COM, INC.
The undersigned, Julia L. Wainwright and John V. Bautista, hereby
certify that:
1. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of Pets.com, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on January 7, 2000.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is Pets.com, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
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, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the Corporation is authorized to issue is One
Hundred Fifty-Five Million shares (155,000,000), each with a par value of
$0.00125 per share. One Hundred Fifty Million (150,000,000) shares shall be
Common Stock and Five Million (5,000,000) shares shall be Preferred Stock.
-1-
<PAGE> 2
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this First Amended and Restated Certificate of
Incorporation, to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon 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 issuance 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 which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
In the election of directors, each holder of shares of any class or
series of capital stock of the Corporation shall be entitled to one vote for
each share held. No stockholder will be permitted to cumulate votes at any
election of directors.
ARTICLE VII
No action shall be taken by the stockholders of the Corporation other
than at an annual or special meeting of the stockholders, upon due notice and in
accordance with the provisions of the Bylaws of the Corporation (the "Bylaws"),
and no action shall be taken by the stockholders by written consent.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this First Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE IX
(A) Except as otherwise provided in 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 of the Corporation entitled to vote.
The Board of Directors of the Corporation is expressly authorized to adopt,
amend or repeal Bylaws.
(B) The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
-2-
<PAGE> 3
(C) Advance notice of stockholder nominations for the election of
directors or of business to be brought by the stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws.
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 provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation.
ARTICLE XI
The Corporation shall have perpetual existence.
ARTICLE XII
(A) To the fullest extent permitted by the General Corporation Law of
Delaware, as the same may be amended from time to time, 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. If
the General Corporation Law of Delaware is hereafter amended to authorize, with
the approval of a corporation's stockholders, further reductions in the
liability of a corporation's directors for breach of fiduciary duty, then a
director of the Corporation shall not be liable for any such breach to the
fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
(B) Any repeal or modification of the foregoing provisions of this
Article XII shall not adversely affect any right or protection of a director of
the Corporation with respect to any acts or omissions of such director occurring
prior to such repeal or modification.
ARTICLE XIII
(A) To the fullest extent permitted by applicable law, the Corporation
is also authorized to provide indemnification of (and advancement of expenses
to) such agents (and any other persons to which Delaware law permits the
Corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the General Corporation Law of Delaware,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to actions for breach of duty to a corporation, its
stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of
this Article XIII shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
* * *
-3-
<PAGE> 4
The foregoing First Amended and Restated Certificate of Incorporation
has been duly adopted by this Corporation's Board of Directors and stockholders
in accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at San Francisco, California, on the ____ day of January, 2000.
------------------------------------
Julia L. Wainwright,
Chief Executive Officer
------------------------------------
John V. Bautista, Secretary
-4-
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
PETS.COM, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, Wilmington, County of New Castle. The name of
its registered agent at such address is The Prentice-Hall Corporation Systems,
Inc.
1.2 OTHER OFFICES.
The Board of Directors may at any time establish other offices at
any place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or
outside the State of Delaware, designated by the Board of Directors. In the
absence of any such designation, stockholders' meetings shall be held at the
registered office of the Corporation.
2.2 ANNUAL MEETING.
(a) The annual meeting of stockholders shall be held each year on
a date and at a time designated by resolution of the Board of Directors. At the
meeting, directors shall be elected and any other proper business may be
transacted.
(b) Nominations of persons for election to the Board of Directors
of the Corporation and the proposal of business to be transacted by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice with respect to such meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
<PAGE> 2
Corporation who was a stockholder of record at the time of giving of the notice
provided for in this Section 2.2, who is entitled to vote at the meeting and who
has complied with the notice procedures set forth in this Section 2.2.
(c) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of paragraph
(b) of this Section 2.2, the stockholder must have given timely notice thereof
in writing to the secretary of the Corporation, as provided in Section 2.5, and
such business must be a proper matter for stockholder action under the General
Corporation Law of Delaware.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in these Bylaws. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
2.3 SPECIAL MEETING.
(a) A special meeting of the stockholders may be called at any
time by the Board of Directors, or by the chairman of the board, or by the
president.
(b) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to such notice of meeting (i) by or at the direction of the
Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in Section
2.5, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in Section 2.5.
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE.
All notices of meetings of stockholders shall be in writing and
shall be sent or otherwise given in accordance with this Section 2.4 of these
Bylaws not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting (or such longer or shorter
time as is required by Section 2.5 of these Bylaws, if applicable). The notice
shall specify the place, date, and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting of
<PAGE> 3
stockholders, if mailed, is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation. An affidavit of the secretary or an assistant
secretary or of the transfer agent of the Corporation that the notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND OTHER STOCKHOLDER
PROPOSALS.
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 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 for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. 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. Stockholders may bring other
business before the annual meeting, provided that timely notice is provided to
the secretary of the Corporation in accordance with this section, and provided
further that such business is a proper matter for stockholder action under the
General Corporation Law of Delaware. To be timely, a stockholder's notice shall
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 90 days nor more than 120 days prior to the
anniversary date of the prior year's meeting; provided, however, that in the
event that (i) the date of the annual meeting is more than 30 days prior to or
more than 60 days after such anniversary date, and (ii) less than 60 days notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a directors, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Corporation which are beneficially owned by such person and (iv)
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 Securities Exchange Act of
1934 (including, without limitation, such person's written consent to being name
in the proxy statement as a nominee and to serving as a director if elected);
(b) as to any other business that the stockholder proposes to bring before the
meeting, a brief description of such business, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the proposal is made (i) the name and address of the
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the Corporation which are owned
of record by such stockholder and beneficially by such beneficial owner. At the
request of the Board of Directors any person nominated by the Board of Directors
for election as a director shall furnish to the secretary of the Corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director
<PAGE> 4
of the Corporation unless nominated in accordance with the procedures set forth
in this Section 2.5. The chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the Bylaws, and if he or she should
so determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
2.6 Quorum.
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless
these Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the Corporation may transact any
business that might have been transacted at the original meeting. If the
adjournment is for more than 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.
2.8 CONDUCT OF BUSINESS.
The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including the manner of
voting and the conduct of business.
2.9 VOTING.
(a) The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
<PAGE> 5
2.10 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the Certificate of Incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the Certificate of Incorporation or these
Bylaws.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or entitled to 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 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action. If the Board of
Directors does not so fix a record date:
(a) 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.
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
2.12 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders
may authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, electronic or telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware.
<PAGE> 6
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
3.2 NUMBERS OF DIRECTORS.
The number of directors constituting the entire Board of
Directors shall be five (5).
Thereafter, this number may be changed by a resolution of the
Board of Directors or of the stockholders, subject to Section 3.4 of these
Bylaws. No reduction of the authorized number of directors shall have the effect
of removing any director before such director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Except as provided in Section 3.4 of these Bylaws, directors
shall be elected at each annual meeting of stockholders to hold office until the
next annual meeting. Directors need not be stockholders unless so required by
the Certificate of Incorporation or these Bylaws, wherein other qualifications
for directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his or her successor is elected and
qualified or until his or her earlier resignation or removal.
3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
A vacancy created by the removal of a director by the vote of the stockholders
or by court order may be filled only by the affirmative vote of a majority of
the shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute a majority of the
quorum. Each director so elected shall hold office until the next annual meeting
of the stockholders and until a successor has been elected and qualified.
<PAGE> 7
Unless otherwise provided in the Certificate of Incorporation or
these Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the Certificate of Incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause,
the Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole Board of Directors (as constituted immediately prior to any such
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least 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 as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETING; MEETING BY TELEPHONE.
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
3.6 REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall from time to time be determined
by the Board of Directors.
<PAGE> 8
3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone, telecopy, telegram, telex or other similar means of communication, it
shall be delivered at least twenty-four (24) hours before the time of the
holding of the meeting, or on such shorter notice as the person or persons
calling such meeting may deem necessary and appropriate in the circumstances.
Any oral notice given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the person giving
the notice has reason to believe will promptly communicate it to the director.
The notice need not specify the purpose of the place of the meeting, if the
meeting is to be held at the principal executive office of the Corporation.
3.8 QUORUM.
At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the Certificate of Incorporation
or these Bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the Certificate of Incorporation or these Bylaws.
<PAGE> 9
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the Certificate of Incorporation
or these Bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board 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. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the Certificate of Incorporation
or these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
The Corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the Corporation or of
its subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 REMOVAL OF DIRECTORS.
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the Corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors.
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
<PAGE> 10
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
The Corporation may also have, at the discretion of the Board of
Directors, a Chairman of the Board of Directors who shall not be considered an
officer of the Corporation.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority of the
whole Board of Directors, designate one or more committees, with 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 such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
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),(b)
adopt an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (c) recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, (d) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
<PAGE> 11
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held
and taken in accordance with, the provisions of Section 3.5 (place of meetings
and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the Corporation shall be a 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 other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be held
by the same person.
5.2 APPOINTMENT OF OFFICERS.
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The Board of Directors may appoint, or empower the chief
executive officer or the president to appoint, such other officers and agents as
the business of the Corporation may require, each of whom shall hold office for
such period, have such authority, and perform such duties as are provided in
these Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract
of employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of
<PAGE> 12
the Board of Directors at any regular or special meeting of the Board of
Directors or, except in the case of an officer chosen by the Board of Directors,
by any officer upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to
the attention of the secretary of the Corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board, 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, 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 other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by
the Board of Directors to the chairman of the board (if 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 may be prescribed
by the Board of Directors or these Bylaws.
5.8 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 from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
<PAGE> 13
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and 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.
5.10 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 the Bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the chief executive officer, the president, any vice
president, the chief financial officer, the secretary or assistant secretary of
this Corporation, or any other person authorized by the Board of Directors or
the chief executive officer or the president or a vice president, is authorized
to vote, represent, and exercise on behalf of this Corporation all rights
incident to any and all shares of any other corporation or corporations standing
in the name of this Corporation. The authority granted herein may be exercised
either
<PAGE> 14
by such person directly or by any other person authorized to do so by proxy or
power of attorney duly executed by the person having such authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
In addition to the foregoing authority and duties, all officers
of the Corporation shall respectively have such authority and perform such
duties in the management of the business of the Corporation as may be designated
from time to time by the Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER
AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (a) who is or was
a director or officer of the Corporation, (b) who is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS.
The Corporation shall have the power, to the maximum extent and
in the manner permitted by the General Corporation Law of Delaware, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
Corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
Corporation (other than a director or officer) includes any person (a) who is or
was an employee or agent of the Corporation, (b) who is or was serving at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was an
employee or agent of a corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted
<PAGE> 15
pursuant to Section 6.2 following authorization thereof by the Board of
Directors shall be paid by the Corporation in advance of the final disposition
of such action or proceeding upon receipt of an undertaking by or on behalf of
the indemnified party to repay such amount if it shall ultimately be determined
that the indemnified party is not entitled to be indemnified as authorized in
this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
The indemnification provided by this Article VI shall not be
deemed exclusive of any other rights to which those seeking indemnification may
been titled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation.
6.5 INSURANCE.
The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
6.6 CONFLICTS.
No indemnification or advance shall be made under this Article
VI, except where such indemnification or advance is mandated by law or the
order, judgment or decree of any court of competent jurisdiction, in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Certificate of Incorporation, these Bylaws, a resolution of the stockholders or
an agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
<PAGE> 16
The Corporation shall, either at its principal executive offices
or at such place or places as designated by the Board of Directors, keep a
record of its stockholders listing their names and addresses and the number and
class of shares held by each stockholder, a copy of these Bylaws as amended to
date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the Corporation's stock ledger, a list of its stockholders, and its other books
and records and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to so
act on behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
7.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the Corporation's
stockledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
The Board of Directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
Corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS.
From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
<PAGE> 17
The Board of Directors, except as otherwise provided in these
Bylaws, may authorize any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of the Corporation shall be represented by
certificates, provided that the Board of Directors of the Corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the chairman or vice-chairman of the Board of Directors, or the chief executive
officer or the president or vice-president, and by the chief financial officer
or an assistant treasurer, or the secretary or an assistant secretary of the
Corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
If the Corporation is authorized to issue more than one class of stock or more
than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
<PAGE> 18
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for
shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the Corporation and canceled at the same time. The
Corporation may issue a new certificate of stock or uncertificated shares in the
place of any certificate previously issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or the owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITION.
Unless the context requires otherwise, the general provisions,
rules of construction, and definitions in the Delaware General Corporation Law
shall govern the construction of these Bylaws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS.
The directors of the Corporation, subject to any restrictions
contained in (a) the General Corporation Law of Delaware or (b) the Certificate
of Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
The directors of the Corporation may set apart out of any of the
funds of the Corporation available for dividends a reserve or reserves for any
proper purpose and may abolish any such reserve. Such purposes shall include but
not be limited to equalizing dividends, repairing or maintaining any property of
the Corporation, and meeting contingencies.
8.8 FISCAL YEAR.
The fiscal year of the Corporation shall be fixed by resolution
of the Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
<PAGE> 19
The Corporation may adopt a corporate seal, which may be altered
at pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
The Corporation shall have power to enter into and perform any
agreement with any number of 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.
8.12 REGISTERED STOCKHOLDERS.
The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends and to vote as such owner, shall be entitled to hold liable for calls
and assessments the person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed
by the stockholders entitled to vote; provided, however, that the Corporation
may, in its Certificate of Incorporation, confer the power to adopt, amend or
repeal Bylaws upon the directors. The fact that such power has been so conferred
upon the directors shall not divest the stockholders of the power, nor limit
their power to adopt, amend or repeal Bylaws.
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER
SHARES
[PETS.COM, INC. LOGO]
CUSIP 71676K 10 9 US71676K1097
SEE REVERSE FOR
CERTAIN RESTRICTIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$0.00125 PAR VALUE, OF
PETS.COM, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized Attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated _________________________
[PETS.COM, INC. Corporate Seal]
/s/ JOHN V.BAUTISTA /s/ JULIA L. WAINWRIGHT
SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY____________________________
AUTHORIZED SIGNATURE
<PAGE> 2
PETS.COM, INC.
The Corporation will furnish without charge to each stockholder who so
requests a copy of the powers, designations, preferences and relative,
participating, optional or other special rights to each class of stock or series
thereof, and the qualifications, limitations, or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT _______ Custodian ________
TEN ENT --as tenants by the (Cust) (Minor)
entireties under Uniform Trans to
JT TEN --as joint tenants Minors Act
with right of __________________________
survivorship and not (State)
as tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________
_______________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
_____________________________________Shares represented by the within
Certificate, and do hereby irrevocably constitute and appoint __________________
_______________________________________________________Attorney to transfer the
said shares on the books to the within named Corporation with full power of
substitution in the premises.
Dated:______________________________
X_______________________________________
X_______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
___________________________________
<PAGE> 1
EXHIBIT 5.1
JANUARY 21, 2000
PETS.COM, INC.
435 BRANNAN STREET
SAN FRANCISCO, CA 94107
REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-92433)
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No.
333-92433) (the "Registration Statement") filed by you, Pets.com, Inc., with the
Securities and Exchange Commission on December 9, 1999, and as amended by
Amendment No. 1 filed on January 21, 2000, in connection with the registration
under the Securities Act of 1933, as amended, of shares of your Common Stock
(the "Shares"). As your legal counsel in connection with this transaction, we
have examined the proceedings taken and we are familiar with the proceedings
proposed to be taken by you in connection with the sale and issuance of the
Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your legal counsel, to be taken prior to the issuance of
the Shares, including effectiveness of the Registration Statement, and upon
completion of the proceedings being taken in order to permit such transactions
to be carried out in accordance with the securities laws of the various states
where required, the Shares, when issued and sold in the manner described in the
Registration Statement, will be legally and validly issued, fully paid and
nonassessable. We are admitted to practice law only in the State of California
and accordingly, we express no opinion as to any matter relating to the laws of
any jurisdiction other than the laws of the State of California, the General
Corporation Law of the State of Delaware, and the federal securities law of the
United States.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting apart thereof, and
in any amendment thereto.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/s/ VENTURE LAW GROUP
<PAGE> 1
EXHIBIT 10.2.1
PETS.COM, INC.
1999 STOCK PLAN
(AS AMENDED DECEMBER 5, 1999)
1. PURPOSES OF THE PLAN. The purposes of this 1999 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an Option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock Purchase Rights may also be granted
under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or its Committee appointed
pursuant to Section 4 of the Plan.
(b) "AFFILIATE" means an entity other than a Subsidiary in which the
Company owns an equity interest or which, together with the Company, is under
common control of a third person or entity.
(c) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under applicable U.S. state corporate laws,
U.S. federal and applicable state securities laws, the Code, any Stock Exchange
rules or regulations and the applicable laws of any other country or
jurisdiction where Options or Stock Purchase Rights are granted under the Plan,
as such laws, rules, regulations and requirements shall be in place from time to
time.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means one or more committees or subcommittees of the
Board appointed by the Board to administer the Plan in accordance with Section 4
below.
(g) "COMMON STOCK" means the Common Stock of the Company.
(h) "COMPANY" means Pets.com, Inc., a Delaware corporation.
(i) "CONSULTANT" means any person, including an advisor, who renders
services to the Company, or any Parent, Subsidiary or Affiliate, and is
compensated for such services, and any Director of the Company whether
compensated for such services or not.
<PAGE> 2
(j) "CONTINUOUS SERVICE STATUS" means the absence of any interruption
or termination of service as an Employee or Consultant to the Company or a
Parent, Subsidiary or Affiliate. Continuous Service Status shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than 90 days, unless reemployment upon
the expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Parents, Subsidiaries or Affiliates or their respective successors.
Unless otherwise determined by the Administrator, a change in status from an
Employee to a Consultant or from a Consultant to an Employee will not constitute
an interruption of Continuous Service Status.
(k) "CORPORATE TRANSACTION" means a sale of all or substantially all
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(l) "DIRECTOR" means a member of the Board.
(m) "EMPLOYEE" means any person, including officers and Directors,
employed by the Company or any Parent, Subsidiary or Affiliate of the Company.
The payment by the Company of a director's fee to a Director shall not be
sufficient to constitute "employment" of such Director by the Company.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the fair market value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange on the date of determination, or if no trading
occurred on the date of determination, on the last market trading day prior to
the time of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
-2-
<PAGE> 3
(p) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable Option Agreement.
(q) "LISTED SECURITY" means any security of the Company that is listed
or approved for listing on a national securities exchange or designated or
approved for designation as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable Option
Agreement.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written document, the form(s) of which
shall be approved from time to time by the Administrator, reflecting the terms
of an Option granted under the Plan and includes any documents attached to or
incorporated into such Option Agreement, including, but not limited to, a notice
of stock option grant and a form of exercise notice.
(u) "OPTION EXCHANGE PROGRAM" means a program approved by the
Administrator whereby outstanding Options are exchanged for Options with a lower
exercise price.
(v) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
(w) "OPTIONEE" means an Employee or Consultant who receives an Option.
(x) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
(y) "PARTICIPANT" means any holder of one or more Options or Stock
Purchase Rights, or of the Shares issuable or issued upon exercise of such
awards, under the Plan.
(z) "PLAN" means this 1999 Stock Plan.
(aa) "REPORTING PERSON" means an officer, Director, or greater than
10% shareholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(bb) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 10 below.
(cc) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written document,
the form(s) of which shall be approved from time to time by the Administrator,
reflecting the terms of a Stock Purchase Right granted under the Plan and
includes any documents attached to such agreement.
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(dd) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
as the same may be amended from time to time, or any successor provision.
(ee) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ff) "STOCK EXCHANGE" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(gg) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 10 below.
(hh) "SUBSIDIARY" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(ii) "TEN PERCENT HOLDER" means a person who owns stock representing
more than 10% of the voting power of all classes of stock of the Company or any
Parent or Subsidiary.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be sold under the Plan
is 5,815,327 Shares of Common Stock, plus an automatic annual increase on the
first day of each of the Company's fiscal years beginning in 2001 and ending in
2009 equal to the lesser of : (i) 800,000 Shares; (ii) three percent (3%) of
the Shares outstanding on the last day of the immediately preceding fiscal year;
or (iii) such lesser number of shares as is determined by the Board of
Directors. The Shares may be authorized, but unissued, or reacquired Common
Stock. If an Option expires or becomes unexercisable for any reason without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased Shares that were subject thereto shall, unless the Plan
shall have been terminated, become available for future grant under the Plan. In
addition, any Shares of Common Stock that are retained by the Company upon
exercise of an Option or Stock Purchase Right in order to satisfy the exercise
or purchase price for such Option or Stock Purchase Right or any withholding
taxes due with respect to such exercise shall be treated as not issued and shall
continue to be available under the Plan. Shares issued under the Plan and later
repurchased by the Company pursuant to any repurchase right that the Company may
have shall not be available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) GENERAL. The Plan shall be administered by the Board or a
Committee, or a combination thereof, as determined by the Board. The Plan may be
administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the Applicable Laws, the Board may
authorize one or more officers to grant Options or Stock Purchase Rights under
the Plan.
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(b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS. With respect to
Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
(c) COMMITTEE COMPOSITION. If a Committee has been appointed pursuant
to this Section 4, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of any Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies (however caused) and remove all members of a Committee
and thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws and, in the case of a Committee administering the Plan pursuant
to Section 4(b) above, to the extent permitted or required by Rule 16b-3 and
Section 162(m) of the Code.
(d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan
and in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2 (o) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights or any combination thereof may from time to time be
granted;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted;
(iv) to determine the number of Shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have
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declined since the date the Option was granted and to make any other amendments
or adjustments to any Option that the Administrator determines, in its
discretion and under the authority granted to it under the Plan, to be necessary
or advisable, provided however that no amendment or adjustment to an Option that
would materially and adversely affect the rights of any Optionee shall be made
without the prior written consent of the Optionee;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
(x) to initiate an Option Exchange Program;
(xi) to construe and interpret the terms of the Plan and awards
granted under the Plan; and
(xii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
Participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Participants.
5. ELIGIBILITY.
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees; provided however that Employees of
Affiliates shall not be eligible to receive Incentive Stock Options. An Employee
or Consultant who has been granted an Option or Stock Purchase Right may, if he
or she is otherwise eligible, be granted additional Options or Stock Purchase
Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of grant of such Option.
(c) AT-WILL RELATIONSHIP. The Plan shall not confer upon any
Participant any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with such
holder's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
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<PAGE> 7
(d) LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as
provided in Section 13 below, the maximum number of Shares which may be subject
to Options and Stock Purchase Rights and granted to any one Employee under this
Plan for any fiscal year of the Company shall be 2,000,000 Shares.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
Board. It shall continue in effect for a term of ten years unless sooner
terminated under Section 15 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement. However, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, is a Ten Percent Holder,
the term of such Option shall be five years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator and set forth in the Option Agreement, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to a person who at the time of grant is a Ten
Percent Holder, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of the grant if required by the
Applicable Laws and, if not so required, shall be such price as is determined by
the Administrator.
(B) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to any other eligible person, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant if required by the Applicable Laws and, if not so required,
shall be such price as is determined by the Administrator.
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<PAGE> 8
(C) granted on or after the date, if any, on which the
Common Stock becomes a Listed Security to any eligible person, the per share
Exercise Price shall be such price as determined by the Administrator; provided,
however, that if such eligible person is, at the time of the grant of such
Option, a Named Executive of the Company, the per share Exercise Price shall be
no less than 100% of the Fair Market Value on the date of grant if such Option
is intended to qualify as performance-based compensation under Section 162(m) of
the Code.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash; (2)
check; (3) delivery of Optionee's promissory note with such recourse, interest,
security and redemption provisions as the Administrator determines to be
appropriate (subject to the provisions of Section 409 of the California General
Corporation Law); (4) cancellation of indebtedness; (5) other Shares that (x) in
the case of Shares acquired upon exercise of an Option, either have been owned
by the Optionee for more than six months on the date of surrender or such other
period as may be required to avoid a charge to the Company's earnings or were
not acquired, directly or indirectly, from the Company, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised; (6) authorization for the
Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised; (7) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect exercise of the Option and prompt delivery
to the Company of the sale or loan proceeds required to pay the exercise price
and any applicable withholding taxes; (8) any combination of the foregoing
methods of payment; or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under the Applicable Laws. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company, and the Administrator may refuse to
accept a particular form of consideration at the time of any Option exercise if,
in its sole discretion, acceptance of such form of consideration is not in the
best interests of the Company at such time.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, consistent with the term of the Plan and
reflected in the Option Agreement, including vesting requirements and/or
performance criteria with respect to the Company and/or the Optionee; provided
however, that, if required by the Applicable Laws, any Option granted prior to
the date, if any, upon which the Common Stock becomes a Listed Security shall
become
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<PAGE> 9
exercisable at the rate of at least 20% per year over five years from the date
the Option is granted. In the event that any of the Shares issued upon exercise
of an Option (which exercise occurs prior to the date, if any, upon which the
Common Stock becomes a Listed Security) should be subject to a right of
repurchase in the Company's favor, such repurchase right shall, if required by
the Applicable Laws, lapse at the rate of at least 20% per year over five years
from the date the Option is granted. Notwithstanding the above, in the case of
an Option granted to an officer, Director or Consultant of the Company or any
Parent, Subsidiary or Affiliate of the Company, the Option may become fully
exercisable, or a repurchase right, if any, in favor of the Company shall lapse,
at any time or during any period established by the Administrator. The
Administrator shall have the discretion to determine whether and to what extent
the vesting of Options shall be tolled during any leave of absence.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when written notice of such exercise
has been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and the Company has received full payment
for the Shares with respect to which the Option is exercised. Full payment may,
as authorized by the Administrator, consist of any consideration and method of
payment allowable under Section 8(b) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, not withstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 13 of the
Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the event
of termination of an Optionee's Continuous Service Status with the Company, such
Optionee may, but only within three months (or such other period of time, not
less than 30 days, as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the date of such termination (but in no event later
than the expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise the Option to the extent so
entitled within the time specified above, the Option shall terminate and the
Optioned Stock underlying the unexercised portion of the Option shall revert to
the Plan. Unless otherwise determined by the Administrator, no termination shall
be deemed to occur and this Section 9(b) shall not apply if (i) the Optionee is
a Consultant who becomes an Employee, or (ii) the Optionee is an Employee who
becomes a Consultant.
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(c) DISABILITY OF OPTIONEE.
(i) Notwithstanding Section 9(b) above, in the event of
termination of an Optionee's Continuous Service Status as a result of his or her
total and permanent disability (within the meaning of Section 22(e)(3) of the
Code), such Optionee may, but only within twelve months (or such other period of
time as is determined by the Administrator, with such determination in the case
of an Incentive Stock Option made at the time of grant of the Option) from the
date of such termination (but in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
To the extent that the Optionee was not entitled to exercise the Option at the
date of termination, or if the Optionee does not exercise such Option to the
extent so entitled within the time specified above, the Option shall terminate
and the Optioned Stock underlying the unexercised portion of the Option shall
revert to the Plan.
(ii) In the event of termination of an Optionee's Continuous
Service Status as a result of a disability which does not fall within the
meaning of total and permanent disability (as set forth in Section 22(e)(3) of
the Code), such Optionee may, but only within twelve months (or such other
period of time as is determined by the Administrator, with such determination in
the case of an Incentive Stock Option made at the time of grant of the Option)
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option that is an Incentive Stock Option (within the meaning of Section 422 of
the Code) within three months of the date of such termination, the Option will
not qualify for Incentive Stock Option treatment under the Code. To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time period specified above, the Option shall terminate and
the Optioned Stock underlying the unexercised portion of the Option shall revert
to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee during
the period of Continuous Service Status since the date of grant of the Option,
or within 30 days following termination of the Optionee's Continuous Service
Status, the Option may be exercised, at any time within twelve months following
the date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by such Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of death or, if earlier, the date of termination of the Optionee's
Continuous Service Status. To the extent that the Optionee was not entitled to
exercise the Option at the date of death or termination, as the case may be, or
if the Optionee does not exercise such Option to the extent so entitled within
the time specified above, the Option shall terminate and the Optioned Stock
underlying the unexercised portion of the Option shall revert to the Plan.
(e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have full
power and authority to extend the period of time for which an Option is to
remain exercisable following
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termination of an Optionee's Continuous Status as an Employee or Consultant from
the periods set forth in Sections 9(b), 9(c) and 9(d) above or in the Option
Agreement to such greater time as the Board shall deem appropriate, provided,
that in no event shall such Option be exercisable later than the date of
expiration of the term of such Option as set forth in the Option Agreement.
(f) BUY-OUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted under the Plan
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time such offer is made.
10. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed 30 days from the date upon
which the Administrator made the determination to grant the Stock Purchase
Right. If required by the Applicable Laws, the purchase price of Shares subject
to Stock Purchase Rights shall not be less than 85% of the Fair Market Value of
the Shares as of the date of the offer, or, in the case of a person owning stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the price shall not be less
than 100% of the Fair Market Value of the Shares as of the date of the offer. If
the Applicable Laws do not impose restrictions on the purchase price, the
purchase price of Shares subject to Stock Purchase Rights shall be as determined
by the Administrator. The offer to purchase Shares subject to Stock Purchase
Rights shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided, however, that with respect to a purchaser
who is not an officer, Director or Consultant of the Company or of any Parent or
Subsidiary of the Company, it shall lapse at a minimum rate of 20% per year if
required by the Applicable Laws.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
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(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
11. TAXES.
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option) shall make such
arrangements as the Administrator may require for the satisfaction of any
applicable federal, state, local or foreign withholding tax obligations that may
arise in connection with the exercise of an Option or Stock Purchase Right and
the issuance of Shares. The Company shall not be required to issue any Shares
under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option.
(c) This Section 11(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of a Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 11,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six months on the date of surrender, and (ii) have
a Fair Market Value determined as of the applicable Tax Date equal to the amount
required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 11(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 11(d) above must be made on or prior
to the applicable Tax Date.
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(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent or distribution; provided however that, after the date, if any, upon
which the Common Stock becomes a Listed Security, the Administrator may in its
discretion grant transferable Nonstatutory Stock Options pursuant to Option
Agreements specifying (i) the manner in which such Nonstatutory Stock Options
are transferable and (ii) that any such transfer shall be subject to the
Applicable Laws. The designation of a beneficiary by an Optionee will not
constitute a transfer. An Option or Stock Purchase Right may be exercised,
during the lifetime of the holder of the Option or Stock Purchase Right, only by
such holder or a transferee permitted by this Section 12.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, CORPORATE TRANSACTIONS AND
CERTAIN OTHER TRANSACTIONS.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per Share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock (including
any change in the number of Shares of Common Stock effected in connection with a
change of domicile of the Company), or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the dissolution or
liquidation of the Company, each outstanding Option or Stock Purchase Right
shall terminate immediately prior to the consummation of such action, unless
otherwise provided by the Administrator.
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(c) CORPORATE TRANSACTIONS. In the event of a Corporate Transaction,
each outstanding Option and Stock Purchase Right shall be assumed or an
equivalent option or right shall be substituted by the successor corporation or
a Parent or Subsidiary of such successor corporation, unless such successor
corporation does not agree to assume the outstanding Options or Stock Purchase
Rights or to substitute equivalent options or rights, in which case such Options
or Stock Purchase Rights shall terminate upon the consummation of the
transaction.
For purposes of this Section 13(c), an Option or a Stock Purchase
Right shall be considered assumed, without limitation, if, at the time of
issuance of the stock or other consideration upon a Corporate Transaction, each
holder of an Option or Stock Purchase Right would be entitled to receive upon
exercise of the Option or Stock Purchase Right the same number and kind of
shares of stock or the same amount of property, cash or securities as such
holder would have been entitled to receive upon the occurrence of the
transaction if the holder had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option or the
Stock Purchase Right at such time (after giving effect to any adjustments in the
number of Shares covered by the Option or Stock Purchase Right as provided for
in this Section 13); provided however that if such consideration received in the
transaction is not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation,
provide for the consideration to be received upon exercise of the Option or
Stock Purchase Right to be solely common stock of the successor corporation or
its Parent equal to the Fair Market Value of the per Share consideration
received by holders of Common Stock in the transaction.
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator;
provided, however, that in the case of any Incentive Stock Option, the grant
date shall be the later of the date on which the Administrator makes the
determination granting such Incentive Stock Option or the date of commencement
of the Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time amend,
alter, suspend, discontinue or terminate the Plan, but no amendment, alteration,
suspension, discontinuation or termination (other than an adjustment made
pursuant to Section 13 above) shall be made that would materially and adversely
affect the rights of any Optionee or holder of
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Stock Purchase Rights under any outstanding grant, without his or her consent.
In addition, to the extent necessary and desirable to comply with the Applicable
Laws, the Company shall obtain shareholder approval of any Plan amendment in
such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of
the Plan shall materially and adversely affect Options already granted, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
16. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other provision
of the Plan or any agreement entered into by the Company pursuant to the Plan,
the Company shall not be obligated, and shall have no liability for, failure to
issue or deliver any Shares under the Plan unless such issuance or delivery
would comply with the Applicable Laws, with such compliance determined by the
Company in consultation with its legal counsel.
As a condition to the exercise of an Option or Stock Purchase Right, the
Company may require the person exercising such Option or Stock Purchase Right to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by law.
17. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
Option Agreements and Restricted Stock Purchase Agreements, respectively, in
such form(s) as the Administrator shall from time to time approve.
19. SHAREHOLDER APPROVAL. If required by the Applicable Laws, continuance
of the Plan shall be subject to approval by the shareholders of the Company
within twelve months before or after the date the Plan is adopted. Such
shareholder approval shall be obtained in the degree and manner required under
the Applicable Laws.
20. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to the
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information. In addition, at the time of issuance of
any securities under the Plan, the Company shall provide to the Optionee or the
purchaser a copy of the Plan and any agreement(s) pursuant to which securities
granted under the Plan are issued.
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EXHIBIT 10.2.2
PETS.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Pets.com, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the Common Stock of the Company.
(d) "COMPANY" means Pets.com, Inc., a Delaware corporation.
(e) "COMPENSATION" means all regular straight time gross
earnings, and shall not include commissions, payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and other
compensation.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "CONTRIBUTIONS" means all amounts credited to the account of
a participant pursuant to the Plan.
(h) "CORPORATE TRANSACTION" means a sale of all or substantially
all of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan; provided however that the Board shall only
have the discretion to designate Subsidiaries if
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the issuance of options to such Subsidiary's Employees pursuant to the Plan
would not cause the Company to incur adverse accounting charges.
(j) "EMPLOYEE" means any person, including an Officer, who is
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "OFFERING DATE" means the first business day of each
Offering Period of the Plan.
(m) "OFFERING PERIOD" means a period of twenty-four (24) months
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "PLAN" means this Employee Stock Purchase Plan.
(p) "PURCHASE DATE" means the last day of each Purchase Period
of the Plan.
(q) "PURCHASE PERIOD" means a period of six (6) months within an
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(r) "PURCHASE PRICE" means with respect to a Purchase Period an
amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) of any increase in
the number of Shares available for issuance under the Plan as a result of a
stockholder-approved amendment to the Plan, and (ii) all or a portion of such
additional Shares are to be issued with respect to one or more Offering Periods
that are underway at the time of such increase ("Additional Shares"), and (iii)
the Fair Market Value of a Share of Common Stock on the date of such increase
(the "Approval Date Fair Market Value") is higher than the Fair Market Value on
the Offering Date for any such Offering Period, then in such instance the
Purchase Price with respect to Additional Shares shall be 85% of the Approval
Date Fair Market Value or the Fair Market Value of a Share of Common Stock on
the Purchase Date, whichever is lower.
(s) "SHARE" means a share of Common Stock, as adjusted in
accordance with Section 19 of the Plan.
(t) "SUBSIDIARY" means a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
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<PAGE> 3
3. ELIGIBILITY.
(a) Any person who is an Employee as of the Offering Date of a
given Offering Period shall be eligible to participate in such Offering Period
under the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) if, immediately after
the grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
(a) OFFERING PERIODS. The Plan shall be implemented by a series
of Offering Periods of twenty-four (24) months duration, with new Offering
Periods commencing on or about February 1 and August 1 of each year (or at such
other time or times as may be determined by the Board of Directors). The first
Offering Period shall commence on the beginning of the effective date of the
Registration Statement on Form S-1 for the initial public offering of the
Company's Common Stock (the "IPO Date") and continue until January 31, 2002. The
Plan shall continue until terminated in accordance with Section 20 hereof. The
Board of Directors of the Company shall have the power to change the duration
and/or the frequency of Offering Periods with respect to future offerings
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Offering Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall consist of four
(4) consecutive Purchase Periods of six (6) months' duration. The last day of
each Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on February 1 shall end on the next July 31. A
Purchase Period commencing on August 1 shall end on the next January 31. The
first Purchase Period shall commence on the IPO Date and shall end on July 31,
2000. The Board of Directors of the Company shall have the power to change the
duration and/or frequency of Purchase Periods with respect to future purchases
without stockholder approval if such change is announced at least five (5) days
prior to the scheduled beginning of the first Purchase Period to be affected.
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<PAGE> 4
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll
following the Offering Date and shall end on the last payroll paid on or prior
to the last Purchase Period of the Offering Period to which the subscription
agreement is applicable, unless sooner terminated by the participant as provided
in Section 10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
(a) A participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than twenty percent (20%) (or such greater percentage as the
Board may establish from time to time before an Offering Date) of such
participant's Compensation on each payday during the Offering Period. All
payroll deductions made by a participant shall be credited to his or her account
under the Plan. A participant may not make any additional payments into such
account.
(b) A participant may discontinue his or her participation in
the Plan as provided in Section 10, or, on one occasion only during a Purchase
Period may increase and on one occasion only during a Purchase Period may
decrease the rate of his or her Contributions with respect to the Offering
Period by completing and filing with the Company a new subscription agreement
authorizing a change in the payroll deduction rate. The change in rate shall be
effective as of the beginning of the next calendar month following the date of
filing of the new subscription agreement, if the agreement is filed at least ten
(10) business days prior to such date and, if not, as of the beginning of the
next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b), a participant's
payroll deductions may be decreased by the Company to 0% at any time during a
Purchase Period. Payroll deductions shall re-commence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10. In addition, a
participant's payroll deductions may be decreased by the Company to 0% at any
time during a Purchase Period in order to avoid unnecessary payroll
contributions as a result of application of the maximum share limit set forth in
Section 7(a), in which case payroll deductions shall re-commence at the rate
provided in such participant's subscription agreement at the beginning of the
next Purchase Period, unless terminated by the participant as provided in
Section 10.
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<PAGE> 5
7. GRANT OF OPTION.
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however that the maximum number of
Shares an Employee may purchase during each Purchase Period shall be 2000 Shares
(subject to any adjustment pursuant to Section 19 below), and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 13.
(b) The fair market value of the Company's Common Stock on a
given date (the "Fair Market Value") shall be determined by the Board in its
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Purchase Date of each
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, the Shares purchased upon exercise of his or her option. No
fractional Shares shall be purchased; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 below. Any other amounts left over in a participant's account after a
Purchase Date shall be returned to the participant.
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<PAGE> 6
10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as
an Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous
Status as an Employee of the Company for at least twenty (20) hours per week
during the Offering Period in which the employee is a participant, he or she
will be deemed to have elected to withdraw from the Plan and the Contributions
credited to his or her account will be returned to him or her and his or her
option terminated.
(d) A participant's withdrawal from an offering will not have
any effect upon his or her eligibility to participate in a succeeding offering
or in any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC WITHDRAWAL. If the Fair Market Value of the Shares on any
Purchase Date of an Offering Period is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. INTEREST. No interest shall accrue on the Contributions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
400,000 Shares, plus an annual increase on the first day of each of the
Company's fiscal years during the term of the Plan beginning in 2001 and ending
in 2010 equal to the lesser of (i) 240,000 Shares, (ii) one percent (1%) of the
Shares outstanding on the last day of the immediately preceding fiscal year, or
(iii) such lesser number of Shares as is determined by the Board. If the Board
determines that, on a given Purchase Date, the number of shares with respect to
which options are to be exercised may exceed (i) the number of shares of Common
Stock that were available for sale under the Plan on the Offering Date of the
applicable Offering Period, or (ii) the number of shares available for sale
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<PAGE> 7
under the Plan on such Purchase Date, the Board may in its sole discretion
provide (x) that the Company shall make a pro rata allocation of the Shares of
Common Stock available for purchase on such Offering Date or Purchase Date, as
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Purchase Date, and continue
all Offering Periods then in effect, or (y) that the Company shall make a pro
rata allocation of the shares available for purchase on such Offering Date or
Purchase Date, as applicable, in as uniform a manner as shall be practicable and
as it shall determine in its sole discretion to be equitable among all
participants exercising options to purchase Common Stock on such Purchase Date,
and terminate any or all Offering Periods then in effect pursuant to Section 20
below. The Company may make pro rata allocation of the Shares available on the
Offering Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in
Shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. ADMINISTRATION. The Board, or a committee named by the Board, shall
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any Shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of a Purchase Period but prior to delivery to him or her
of such Shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to the
Purchase Date of an Offering Period. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant (and his or her spouse, if any) at any time by written notice. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such Shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant,
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<PAGE> 8
or if no spouse, dependent or relative is known to the Company, then to such
other person as the Company may designate.
16. TRANSFERABILITY. Neither Contributions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such attempt
at assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 10.
17. USE OF FUNDS. All Contributions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such Contributions.
18. REPORTS. Individual accounts will be maintained for each participant
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the
stockholders of the Company, the number of Shares covered by each option under
the Plan which has not yet been exercised and the number of Shares which have
been authorized for issuance under the Plan but have not yet been placed under
option (collectively, the "Reserves"), as well as the maximum number of shares
of Common Stock which may be purchased by a participant in a Purchase Period,
the number of shares of Common Stock set forth in Section 13(a) above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate immediately prior to the consummation of such action,
unless otherwise provided by the Board. In the event of a Corporate Transaction,
each option outstanding under the Plan shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or Subsidiary of
such successor corporation. In the event that the successor corporation refuses
to assume or
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<PAGE> 9
substitute for outstanding options, each Purchase Period and Offering Period
then in progress shall be shortened and a new Purchase Date shall be set (the
"New Purchase Date"), as of which date any Purchase Period and Offering Period
then in progress will terminate. The New Purchase Date shall be on or before the
date of consummation of the transaction and the Board shall notify each
participant in writing, at least ten (10) days prior to the New Purchase Date,
that the Purchase Date for his or her option has been changed to the New
Purchase Date and that his or her option will be exercised automatically on the
New Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this Section 19, an
option granted under the Plan shall be deemed to be assumed, without limitation,
if, at the time of issuance of the stock or other consideration upon a Corporate
Transaction, each holder of an option under the Plan would be entitled to
receive upon exercise of the option the same number and kind of shares of stock
or the same amount of property, cash or securities as such holder would have
been entitled to receive upon the occurrence of the transaction if the holder
had been, immediately prior to the transaction, the holder of the number of
Shares of Common Stock covered by the option at such time (after giving effect
to any adjustments in the number of Shares covered by the option as provided for
in this Section 19); provided however that if the consideration received in the
transaction is not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board may, with the
consent of the successor corporation, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per Share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of Shares of its outstanding Common
Stock, and in the event of the Company's being consolidated with or merged into
any other corporation.
20. AMENDMENT OR TERMINATION.
(a) The Board may at any time and for any reason terminate or
amend the Plan. Except as provided in Section 19, no such termination of the
Plan may affect options previously granted, provided that the Plan or an
Offering Period may be terminated by the Board on a Purchase Date or by the
Board's setting a new Purchase Date with respect to an Offering Period and
Purchase Period then in progress if the Board determines that termination of the
Plan and/or the Offering Period is in the best interests of the Company and the
stockholders or if continuation of the Plan and/or the Offering Period would
cause the Company to incur adverse accounting charges as a result of a change
after the effective date of the Plan in the generally accepted accounting rules
applicable to the Plan. Except as provided in Section 19 and in this Section 20,
no amendment to the Plan shall make any change in any option previously granted
which adversely affects the rights of any participant. In addition, to the
extent necessary to comply with Rule 16b-3 under the Exchange Act, or under
Section 423 of the Code (or any
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successor rule or provision or any applicable law or regulation), the Company
shall obtain stockholder approval in such a manner and to such a degree as so
required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been adversely affected, the
Board (or its committee) shall be entitled to change the Offering Periods and
Purchase Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
the IPO Date. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20.
24. ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
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EXHIBIT 10.16
November 15, 1999
REVISED OFFER LETTER
Ralph E. Lewis
1479 Brookfield Road
Yardley PA 19067
Dear Ralph,
I am pleased to offer you the position of Vice President, Distribution
and Logistics. Speaking for myself, as well as the other members of the
Company's management team, we continue to be impressed with your experience and
we look forward to your future success with the Company.
The terms of your new position with the Company are as set forth below:
1. POSITION.
a. You will become Vice President, Distribution and Logistics,
working out of the Company's headquarters office in San Francisco, California.
As a member of the Company's management team you will report to the Chief
Executive Officer.
b. You agree to the best of your ability and experience that you
will at all times loyally and conscientiously perform all of the duties and
obligations required of and from you pursuant to the express and implicit terms
hereof, and to the reasonable satisfaction of the Company. During the term of
your employment, you further agree that you will devote all of your business
time and attention to the business of the Company, the Company will be entitled
to all of the benefits and profits arising from or incident to all such work
services and advice, you will not render commercial or professional services of
any nature to any person or organization, whether or not for compensation,
without the prior written consent of the Company's Board of Directors, and you
will not directly or indirectly engage or participate in any business that is
competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations, or from owning no more than one percent (1%) of the outstanding
equity securities of a corporation whose stock is listed on a national stock
exchange.
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<PAGE> 2
2. START DATE. Subject to fulfillment of any conditions imposed by this
letter agreement, you will commence this new position with the Company on or
before November 18, 1999.
3. PROOF OF RIGHT TO WORK. For purposes of federal immigration law, you
will be required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States. Such documentation must be
provided to us within three (3) business days of your date of hire, or our
employment relationship with you may be terminated.
4. COMPENSATION.
a. BASE SALARY. You will be paid a monthly salary of $16,666.66,
which is equivalent to $200,000.00 on an annualized basis. Your salary will be
payable pursuant to the Company's regular payroll policy.
b. BONUS. You will be eligible to receive a one time bonus of
$20,000.00 and an additional option to purchase 25,000 shares of the Company's
Common Stock if you begin employment with the Company on or before December 1,
1999. In the unlikely event that you voluntarily terminate your employment with
the Company before the end of six (6) months of employment, you agree to repay
the Company the bonus.
c. RELOCATON BONUS. In connection with your relocation from
Pennsylvania to California, the Company will provide you with a $50,000.00
Relocation allowance, grossed up to cover taxes you would be expected to pay on
the $50,000.00 allowance. In the unlikely event that you voluntarily terminate
your employment with the Company before the end of one year of employment, you
agree to repay the Company the relocation allowance amount, pro-rated for months
of service with the Company. Any amounts received by you for relocation expense
reimbursement will be reported as taxable income to you in the year received as
required by applicable tax law.
5. STOCK OPTIONS.
a. INITIAL GRANT. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 150,000 shares of the Company's Common Stock ("Shares") with
an exercise price equal to the fair market value on the date of the grant. These
option shares will vest at the rate of 25% one year after your hire date and
1/48th per month thereafter. Vesting will, of course, depend on your continued
employment with the Company. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Stock Plan and the Stock Option Agreement between you and the
Company.
6. BENEFITS.
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a. EMPLOYEE BENEFITS On the first of the month following your
hire date, you will be eligible to participate in employee medical, dental and
vision benefits.
b. PERSONAL TIME OFF (PTO) You will be entitled to 10 days paid
time off per year, pro-rated for the remainder of this calendar year. You will
begin accruing PTO from your first day of employment. Your accrual amount will
increase to 15 days in the next calendar year.
c. COMPANY HOLIDAYS You will be eligible for all Company
holidays.
7. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT. Your
acceptance of this offer and commencement of employment with the Company is
contingent upon the execution, and delivery to an officer of the Company, of the
Company's Confidential Information and Invention Assignment Agreement, a copy of
which is enclosed for your review and execution (the "Confidentiality
Agreement"), prior to or on your Start Date.
8. CONFIDENTIALITY OF TERMS. You agree to follow the Company's strict
policy that employees must not disclose, either directly or indirectly, any
information, including any of the terms of this agreement, regarding salary,
bonuses, or stock purchase or option allocations to any person, including other
employees of the Company; provided, however, that you may discuss such terms
with members of your immediate family and any legal, tax or accounting
specialists who provide you with individual legal, tax or accounting advice.
9. AT-WILL EMPLOYMENT. Your employment with the Company will be on an
"at will" basis, meaning that either you or the Company may terminate your
employment at any time for any reason or no reason.
10. TERMINATION. In the event of a sale or merger of the Company, in
which more than fifty-one percent (51%) of the voting power of the Company is
transferred to a third party and your employment is terminated with or without
cause within one (1) year after the acquisition or the office is moved more than
fifty (50) miles of its San Francisco location, you will receive a severance
equal to three (3) months of your current monthly salary. If you are terminated
from the company with or without cause, you will receive a severance equal to
three (3) months of your current monthly salary.
Ralph, we are all delighted to be able to extend you this offer and look
forward to working with you. To indicate your acceptance of the Company's offer,
please sign and date this letter in the space provided below and return it to
me, along with a signed and dated copy of the Confidentiality Agreement. This
letter, together with the Confidentiality Agreement, set forth the terms of your
employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the Company and by you.
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THIS OFFER EXPIRES MONDAY NOVEMBER 15, 1999, 6:00 PM (PST).
Very truly yours,
PETS.COM, INC.
/s/ Julie Wainwright
-----------------------
Julie Wainwright,
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Ralph Lewis
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Ralph Lewis
Date: 11-15-99
------------------------
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<PAGE> 5
January 7, 2000
Ralph E. Lewis
1479 Brookfield Road
Yardley PA 19067
Re: AMENDMENT TO OFFER LETTER
Dear Ralph,
This letter shall serve to amend your revised offer letter dated
November 15, 1999 (the "Offer Letter") and your stock option agreement with
Pets.com, Inc. Section 5 of the Offer Letter is hereby amended to read in full
as follows:
"5. STOCK OPTIONS. In connection with the commencement of your
employment, the Company will recommend that the Board of Directors grant you an
option to purchase 175,000 shares of the Company's Common Stock ("Shares") with
an exercise price equal to the fair market value on the date of the grant. These
option shares will vest at the rate of 25% one year after your hire date and
1/48th per month thereafter. Vesting will, of course, depend on your continued
employment with the Company. In the event of a sale or merger of the Company,
in which more than 51% of the voting power of the Company is transferred to a
third party, you are terminated without cause or you terminate as a result of a
constructive termination, 50% of your remaining unvested shares will accelerate
and become fully vested. The option will be an incentive stock option to the
maximum extent allowed by the tax code and will be subject to the terms of the
Company's 1999 Stock Plan and the Stock Option Agreement between you and the
Company."
All other provisions of your offer letter will remain the same. We hope
that you find the foregoing amended terms acceptable. Please indicate your
agreement and acceptance of these terms by signing and dating the enclosed
duplicate original of this letter and returning it to me.
Very truly yours,
PETS.COM, INC.
/s/ Julie Wainwright
-----------------------
Julia L. Wainwright,
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Ralph Lewis
- -----------------------------
Ralph E. Lewis
Date:
------------------------
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<PAGE> 1
EXHIBIT 10.24
PETS.COM, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (the "Agreement")
is made as of the 18th day of January, 2000, by and among Pets.com, Inc., a
California corporation (the "Company"), the investors listed on Exhibit A
hereto, each of which is herein referred to as an "Investor," and Greg McLemore,
who is also herein referred to as the "Founder".
RECITALS
A. The Company and certain of the Investors (the "Prior Investors") have
entered into either a Series A Preferred Stock Purchase Agreement dated April
22, 1999, pursuant to which the Company sold, and such Investors purchased,
shares of the Company's Series A Preferred Stock (the "Series A Shares"), a
Series B Preferred Stock Purchase Agreement dated June 18, 1999, pursuant to
which the Company sold, and such Investors purchased, shares of the Company's
Series B Preferred Stock (the "Series B Shares") or a Series B Preferred Stock
and Convertible Note Purchase Agreement dated November 5, 1999 (the "Prior
Purchase Agreement") pursuant to which the Company sold and such Investors
purchased shares of the Company's Series B Preferred Stock (the "Mezzanine
Series B Shares", and together with the Series A Shares and Series B Shares, the
"Previously Issued Preferred Stock").
B. The Company, Founder and the Prior Investors have previously entered
into an Amended and Restated Investors' Rights Agreement, dated November 5, 1999
(the "Prior Rights Agreement"), which amended and restated that certain Amended
and Restated Investors' Rights Agreement dated June 18, 1999 between the
Company, Founder, and certain of the Prior Investors, which amended and restated
that certain Investors' Rights Agreement dated April 22, 1999 between the
Company, Founder and certain of the Prior Investors.
C. The Company and certain of the Investors (the "Series C Investors")
have entered into a Series C Preferred Stock Purchase Agreement of even date
herewith (the "Purchase Agreement") pursuant to which the Company desires to
sell to the Series C Investors and the Series C Investors desire to purchase
from the Company shares of the Company's Series C Preferred Stock (the "Series C
Shares" and together with the Previously Issued Preferred Stock, the "Preferred
Stock"). A condition to the Series C Investors' obligations under the Purchase
Agreement is that the Company, Founder, Prior Investors and the Series C
Investors enter into this Agreement in order to provide the Investors with (i)
certain rights to register shares of the Company's Common Stock issuable upon
conversion of the Series A, Series B and Series C Preferred Stock held by the
Investors, (ii) certain rights to receive or inspect information pertaining to
the Company, (iii) certain rights to have a right of first offer with respect to
certain issuances by the Company of its securities, and (iv) certain additional
covenants of the Company. The Company, Founder, and the Prior Investors each
desire to induce the Series C Investors to
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<PAGE> 2
purchase shares of Series C Preferred Stock pursuant to the Purchase Agreement
by agreeing to the terms and conditions set forth herein.
D. The Company wishes to execute this Agreement and grant to the Series
C Investors the rights contained herein in order to fulfill such condition.
E. The Company and the Prior Investors executing this Agreement together
represent sufficient signatory authority to amend and restate the Prior Rights
Agreement and to waive the Right of First Offer contained in Section 2.3 of the
Prior Rights Agreement with respect to those Prior Investors who are not
purchasing shares of Series C Preferred Stock pursuant to the Purchase
Agreement.
AGREEMENT
In consideration of the mutual promises and covenants hereinafter set
forth, and for certain other valuable considerations, the receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. REGISTRATION RIGHTS. The Company, the Founder 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, Series B Preferred Stock and Series C Preferred Stock, (ii) the shares of
Common Stock issued to the Founder (the "Founder's Stock"), provided, however,
that for the purposes of Sections 1.2, 1.4, 1.13, 3 and 5.2 the Founder's Stock
shall not be deemed Registrable Securities and the Founder shall not be deemed a
Holder, and (iii) 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) and (ii); provided,
however, that the foregoing 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;
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(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 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 assignee thereof in accordance
with Section 1.12 of this Agreement; provided, however, that the Founder shall
not be deemed to be a Holder with respect to Founder's Stock only for purposes
of Sections 1.2, 1.4 and 1.13, nor an Eligible Holder (as defined herein below
in Section 2.1) with respect to Founder's Stock only for purposes of Section
3.2.
(e) The term "Form S-3" means such form under the Securities
Act as in effect on the date hereof or any successor form that permits
significant incorporation by reference of a Company's filings under the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
(f) The term "SEC" means the Securities and Exchange
Commission; and
(g) The term "Qualified IPO" means a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement under the Securities Act pursuant to which
all outstanding shares of the Company's Preferred Stock are converted into
Common Stock pursuant to Article III, Section 4(b) of the Company's Articles of
Incorporation.
(h) The term "Affiliate" means, with respect to a specified
entity, any other entity directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified entity. For purposes
of this definition, "control" when used with respect to any specified entity
means the power to direct the management and policies of such entity, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
1.2 REQUEST FOR REGISTRATION.
(a) Subject to the conditions of this Section 1.2, if the
Company shall receive at any time after the earlier of (i) the fifth anniversary
of the date hereof, or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or an SEC Rule 145 transaction), a written request from the Holders of at
least 33 1/3% of the Preferred Stock (or Common Stock converted therefrom) then
outstanding that the Company file a registration statement under the Securities
Act covering the registration of Registrable Securities, the anticipated
aggregate offering price, net of underwriting discounts and commissions, of
which are in excess of $5,000,000, then the Company shall, within ten (10) days
of the receipt
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thereof, give written notice of such request to all Holders and shall, subject
to the limitations of subsection 1.2(b), use its best efforts to effect as soon
as practicable, and in any event within 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.
(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 a majority in interest of
the Initiating Holders and shall be reasonably acceptable to the Company. 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 and the Company
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the Company 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 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 90 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; and provided further that the
Company shall not register shares for its own account during such 90 day period,
but such prohibition shall not apply to the registration of Company shares in
connection with a merger or other strategic transaction by the Company.
(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:
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<PAGE> 5
(i) After the Company has effected two (2)
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date sixty
(60) days prior to the Company's good faith estimate of the date of filing of,
and ending on a date one hundred eighty (180) days after the effective date of,
a registration 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 (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 5.3,
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 not less than thirty percent (30%) of the Preferred
Stock (or Common Stock converted therefrom) then outstanding, or from any Holder
or Holders of not less than thirty percent (30%) of the Series C Preferred Stock
(or Common Stock converted therefrom) then outstanding, a written request or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the 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 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
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<PAGE> 6
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 $5,000,000; (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 90
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 month period; (iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected two
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
one hundred eighty (180) days after the effective date of the Company's initial
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 for up to one hundred twenty (120) days.
(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 for such period of time as the
registration statement remains on effective.
(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.
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(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 managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) During the period of time that such registration
statement remains effective, notify each Holder of Registrable Securities
covered by such registration statement at any time when (i) 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 or (ii) there is a stop order issued by the SEC
suspending effectiveness of the registration statement or the initiation of any
proceedings for that purpose or the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registered Securities
for sale in any jurisdiction or the initiation of any such procedure.
(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.
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<PAGE> 8
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.
(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
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
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 pro rata based upon the number of Registrable
Securities that were to be requested in the withdrawn registration), 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, further, 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 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
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<PAGE> 9
registration, filing, qualification, printers' and accounting fees and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders 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 enter into an
underwriting agreement in the customary form with an underwriter or
underwriters, and then, except as provided below, 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 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 be agreed to by all 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 initial public
offering of the Company's securities, in which case, the selling shareholders
may be excluded if the underwriters make the determination described above and
no other shareholder's securities are included, (ii) any securities held by a
Founder be included if any securities held by any selling Holder are excluded,
or (iii) notwithstanding (i) above, any shares being sold by a shareholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering. 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.
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<PAGE> 10
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 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 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
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<PAGE> 11
subsection 1.10(b) exceed the net proceeds from the offering received by such
Holder, except in the case of willful fraud 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 to the extent prejudicial, 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, 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) when aggregated with amounts paid pursuant to
Subsection 1.10(b) hereof, exceed the net proceeds from the offering received by
such Holder, except in the case of willful fraud 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. No Holder shall be required to participate in a
registration pursuant to which it would be required to execute an underwriting
agreement in connection with a registration that imposes indemnification or
contribution
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<PAGE> 12
obligations on such Holder more onerous than those imposed hereunder; provided
however, that the Company shall not be deemed to breach the provisions of
Section 1.2, 1.3 or 1.4 if a Holder is not permitted to participate in a
registration on account of such Holder's refusal to execute an underwriting
agreement on the basis of this Subsection 1.10(e).
(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 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 of such securities that (i) is an Affiliate, partner, limited partner,
retired partner, member or former member of a Holder, (ii) is a Holder's family
member or trust for the benefit of an individual Holder or (iii) is a transferee
or
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<PAGE> 13
assignee of at least 100,000 (appropriately adjusted to reflect subsequent stock
splits, stock dividends, combinations or other recapitalizations) shares of such
securities; 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 immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of (i) a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) or (ii) a corporation or
limited liability company which is an Affiliate of such entity shall be
aggregated together and with the partnership or other entity, as the case may
be; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under Section 1.
1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of at least seventy percent (70%) of the
outstanding Registrable Securities, not including the Founder's Stock, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2 or 1.3 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which are included in such registration, (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 1.2(a) or within one hundred twenty (120) days of the effective date
of any registration effected pursuant to Section 1.2 or (c) to receive rights
pari passu or senior to those granted the Investors hereunder.
1.14 MARKET-STANDOFF AGREEMENT.
(a) MARKET-STANDOFF PERIOD; AGREEMENT. In connection with
the initial public offering of the Company's securities and upon request of the
Company or the underwriters managing such offering of the Company's securities,
each Holder agrees not to sell, make any short sale of, loan, grant any option
for the purchase of, or otherwise dispose of any securities of the Company
acquired by such Holder in a private transaction (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 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 Company's
initial public offering.
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<PAGE> 14
(b) LIMITATIONS. The obligations described in Section
1.14(a) shall apply only if all officers, directors and one-percent security
holders of the Company and all other persons with registration rights (whether
or not pursuant to this Agreement) enter into similar agreements, and shall not
apply to a registration relating solely to employee benefit plans, or to a
registration relating solely to a transaction pursuant to Rule 145 under the
Securities Act.
(c) STOP-TRANSFER INSTRUCTIONS. In order to enforce the
foregoing covenants, the Company may impose stop-transfer instructions with
respect to the securities of each Holder (and the securities of every other
person subject to the restrictions in Section 1.14(a)) until the end of such
period.
(d) TRANSFEREES BOUND. Each Holder agrees that it will not
transfer securities of the Company unless each transferee agrees in writing to
be bound by all of the provisions of this Section 1.14, provided that this
Section 1.14(d) shall not apply to transfers pursuant to a registration
statement or transfers after the six-month anniversary of the effective date of
the Company's initial registration statement subject to this Section 1.14.
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) seven (7) years following the consummation of a Qualified 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 during a three (3)-month
period without registration.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
to each Holder of at least 100,000 shares of Registrable Securities (as adjusted
for stock splits, stock dividends, recapitalizations and the like) (each, an
"Eligible Holder"):
(a) 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
shareholder'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;
(b) within thirty (30) days of the end of each month, an
unaudited income statement and a statement of cash flows and balance sheet for
and as of the end of such month, in reasonable detail;
(c) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets, income
statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
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<PAGE> 15
(d) with respect to the financial statements called for in
subsection (b) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
of Directors determines that it is in the best interest of the Company to do so.
2.2 INSPECTION. The Company shall permit each Eligible Holder
(except for an Eligible Holder reasonably deemed by the Company to be a
competitor of the Company), at such Eligible 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 Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 2.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information. For purposes of this Section 2.2,
Amazon.com, Inc. ("Amazon.com") shall not be considered a competitor of the
Company.
2.3 RIGHT OF FIRST OFFER. Subject to the terms and conditions
specified in this Section 2.3, the Company hereby grants to each Eligible Holder
a right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For the avoidance of doubt and for purposes of this
Section 2.3, the Founder shall be considered an Eligible Holder only with
respect to the Series A Preferred Stock held by him, and his pro rata share (as
used in Section 2.3(b) below) shall be calculated based exclusively on the
shares of Series A Preferred Stock then held by him. An Eligible Holder who
chooses to exercise the right of first offer may designate as purchasers under
such right itself, its current or former partners, members or Affiliates, or a
corporation or limited liability company which is an Affiliate of such entity,
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 Eligible Holder in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Eligible Holders 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 15 calendar days after delivery of the Notice,
(i) each Eligible Holder (including Amazon.com) may elect to purchase or obtain,
at the price and on the terms specified in the Notice, up to 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
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<PAGE> 16
exercise of all convertible or exercisable securities then held by such Eligible
Holder bears to the total number of shares of Common Stock then outstanding
(assuming full conversion and exercise of all convertible or exercisable
securities); and (ii) Amazon.com may elect to purchase or obtain, at the price
and on the terms specified in the Notice, the lesser of (A) all such remaining
Shares and (B) up to that portion of such Shares that, when aggregated with the
total number of shares of the Company's Common Stock issued and held, or
issuable upon conversion or exercise of all convertible or exercisable
securities then held by Amazon.com, plus all shares which Amazon.com has the
right to purchase under Subsection (i) of this Section 2.3(b), equals 46% of the
total number of shares of the Company's Common Stock then outstanding on a
fully-diluted basis (assuming full conversion and exercise of all convertible or
exercisable securities of the Company, including securities reserved for
issuance and not granted under the Company's stock and option plans) (the
"Threshold Percentage"). The Company shall promptly, in writing, inform each
Eligible Holder that purchases all the shares available to it (each, a
"Fully-Exercising Investor") of any other Eligible Holder's failure to do
likewise. During the ten (10)-day period commencing after receipt of such
information, each Fully-Exercising Investor shall be entitled to obtain that
portion of the Shares for which Eligible Holders were entitled to subscribe but
which were not subscribed for by the Eligible Holders that is equal to 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 Fully-Exercising Investor bears to the total
number of shares of Common Stock then outstanding (assuming full conversion and
exercise of all convertible or exercisable securities), provided, however, that
in no event shall Amazon.com be entitled to purchase under this Section 2.3 a
number of Shares that, when aggregated with the total number of shares of Common
Stock issued and held, or issuable upon conversion or exercise of all
convertible or exercisable securities then held by Amazon.com, plus all shares
which Amazon.com has the right to purchase under Subsection (i) of this Section
2.3(b), equals an amount greater than the Threshold Percentage. The right of
Amazon.com to purchase up to the Threshold Percentage pursuant to this Section
2.3 may not be transferred to any third party or parties, other than to a
corporation or limited liability company which is a parent or subsidiary of
Amazon.com.
(c) The Company may, during the 45-day period following the
expiration of the later of the ten-day or fifteen-day period provided in
subsection 2.3(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 Eligible Holders in accordance
herewith.
(d) The right of first offer in this Section 2.3 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 for the primary purpose of soliciting or
retaining their services, (ii) to or after consummation of a Qualified IPO,
except that with respect to Amazon.com (subject to Sections 2.3(e) through (i)
below) and with respect to Bowman Capital Management or any fund over which
Bowman Capital Management
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<PAGE> 17
exercises control or is under common control with (collectively "Bowman")
(subject to Sections 2.3(j) and (k) below), the right of first offer in this
Section 2.3 shall terminate immediately after consummation of a Qualified IPO,
(iii) to the issuance of securities pursuant to the conversion or exercise of
convertible or exercisable securities, (iv) to the issuance of securities to
financial institutions or lessors in connection with commercial credit
arrangements, equipment financings, or similar transactions, or (v) to the
issuance or sale of the Series A Preferred Stock or Series B Preferred Stock.
(e) Notwithstanding anything in this Section 2.3 to the
contrary, and subject to paragraphs (f), (g), (h) and (i) below, 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 hereby agrees that in
connection with the Company's initial public offering of Common Stock pursuant
to a registration statement filed under the Securities Act (the "IPO"), the
Company shall use reasonable efforts to cause the managing underwriter or
underwriters (who were selected with the prior approval, not to be unreasonably
withheld, of Amazon.com) for such IPO to offer to Amazon.com the right to
purchase up to such number of shares of the Company's Common Stock to be sold in
the IPO (the "IPO Shares") sufficient to raise Amazon.com's total equity
ownership in the Company upon consummation of the IPO to its permitted Threshold
Percentage. The IPO Shares shall be offered to Amazon.com on the same terms and
at the same price at which they are being offered to the public. If Amazon.com
wishes to purchase the IPO Shares, it shall promptly respond to such offer
within the time frame reasonably requested by the managing underwriter(s). The
foregoing provisions are not intended to be, and shall not be construed as, an
offer by the Company to sell the IPO Shares. Any such offer will be made
pursuant to applicable requirements of the federal securities laws, the rules
and regulations of the NASD, and all other applicable laws, rules and
regulations, as well as the provisions of this Section 2.3(e).
(f) In the event that despite all purchases by Amazon.com of
shares of the Company's capital stock under this Section 2.3, Amazon.com's total
equity ownership in the Company will not reach its permitted Threshold
Percentage upon consummation of the IPO, then to the extent permissible under
the federal securities laws, the rules and regulations of the NASD, and all
other applicable laws, rules and regulations, and to the extent the managing
underwriter(s) determine that the sale of the Additional Shares (as defined
below) will not jeopardize the success of the IPO, the Company shall use its
best efforts to sell and issue to Amazon.com, and Amazon.com may, but shall not
be required to, purchase from the Company, in a private placement transaction
such number of shares of the Company's Common Stock ("Additional Shares")
sufficient to raise Amazon.com's total equity ownership in the Company
(including, without limitation, any IPO Shares and Additional Shares purchased)
to its permitted Threshold Percentage upon consummation of the IPO. The price
per share paid by Amazon.com for such Additional Shares shall be the price at
which the IPO Shares are offered to the public. The purchase of such shares
shall be contingent upon the closing of the IPO. The foregoing provisions are
not intended to be, and shall not be construed as, an offer by the Company to
sell such shares. Any such offer will be made pursuant to applicable
requirements of the federal
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securities laws, the rules and regulations of the NASD, and all other applicable
laws, rules and regulations, as well as the provisions of this Section 2.3(f).
(g) Notwithstanding Sections 2.3(e) and (f) above, if the
managing underwriter(s) of the IPO determine in their sole discretion that
Amazon.com's purchase of IPO Shares in the amount otherwise specified in Section
(e) or Amazon.com's purchase of Additional Shares in the amount otherwise
specified in Section (f) is not compatible with the success of the IPO, then the
managing underwriter(s) may prohibit Amazon.com from purchasing any IPO Shares
or Additional Shares or may allow Amazon.com to purchase only that number of IPO
Shares or Additional Shares that the managing underwriter(s) determine in their
sole discretion will not jeopardize the success of the IPO; provided however
that in no event shall Bowman be permitted to purchase any shares in the
Company's IPO pursuant to Section 2.3(j) below until Amazon.com shall have been
permitted to purchase its full allocation of IPO Shares.
(h) Notwithstanding anything in this Section 2.3 to the
contrary, and subject to paragraph (i) below, to the extent Amazon.com is not
permitted to purchase the number of shares of additional shares of the Company's
Common Stock which it has requested to purchase pursuant to Section 2.3(e) (the
"Refused Shares"), the Company hereby agrees that for a period of one year
following the IPO, the Company shall in good faith negotiate with Amazon.com to
agree upon a means by which Amazon.com may purchase the Refused Shares (as
adjusted for stock splits, stock dividends, recapitalizations and the like) at
the then fair market value of the Company's Common Stock. Such means may include
a private placement of shares by the Company or the sale of shares by the
Company to Amazon.com in a secondary public offering.
(i) The rights of Amazon.com under Sections 2.3(e), (f) and
(h) above shall terminate at such time as Amazon.com has disposed of any shares
of the Company's capital stock held by it as of the time of this Agreement or
acquired thereafter, provided however, that any transfer of shares by Amazon.com
to a corporation or limited liability company which is a parent or subsidiary of
Amazon.com will not be deemed to trigger the terms of this Section 2.3(i).
(j) Notwithstanding anything in this Section 2.3 to the
contrary, and subject to paragraphs (g) above and (k) below, to the extent
permissible under the federal securities laws, the rules and regulations of the
NASD, and all other applicable laws, rules and regulations, the Company hereby
agrees that in connection with the Company's IPO, the Company shall use
reasonable efforts to cause the managing underwriter or underwriters for such
IPO to offer to Bowman the right to purchase up to two and one-half percent
(2.5%) of the shares offered and sold by the Company in the IPO. The IPO shares
shall be offered to Bowman on the same terms and at the same price at which they
are being offered to the public. If Bowman wishes to purchase such shares, it
shall promptly respond to such offer within the time frame reasonably requested
by the managing underwriter(s). The foregoing provisions are not intended to be,
and shall not be construed as, an offer by the Company to sell such shares. Any
such offer will be made pursuant to applicable requirements of the federal
securities laws, the rules and regulations of the NASD, and all other applicable
laws, rules and regulations, as well as the provisions of this Section 2.3(j).
Notwithstanding the foregoing provisions, if the managing underwriter(s) of the
IPO determine in their sole discretion that Bowman's purchase of such
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shares is not compatible with the success of the IPO, then the managing
underwriter(s) may prohibit Bowman from purchasing any shares in the IPO or may
allow Bowman to purchase only that number of shares that the managing
underwriter(s) determine in their sole discretion will not jeopardize the
success of the IPO.
(k) The rights of Bowman under Section 2.3(j) above shall
terminate at such time as Bowman has disposed of any shares of the Company's
capital stock held by it as of the time of this Agreement or acquired
thereafter.
2.4 REIMBURSEMENT OF DIRECTOR EXPENSES. The Company shall
reimburse the reasonable documented expenses incurred by the directors elected
by the holders of Series A Preferred Stock and Series B Preferred Stock pursuant
to that certain Amended and Restated Voting Agreement between the Company and
the Investors of even date herewith (the "Voting Agreement") in connection with
such directors' attendance of meetings of the Company's Board of Directors
promptly upon receipt of documentation of such expenses.
2.5 NOTICE OF SALE OF COMPANY. Until the Standstill Termination
Date (as defined below in Section 4.1), promptly following commencement of any
discussion with any third-party and in any event at least ten (10) days prior to
signing any letter of intent (whether binding or non-binding) or any definitive
documents, the Company shall provide Amazon.com with written notice of its
intent to enter into an agreement to 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 other transaction or series of related transactions in which more
than fifty percent (50%) of the Company's voting power would be disposed of,
provided such notice shall not be required in connection with a merger effected
solely for the purpose of changing the domicile of the Company.
2.6 VESTING UNDER 1999 STOCK PLAN. Unless otherwise approved by a
majority of the Company's Board of Directors, options and Common Stock granted
by the Company pursuant to its 1999 Stock Plan (the "Plan") will be subject to
the following vesting schedule: 25% of the shares comprising each grant to
employees shall vest on the one-year anniversary of the vesting commencement
date for such grant, and thereafter 1/48th of the shares comprising the grant
shall vest on each monthly anniversary of the vesting commencement date for such
grant. Unvested shares of Common Stock issued to employees pursuant to the Plan
will be subject to the Company's right of repurchase at the original grantee's
purchase price.
2.7 CONFLICTS OF INTERESTS. The Company shall use its best
efforts to ensure that the Company's employees, during the term of their
employment with the Company, do not engage in activities which would result in a
conflict of interest with the Company. The Company's obligations hereunder
include, but are not limited to, requiring that the Company's employees devote
their primary productive time, ability and attention to the business of the
Company (provided, however, the Company's employees may engage in other
professional activity if such activity does not materially interfere with their
obligations to the Company), requiring that the Company's employees enter into
agreements regarding proprietary information
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and confidentiality and inventions, and preventing the Company's employees from
engaging or participating in any business that is in competition with the
business of the Company.
2.8 QUALIFIED SMALL BUSINESS. The Company shall use its best
efforts to provide notice to the holders of its Series A and Series B Preferred
Stock of any proposed action that could affect its qualification as a "Qualified
Small Business" as defined in Section 1202(d) of the Code, and covenants that so
long as Registrable Securities are held by such holders (or a transferee or
assignee of such holders), prior to taking any such action, it will discuss such
action with the Eligible Holders holding Series A and Series B Preferred Stock.
To the extent that such disqualification could be avoided by parties, other than
the Company, repurchasing shares of outstanding stock, the Eligible Holders
holding Series A or Series B Preferred Stock or any other persons or entities
designated by the Company's Board of Directors may purchase such stock in
accordance with the procedures set forth in Section 1.1(b) of the Amended and
Restated Right of First Refusal and Co-Sale Agreement dated the same date
herewith. The Company shall use its best efforts to comply with the reporting
requirements of the State of California regarding "Qualified Small Business
Stock" and similar federal regulations when and if promulgated.
2.9 PROPRIETARY AGREEMENTS. The Company shall have each officer,
employee and consultant of the Company execute the Company's standard form of
non-disclosure and proprietary information agreement prior to disclosing any
proprietary information to any such officer, employee and consultant. The
Company will use its best efforts to prevent any employee from violating the
confidentiality and proprietary information agreement entered into between the
Company and each of its officers, employees and consultants.
2.10 DIRECTORS AND OFFICERS INSURANCE. The Company will use its
best efforts to maintain directors and officers insurance, upon a determination
by the Company's Board of Directors that such insurance is economically
feasible.
2.11 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's
Fifth Amended and Restated Articles of Incorporation (the "Restated Articles")
and Bylaws shall provide (a) for elimination of the liability of director to the
maximum extent permitted by law and (b) for indemnification of directors for
acts on behalf of the Company to the maximum extent permitted by law. In
addition, the Company shall indemnify such directors to the maximum extent
permissible under California law pursuant to an indemnification agreement.
2.12 AUDITORS. The Company will retain independent public
accountants of recognized national standing (i.e., a firm acknowledged to be
among the Big Five or their successors) who shall audit the Company's financial
statements at the end of each fiscal year.
2.13 EXTRAORDINARY REMUNERATION. The Board of Directors may not
approve any plan or action to grant extraordinary remuneration to management in
connection with the sale of the Company or any subsidiary of the Company, or the
termination of employment or otherwise, unless such plan or action has been
approved by the non-employee members of the Board of Directors.
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2.14 APPROVAL OF HOLDERS OF PREFERRED STOCK. The Company shall
disclose all terms, including those provided in side letters, relating to the
issuances described in Article III(B), Sections 6(b)(ii), 6(c)(ii) and 6(d)(ii)
of the Restated Articles to the holders of Preferred Stock before such holders
are to vote on such issuances.
2.15 TERMINATION OF COVENANTS.
(a) The covenants set forth in Sections 2.1 through 2.3 and
2.6 through 2.14 shall terminate as to each Investor and be of no further force
or effect (i) immediately prior to the consummation of a Qualified IPO (except
as otherwise noted in Section 2.3), or (ii) when the Company shall sell, convey,
or otherwise dispose of or encumber all or substantially all of its property or
business or merge into or consolidate with any public corporation (other than a
wholly-owned subsidiary corporation) or effect any other transaction or series
of related transactions in which more than fifty percent (50%) of the voting
power of the Company is disposed of, provided that this subsection (ii) shall
not apply to a merger effected exclusively for the purpose of changing the
domicile of the Company.
(b) The covenants set forth in Sections 2.1 and 2.2 shall
terminate as to each Holder and be of no further force or effect when the
Company first becomes subject to the periodic reporting requirements of Sections
13 or 15(d) of the Exchange Act, if this occurs earlier than the events
described in Section 2.16(a) above.
(c) The covenant set forth in Section 2.4 shall terminate
and be of no further force or effect at such time as the Voting Agreement
terminates pursuant to its terms.
3. COVENANTS OF THE INVESTORS.
3.1 NOTICE OF PROPOSED TRANSFER. Prior to any transfer of
Registrable Securities, the Holder of such Registrable Securities (the "Seller")
must give to the Company a written notice signed by the Seller (the "Seller's
Notice") stating (a) the Seller's bona fide intention to transfer such
Registrable Securities (the "Offered Stock") and the name and address of the
proposed transferee (the "Transferee"); (b) the number of shares of the Offered
Stock; and (c) the bona fide cash price or, in reasonable detail, other
consideration, per share for which the Seller proposes to transfer such Offered
Stock (the "Offered Price"). Upon the request of the Company, the Seller will
promptly furnish information to the Company as may be reasonably requested to
establish that the offer and proposed transferee are bona fide.
3.2 RIGHT OF FIRST REFUSAL.
(a) The Company shall have the right of first refusal to
purchase all or any part of the Offered Stock, if the Company gives written
notice of the exercise of such right to the Seller within thirty (30) days (the
"Company's Refusal Period") after the date of the Seller's Notice to the
Company, provided however, that for purposes of this Section 3.2, Offered Stock
shall not include proposed transfers of stock to any Transferee who is either
(i) a partner or affiliate of the Seller or (ii) a corporation or limited
liability company which is an Affiliate of the Seller.
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(b) The purchase price for the Offered Stock to be purchased
by the Company exercising its right of first refusal under this Agreement will
be the Offered Price, and will be payable as set forth in Section 3.2(c) hereof.
If the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration will be determined by the Board of Directors
of the Company in good faith, which determination will be binding upon the
Company and the Seller, absent fraud or error.
(c) Payment of the purchase price for the Offered Stock
purchased by the Company exercising its right of first refusal will be made
within fifteen (15) days after the end of the Company's Refusal Period. Payment
of the purchase price will be made, at the option of the Company (i) in cash (by
check), (ii) by cancellation of all or a portion of any outstanding indebtedness
of the Seller to the Company, or (iii) by any combination of the foregoing.
(d) If the Company exercises its right of first refusal to
purchase the Offered Stock, then, upon the date the notice of such exercise is
given by the Company, the Seller will have no further rights as a holder of the
Offered Stock except the right to receive payment for the Offered Stock from the
Company in accordance with the terms of this Agreement and the Seller will
forthwith cause all certificate(s) evidencing such Offered Stock to be
surrendered for transfer to the Company.
(e) The right of the Company to purchase any part of the
Offered Stock may be assigned in whole or in part to any third party in the
Company's sole discretion.
(f) If the Company (or its designated assignee) has not
elected to purchase all of the Offered Stock, then the Seller may transfer the
remaining shares of Offered Stock to the Transferee at the Offered Price or at a
higher price, provided that such transfer (i) is consummated within thirty (30)
days after the end of the Company's Refusal Period, (ii) is on terms no more
favorable than the terms proposed in the Seller's Notice and (iii) is in
accordance with all the terms of this Agreement. If the Offered Stock is not so
transferred during such thirty (30) day period, then the Seller may not transfer
any of such Offered Stock without complying again in full with the provisions of
this Agreement.
3.3 RESTRICTIVE LEGEND AND STOP-TRANSFER ORDERS.
(a) Each Investor understands and agrees that the Company
will cause the legend set forth below, or a legend substantially equivalent
thereto, to be placed upon any certificate(s) or other documents or instruments
evidencing ownership of the Registrable Securities:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RIGHTS
OF FIRST REFUSAL AS SET FORTH IN AN AGREEMENT ENTERED INTO BY THE HOLDER
OF THESE SHARES AND THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICE OF THE COMPANY. SUCH RIGHTS OF FIRST REFUSAL ARE
BINDING ON CERTAIN TRANSFEREES OF THESE SHARES.
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(b) Each Investor agrees, to ensure compliance with the
restrictions referred to herein, that the Company may issue appropriate "stop
transfer" certificates or instructions and that, if the Company transfers its
own securities, it may make appropriate notations to the same effect in its
records.
3.4 TRANSFERS. No securities shall be transferred unless (i) such
transfer is made in compliance with applicable federal and state securities laws
and (ii) prior to such transfer, the transferees sign a counterpart to this
Agreement pursuant to which it or they agree to be bound by the terms of this
Agreement. The Company shall not be required (a) to transfer on its books any
shares that shall have been sold or transferred in violation of any of the
provisions of this Agreement or (b) to treat as the owner of such shares or to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such shares shall have been so transferred.
3.5 TERMINATION OF RIGHT OF FIRST REFUSAL. The Company's right of
first refusal pursuant to Section 3.2 hereof shall terminate immediately prior
to the closing of: (i) a Qualified IPO or (ii) the sale, conveyance, disposal,
or encumbrance of all or substantially all of the Company's property or business
or the Company's merger into or consolidation with any other corporation (other
than a wholly-owned subsidiary corporation) or any other transaction or series
of related transactions in which more than fifty percent (50%) of the voting
power of the Company is disposed of, provided that this Section 3.5 shall not
apply to a merger effected exclusively for the purpose of changing the domicile
of the Company.
4. COVENANTS OF AMAZON.COM. Amazon.com hereby covenants and agrees as
follows:
4.1 LIMITATION ON OWNERSHIP. Except with the prior written
consent of a majority of the Company's Board of Directors (excluding the vote of
any director designated by Amazon.com), Amazon.com shall not, directly or
indirectly, acquire beneficial ownership of any capital stock of the Company,
any securities convertible into or exchangeable for capital stock of the
Company, or any other right to acquire capital stock of the Company (except, in
any case, by way of stock dividends or other distributions or offerings made
available to holders of any capital stock generally) if the effect of such
acquisition would be to increase the capital stock owned by Amazon.com to more
than the Threshold Percentage; provided, however, that Amazon.com may acquire
additional shares of capital stock of the Company without regard to the
foregoing limitation upon the earliest to occur of the following (the
"Standstill Termination Date"):
(a) the second anniversary of the closing date of a
Qualified IPO;
(b) immediately following the effective date on which the
Company shall sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge or consolidate with any
other corporation (other than a wholly-owned subsidiary corporation) or effect
any other transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Company is disposed of, except in each
case a merger effected exclusively for the purpose of changing the domicile of
the Company; or
(c) April 22, 2003.
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Notwithstanding the foregoing, if the Company repurchases or recapitalizes any
of its shares and such repurchases or recapitalization result in Amazon.com
owning more than the Threshold Percentage at the effective time of such
repurchases or recapitalization, Amazon.com shall not be obligated to divest
itself of shares of capital stock of the Company to meet the foregoing the
Threshold Percentage, but shall not acquire any additional shares of capital
stock of the Company unless such acquisition would otherwise be permitted under
this Section 4.1
4.2 NOTICE OF CAPITAL STOCK PURCHASES. Amazon.com shall notify
the Company as to any future acquisition of beneficial ownership of capital
stock, or rights thereto, within ten (10) business days after such action in
order for the Company to monitor compliance with the terms of this Agreement.
All purchases of capital stock of the Company by Amazon.com shall be made in
compliance with applicable laws and regulations.
4.3 ACQUISITION BY POOLING. In the event the Company enters into
any agreement providing for the acquisition of the Company by merger, sale of
assets or otherwise in a negotiated transaction approved by the Board of
Directors of the Company, then if such agreement provides, as a condition to
closing, that the transaction shall be treated as a pooling of interests under
generally accepted accounting principles, Amazon.com shall (i) refrain from
exercising any right of appraisal; and (ii) not sell or otherwise reduce its
risk relative to any securities received in such combination until such time as
financial results covering at least 30 days of post-transaction combined
operations have been published.
4.4 PERMITTED TRANSACTION. Notwithstanding the provisions of this
Section 4, on and after the eleventh business day after the commencement of a
proxy contest, tender offer or exchange offer which could result in a "Change of
Control Transaction" (as defined below) for the outstanding shares of capital
stock of the Company or on or after the public announcement that the Company has
entered into an agreement with a third party not affiliated with the Company
that would result in a Change of Control Transaction, Amazon.com shall be
permitted to make a proposal to the Company's Board of Directors or shareholders
or to tender or exchange shares of capital stock beneficially owned by it
pursuant to such transaction. As used herein, "Change of Control Transaction"
shall mean (a) any tender or exchange offer, merger, consolidation,
recapitalization or other business combination or transaction pursuant to which
either (1) the holders of the outstanding voting power immediately prior to the
transaction would hold less than 50% of the outstanding voting power outstanding
immediately after the transaction or (2) 50% of the assets of the Company would
be transferred to or controlled by a third party not affiliated with the
Company, excluding in each case a merger effected exclusively for the purpose of
changing the domicile of the Company, or (b) any action by the shareholders of
the Company that results in the directors, who as of the date of Closing
constitute the Company's Board of Directors (the "Incumbent Board"), ceasing to
constitute at least a majority of the Company's Board of Directors; provided,
however that any individual becoming a director subsequent to the date of
Closing whose nomination for election by the shareholders of the Company was
approved by the vote of the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board.
5. MISCELLANEOUS.
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5.1 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 Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or any Common Stock issued upon
conversion thereof). Subject to the threshold provisions generally included
above herein, the parties agree that the Investors may assign their rights and
obligations under this Agreement to any of their current or former partners,
members or affiliates, including to any corporation or limited liability company
which is an Affiliate of such Investor. 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.
5.2 AMENDMENTS AND WAIVERS. This Agreement (including the Exhibit
hereto) constitutes the full and entire understanding and agreement among the
parties with regard to the subjects hereof and supersedes and terminates in its
entirety the Investors' Rights Agreement dated as of November 5, 1999. Any term
of this Agreement may be amended or waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the holders of at least seventy percent (70%) of the
Registable Securities then outstanding, not including the Founders' Stock;
provided that if such amendment has the effect of affecting the Founders' Stock
(i) in a manner different than securities issued to the Investors and (ii) in a
manner adverse to the interests of the holders of the Founders' Stock, then such
amendment shall also require the consent of the holder or holders of a majority
of the Founders' Stock. 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, and the
Company. Notwithstanding the foregoing, this Agreement (including Exhibit A
hereto) (i) may be amended with only the written consent of the Company to
include additional purchasers of Series C Preferred Stock as "Investors" or
"Holders," and (ii) may not be amended without the consent of the Holders of at
least 75% of the Series C Preferred Stock (and the Common Stock converted
therefrom) then outstanding if such amendment impairs, dilutes or otherwise
negatively affects the rights of such Holders in a manner different than the
other Holders, except for any amendment which impairs, dilutes or otherwise
negatively affects the rights of the Holders of the Series C Preferred Stock
(and the Common Stock converted therefrom) under Section 1.3, in which case such
Section 1.3 shall not be so amended without the consent of the Holders of at
least 75% of the Series C Preferred Stock (and the Common Stock converted
therefrom) then outstanding.
5.3 NOTICES. Unless otherwise provided, 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 fax
(with confirmation of successful electronic transmission), 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 (with a copy to such party's
counsel at such counsel's address or fax number as set forth in the Purchase
Agreement or the Prior Purchase Agreement, whichever applicable) to be notified
at such party's address or fax number as set forth on the signature page or on
Exhibit A hereto or as subsequently modified by written notice.
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5.4 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 (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.
5.5 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.
5.6 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.
5.7 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.
5.8 AGGREGATION OF STOCK. All shares of the Preferred Stock held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
5.9 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
5.10 WAIVERS.
(a) WAIVER OF RIGHT OF FIRST OFFER IN PRIOR RIGHTS
AGREEMENT. By executing this Agreement, the undersigned agrees that it hereby
waives on behalf of itself and all other Investors (as defined in the Prior
Rights Agreement) the right of first offer contained in Section 2.3 of the Prior
Rights Agreement to purchase the Series C Shares to which such Investors would
otherwise be entitled.
(b) WAIVER OF NOTICE AND PIGGYBACK REGISTRATION RIGHTS AND
RIGHT OF FIRST OFFER. By executing this Agreement, Amazon.com and the
undersigned entities affiliated with Hummer Winblad Venture Partners and Bowman
Capital agree that each hereby waives its respective rights: (i) to receive
notice of the Company's initial public offering ("IPO") pursuant to section 1.3
herein above and (ii) to request inclusion of its Registrable Securities for
registration and sale in such IPO, provided that the Company's registration
statement on Form S-1 in connection with the IPO shall have been declared
effective by the SEC not later than March 31, 2000. The undersigned entities
affiliated with Hummer Winblad Venture Partners and Bowman Capital agree that
the Waiver of Rights Under Amended and Restated Invetors' Rights Agreement
executed by each of them as of November 1999 shall remain in full force and
effect
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<PAGE> 27
and that the reference therein to the Amended and Restated Investors' Rights
Agreement dated as of November 5, 1999 shall refer instead to this Agreement and
any amendments to this Agreement. For clarification, the undersigned entities
affiliated with Bowman Capital further agree that the effect of such waiver is
to prevent such entities from exercising their Right of First Offer under
Section 2.3 to purchase shares in the Company's IPO, provided the Company's IPO
Registration Statement shall have been declared effective by the SEC not later
than March 31, 2000. The undersigned entitled affiliates with Hummer Winblad
Venture Partners and Bowman Capital agree that the failure of any of them to
sign the above referenced waivers shall not invalidate the enforceability of
such waivers by the Company against any of them who has signed the waiver.
5.11 CONVERSION OF PREFERRED STOCK. The Founders and Investors
agree that within five (5) business days from receipt of written notice by the
Company of its desire to obtain the written consent of holders of Preferred
Stock to convert the shares of Preferred Stock held by them to Common Stock in
connection with an initial offering of the Company's Common Stock, each of the
Founders and Investors shall consent or withhold its consent and inform the
Company of such decision.
5.12 TERMINATION OF PRIOR RIGHTS AGREEMENT. Upon the execution of
this Agreement by the Company, the Founders and the Investors, the Prior Rights
Agreement shall be amended and restated in its entirety as set forth herein, and
the terms of the Prior Rights Agreement shall be of no further force or effect.
[Signature Page Follows]
-27-
<PAGE> 28
The parties have executed this Amended and Restated Investors' Rights
Agreement as of the date first above written.
COMPANY:
PETS.COM, INC.
By: /s/ Julie Wainwright
-------------------------------------
Name:
Title:
Address: 435 Brannan Street
San Francisco, CA 94107
Fax: 415-222-9999
FOUNDER:
/s/ Greg McLemore
----------------------------------------
Greg McLemore
Address: 87 N. Raymond Avenue, Suite 850
Pasadena, CA 91103
Fax: 626-794-8500
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
INVESTORS:
CATALYST INVESTMENTS, L.L.C.
By: The Walt Disney Company,
its sole member
By: /s/ Thomas Staggs
-------------------------------------
Thomas O. Staggs
Senior Executive Vice President and
Chief Financial Officer
Address: 500 South Buena Vista Street
Burbank, CA 91521
*
----------------------------------------
(Investor)
By: /s/ Eric Moore
-------------------------------------
Name: Eric Moore
-----------------------------------
(print)
Title: Controller
----------------------------------
*
SPINNAKER TECHNOLOGY FUND LP SPINNAKER
TECHNOLOGY
OFFSHORE FUND LTD.
SPINNAKER FOUNDERS FUND, LP
SPINNAKER OFFSHORE FOUNDERS
FUND LTD
SPINNAKER CLIPPER FUND, LP
AMAZON.COM, INC.
----------------------------------------
(Investor)
By: /s/ Mark Britto
Name: Mark Britto
-----------------------------------
(print)
Title: VP
----------------------------------
SIGNATURE PAGE TO AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 30
HUMMER WINBLAD VENTURE PARTNERS III, L.P.
HUMMER WINBLAD TECHNOLOGY FUND III, L.P.
HUMMER WINBLAD VENTURE PARTNERS IV, L.P.
By: /s/ John Hummer
-------------------------------------
Name: John Hummer
-----------------------------------
(print)
Title: Member
----------------------------------
-2-
<PAGE> 1
EXHIBIT 10.31
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement") is entered into
this 23rd day of November by and between Pets.com, Inc., a California
corporation (the "Company") and Paul Manca ("Purchaser").
RECITALS
In connection with Purchaser's exercise of an option to purchase certain
shares of the Company's Common Stock (the "Shares") pursuant to an Option
Agreement dated September 8, 1999 between Purchaser and the Company, Purchaser
is delivering a promissory note dated November 23, 1999 herewith (the "Note") in
full or partial payment of the exercise price for the Shares. The company
requires that the Note be secured by a pledge of the Shares on the terms set
forth below.
AGREEMENT
In consideration of the Company's acceptance of the Note as full or
partial payment of the exercise price of the Shares, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. The Note shall become payable in full upon the voluntary or
involuntary termination or cessation of employment of Purchaser with the
Company, for any reason, with or without cause (including death or disability).
2. Purchaser shall deliver to the Secretary of the Company, or his or
her designee (hereinafter referred to as the "Pledge Holder"), all certificates
representing the Shares, together with an Assignment Separate from Certificate
in the form attached to this Agreement as Attachment A executed by Purchaser and
by Purchaser's spouse (if required for transfer), in blank, for use in
transferring all or a portion of the Shares to the Company if, as and when
required pursuant to this Agreement. In addition, if Purchaser is married,
Purchaser's spouse shall execute the signature page attached to this Agreement.
3. As security for the payment of the Note and any renewal, extension or
modification of the Note, Purchaser hereby grants to the Company a security
interest in and pledges with and delivers to the Company Purchaser's Shares
(sometimes referred to herein as the "Collateral").
4. In the event that Purchaser prepays all or a portion of the Note, in
accordance with the provisions thereof, Purchaser intends, unless written notice
to the contrary is delivered to the Pledge Holder, that the Shares represented
by the portion of the Note so repaid, including annual interest thereon, shall
continue to be so held by the Pledge Holder, to serve as independent collateral
for the outstanding portion of the Note for the purpose of
<PAGE> 2
commencing the holding period set forth in Rule 144(d) promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
5. In the event of any foreclosure of the security interest created by
this Agreement, the Company may sell the Shares at a private sale or may
repurchase the Shares itself. The parties agree that, prior to the establishment
of a public market for the Shares of the Company, the securities laws affecting
sale of the Shares make a public sale of the Shares commercially unreasonable.
The parties further agree that the repurchasing of such Shares by the Company,
or by any person to whom the Company may have assigned its rights under this
Agreement, is commercially reasonable if made at a price determined by the Board
of Directors in its discretion, fairly exercised, representing what would be the
fair market value of the Shares reduced by any limitation on transferability,
whether due to the size of the block of shares or the restrictions of applicable
securities laws.
6. In the event of default in payment when due of any indebtedness under
the Note, the Company may elect then, or at any time thereafter, to exercise all
rights available to a secured party under the California Commercial Code
including the right to sell the Collateral at a private or public sale or
repurchase the Shares as provided above. The proceeds of any sale shall be
applied in the following order:
(a) To the extent necessary, proceeds shall be used to pay all
reasonable expenses of the Company in enforcing this Agreement and the Note,
including, without limitation, reasonable attorney's fees and legal expenses
incurred by the Company.
(b) To the extent necessary, proceeds shall be used to satisfy
any remaining indebtedness under Purchaser's Note.
(c) Any remaining proceeds shall be delivered to Purchaser.
7. Upon full payment by Purchaser of all amounts due under the Note,
Pledge Holder shall deliver to Purchaser all Shares in Pledge Holder's
possession belonging to Purchaser, and Pledge Holder shall thereupon be
discharged of all further obligations under this Agreement.
-2-
<PAGE> 3
The parties have executed this Pledge and Security Agreement as of the
date first set forth above.
COMPANY:
PETS.COM, INC.
By: /s/ Julie Wainwright
-----------------------------------------
Name: Julie Wainwright
---------------------------------------
(print)
Title: Chief Executive Officer
--------------------------------------
435 Brannan Street, Suite 100
San Francisco, CA 94107
PURCHASER:
PAUL MANCA
/s/ Paul Manca
--------------------------------------------
(Signature)
Paul Manca
--------------------------------------------
(Print Name)
Address:
--------------------------------------------
--------------------------------------------
-3-
<PAGE> 4
PROMISSORY NOTE
$187,500 San Francisco, California
November 23, 1999
For value received, the undersigned promises to pay Pets.com, Inc., a
California corporation (the "Company"), at its principal office the principal
sum of $187,500 with interest from the date hereof at a rate of 6.08% per annum,
compounded annually, on the unpaid balance of such principal sum. Such principal
and interest shall be due and payable on November 23, 2003.
If the undersigned's employment or consulting relationship with the
Company is terminated prior to payment in full of this Note, this Note shall be
immediately due and payable.
Principal and interest are payable in lawful money of the United States
of America. AMOUNTS DUE UNDER THIS NOTE MAY BE PREPAID AT ANY TIME WITHOUT
PREMIUM OR PENALTY.
Should suit be commenced to collect any sums due under this Note, such
sum as the Court may deem reasonable shall be added hereto as attorneys' fees.
The makers and endorsers have severally waived presentment for payment, protest,
notice of protest and notice of nonpayment of this Note.
This Note, which is full recourse, is secured by a pledge of certain
shares of Common Stock of the Company and is subject to the terms of a Pledge
and Security Agreement between the undersigned and the Company of even date
herewith.
/s/ Paul Manca
-----------------------------
Paul Manca
<PAGE> 1
EXHIBIT 10.32
EXCLUSIVE CROSS MARKETING AGREEMENT BETWEEN
PETS.COM AND PETPLACE.COM
This Exclusive Cross Marketing Agreement (this "Agreement") is made as
of September, 17 1999 (the "Effective Date") by and between Pets.com, Inc., a
California corporation with offices at 435 Brannan Street, Suite 100, San
Francisco, CA 94107 ("Pets.com") and PetPlace.com, Inc., a Delaware corporation
with offices at 71 Broadway, Suite 22A, New York, New York 10006
("PetPlace.com") (each a "party" and collectively the "parties").
BACKGROUND
Whereas, Pets.com owns and operates the Pets.com Site (as defined below) which
markets and sells pet related goods to consumers;
Whereas, PetPlace.com owns and operates the PetPlace.com Site (as defined below)
which provides on-line veterinary service; and
Whereas, the parties wish to enter into an exclusive relationship on the terms
and conditions set forth herein. In consideration of the mutual promises
contained herein, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS.
"Above the Fold" means the placement of an icon, Link or other content
on a Page such that it is viewable on a computer screen at an 800 x 600 pixels
resolution by a user without having to scroll down to view more of the Page.
"Animal Main Pages" mean Pages within the Pets.com Site which are the
entry point for products and information on an individual or group of animal
species.
"Content/Resource Area" means an area within the Pets.com Site which
shall contain content and resources for animals and which shall not be more than
two (2) clicks away from the Pets.com Home Page.
"Home Page" means that Page of the web site which is designated as the
initial end user interface for the web site.
"Intellectual Property Rights" means all rights in and to trade
secrets, patents, copyrights, trademarks, know-how, as well as moral rights and
similar rights of any type under the laws of any governmental authority,
domestic or foreign, including rights in and to all applications and
registrations relating to any of the foregoing.
"Launch Date" means the date on which the PetPlace.com Site shall be
made available and accessible via the World Wide Web. The parties estimate that
the Launch Date will occur on
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<PAGE> 2
December 1, 1999. PetPlace.com shall provide Pets.com with regular monthly
updates regarding the status of the Launch Date.
"Link" means a URL hidden behind a formatting option that may take the
form of a colored item of text (such as a URL description), logo or image,
"button" or graphic box, and which allows a user to access Pages, web sites or
other text within a Page. The technical implementation of the Links shall be
mutually agreed by the parties.
"Marks" of a party means such party's trademarks, trade names, service
marks, service names, logos and other distinct brand elements that appear from
time to time in such party's properties, ventures and services worldwide,
together with any modifications to the foregoing made by such party during the
term of this Agreement.
"Online" means on the Internet or other online service or network.
"Page" means a document on the Internet which may be viewed in its
entirety without leaving the applicable distinct URL address.
"Partners Page" means that Page on the web site which is designated to
contain information about the strategic partners of that web site.
"Pet Retail Company" means any web site, Online service, traditional
retail store or other physical or virtual entity listed on Exhibit A, and any
subsidiary or holding company of such entity. The parties will meet quarterly to
discuss in good faith modifications or additions of this Exhibit A.
"PetPlace.com Site" means the web site owned and operated by
PetPlace.com, and currently having a URL at http://www.petplace.com, and any
successor site thereof.
"Pets.com Site" means the web site owned and operated by Pets.com, and
currently having a URL at http://www.pets.com, and any successor site thereof.
"Revenue" means the purchase price of any product of service (excluding
sales or similar taxes and shipping, if applicable) less any returns of products
previously sold.
2. PETS.COM SITE PLACEMENT. After the Launch Date and during the term, Pets.com
shall provide the following placements on the Pets.com Site:
2.1 HOME PAGE. Pets.com shall provide an Above the Fold Link (to be
approved by both parties) on the Pets.com Home Page which links to the
PetPlace.com Home Page.
2.2 CONTENT/RESOURCE AREA. Pets.com shall provide the following
placements in the Content/Resource Area:
(a) Links on either a "Navigation Bar" or through a Link entitled
"Learn more about medical care" (or similar language) to the PetPlace.com Site;
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<PAGE> 3
(b) Excerpted medical articles to be provided by Petplace.com which
shall link to the full text of the article at the Petplace.com Site; and
(c) Medical terms which contain a Link to the PetPlace.com Site.
2.3 ANIMAL MAIN PAGES. Pets.com shall feature articles to be provided by
PetPlace.com on its Animal Main Pages which shall contain a Link to the full
text of the article at the PetPlace.com Site.
2.4 PARTNERS PAGE. Pets.com shall provide a Link on its Partners Page
which shall link to the PetPlace.com Home Page.
3. PETPLACE.COM SITE PLACEMENT. After the Launch Date and during the term,
PetPlace.com shall provide the following placements on the PetPlace.com Site:
3.1 HOME PAGE. PetPlace.com shall provide an Above the Fold Link (to be
approved by both parties) on the Petplace.com Home Page which links to the
Pets.com Home Page.
3.2 BUY BUTTONS. Petplace.com shall provide "Buy Button" Links after
every pet product recommendation on the PetPlace.com Site and a "Buy All" Link
at the end of each article which shall link to either a Pets.com Page which
describes the product or a Pets.com Page where the user can purchase the
product.
3.3 PARTNER PAGE. PetPlace.com shall develop a Page similar to
Pets.com's Partner Page and shall include a Link on such Page which links to the
Pets.com Home Page.
4. BANNER ADVERTISEMENTS. Pets.com shall have the right to purchase from
PetPlace.com banner advertisements. The price, terms and placement of such
banner advertisements to Pets.com [*]. In the event Pets.com were to sell banner
advertisements on the Pets.com Site in the future, Pets.com agrees that the
price, terms and placement of such banner advertisements to Petplace.com [*].
5. REVENUE SHARING.
5.1 PETS.COM. Beginning with the conclusion of the first calendar
quarter after the Launch Date and for each quarter thereafter, Pets.com will,
within thirty (30) days after the end of each quarter, [*] from the Pets.com
Site by a user who "clicked through" from the PetPlace.com Site and made a
purchase before leaving the Pets.com Site by any means. In addition, [*]
"clicked through" from the Petplace.com Site and made a purchase from the
Pets.com Site before leaving the Pets.com Site by any means [*].
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 4
5.2 PETPLACE.COM. Beginning with the conclusion of the calendar quarter
after the Launch Date and for each quarter thereafter, Petplace.com will, within
thirty (30) days after the end of each quarter, [*] from the Petplace.com Site
by a user who "clicked through" from the Pets.com Site and made a purchase
before leaving the PetPlace.com Site by any means. In addition, [*] "clicked
through" from the Pets.com Site and made a purchase from the PetPlace.com Site
before leaving the Petplace.com Site by any means [*].
5.3 AUDIT RIGHTS. During the term of this Agreement and for one (1) year
thereafter, either party, at its own expense, may cause an audit to be made of
the other party's applicable records in order to verify the payments made
pursuant to this Section 5 and prompt adjustment shall be made to compensate for
any errors or omissions disclosed by such audit, provided that: i) such audit be
made by an independent Certified Public Accountant of national standing
reasonably acceptable to the audited party; ii) the auditor agrees to keep the
results of the audit confidential; iii) the audit will be conducted at the other
party's place of business during normal business hours and with reasonable prior
written notice; and iv) the audit is not conducted more than once per calendar
year.
6. EXCLUSIVITY.
6.1 Pets.com shall be the exclusive Pet Retail Company associated with
the PetPlace.com Site in that no banner advertisements, sponsorships, promotions
or any other advertising, promotional or editorial content of any Pet Retail
Company other than Pets.com shall appear on the PetPlace.com Site during the
term of this Agreement. In addition, PetPlace.com shall not promote any Pet
Retail Company other than Pets.com in any advertising, promotional or public
relations materials in any form or medium. Petplace.com further agrees not to
market or sell pet related products to consumers in competition with Pets.com.
Notwithstanding the previous sentence, [*] chooses not [*].
6.2 PetPlace.com shall be the exclusive Online veterinary service
provider associated with the Pets.com Site in that no banner advertisements,
sponsorships, promotions or any other advertising or promotional content of any
Online veterinary service provider other than PetPlace.com shall appear on the
Pets.com Site during the term of this Agreement. In addition, Pets.com shall not
promote any Online veterinary service provider other than Petplace.com in any
advertising, promotional or public relations materials in any form or medium.
Pets.com further agrees [*]. Notwithstanding the foregoing, Petplace.com
acknowledges that Pets.com currently provides and shall continue to provide pet
care information content supplied by veterinarians at no cost to users on the
Pets.com Site, provided such content is not directly competitive with
PetPlace.com. PetPlace.com acknowledges, however, that the pet care information
offered at the Pets.com Site as of the Effective Date, and any information
offered
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 5
thereafter at the same or a lesser level of service or content, shall not be
considered directly competitive with PetPlace.com within the meaning of this
Section 6.2.
7. JOINT MARKETING AND PROMOTION.
7.1 PETS.COM OBLIGATIONS.
(a) PUBLIC RELATIONS. Pets.com will develop and execute against a
public relations plan during the first twelve (12) months of this Agreement
which includes but is not limited to: (i) a specific press release announcing
the relationship pursuant to this Agreement; (ii) a press tour for Julie
Wainwright and Jon Rappaport targeting key Internet, consumer and business press
such as for example CNN, MSNBC, Wall Street Journal, NY Times and ZDTV and other
consumer magazines; and (iii) continued mention of Petplace.com as part of
Pets.com's ongoing press materials. [*] that it will deliver [*] as a result of
these efforts.
(b) TELEVISION. Pets.com will develop a specific television
advertisement highlighting PetPlace.com and [*] as [*] during the [*] Agreement.
[*] that it will [*] from such [*].
(c) EMAIL NEWSLETTER. Pets.com will feature PetPlace.com in its
regular newsletter to its installed base [*]. Pets.com estimates that it will
deliver to PetPlace.com [*] from its newsletter during the first twelve (12)
months of this Agreement.
(d) MAGAZINE. To the extent that Pets.com publishes a magazine, it
will include a full page advertisement of PetPlace.com in the first quarter Year
2000 edition of the magazine. PetPlace.com shall provide the print advertising
to Pets.com which shall meet the magazine's technical specifications by the
required insertion date. Pets.com [*].
(e) PETS.COM IN-BOX SHIPMENTS. Pets.com will periodically insert
PetPlace.com information into the shipments to its customers. The content of
such PetPlace.com information will be mutually agreed by the parties. Pets.com
estimates that it will insert Petplace.com information into shipments delivering
[*] impressions during the first [*] of this Agreement.
(f) [*]PROMOTIONS. Pets.com will [*] in its [*]. Pets.com estimates
that it will [*] that will deliver [*] during the [*] of this Agreement.
(g) EDITORIAL CONTENT VENUE. Pets.com will create a credited venue
for editorial content to be supplied by PetPlace.com that will allow consumers
to see PetPlace.com as an authority on pet medical issues. Pets.com estimates
that it will deliver to
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 6
PetPlace.com between [*] impressions through the editorial content venue during
the first [*] of this Agreement.
7.2 MINIMUM IMPRESSIONS. Pets.com agrees to make commercially reasonable
efforts to deliver to PetPlace.com the [*], where applicable, as set forth in
Section 7.1.
7.3 PETPLACE.COM OBLIGATIONS. PetPlace.com agrees to make commercially
reasonable efforts develop a mutually acceptable marketing and promotional plan
within [*] of the Effective Date which shall be attached hereto as Exhibit B.
7.4 QUARTERLY MEETINGS. The parties agree to have quarterly meetings to
review and, if necessary, revise each party's respective marketing and
promotional efforts to ensure that the mutual interests and objectives of both
parties are met.
8. EQUITY INVESTMENT. The effective execution of this Agreement is
conditioned upon the execution and delivery of a separate stock purchase
agreement by the parties being entered into on or around the Effective Date.
Notwithstanding the preceding sentence, Section 12.1 regarding confidentiality
shall be effective immediately.
9. ADDITIONAL OBLIGATIONS.
9.1 USER DATA AND INFORMATION. Both parties agree to share with the
other party at no cost any user data or information collected through their
respective Sites which have been affirmatively opted in by the user (with the
opt-in occurring at either the Pets.com or PetPlace.com Site), subject to any
applicable privacy or other laws.
9.2 ANGELL MEMORIAL ENDORSEMENT. Petplace.com agrees to consider the
endorsement of a private label food product supplied and distributed by
Pets.com. PetPlace.com will also use its commercially reasonable efforts to gain
endorsement from Angell Memorial.
9.3 CONSUMER MEDICAL QUESTIONS. Pets.com agrees to forward all email
medical questions from users to Petplace.com and provided that PetPlace.com
responds within [*] to such questions. PetPlace.com agrees to provide [*]
consultations to any such users as a special offer to Pets.com users.
9.4 PRODUCT SUPPLY CATALOG. Pets.com shall provide (or make available)
to PetPlace.com current electronic versions of its product supply catalog data.
The format, technical specifications and process for providing such catalog
shall be mutually agreed to by the parties.
9.5 IMPLEMENTATION/COOPERATION. During the term, the parties will
cooperate in good faith and use commercially reasonable efforts to establish and
implement procedures and processes for proposing, creating, approving and
performing the obligations under this Agreement.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 7
10. TERM AND TERMINATION.
10.1 TERM. This Agreement will become effective as of the Effective Date
and. unless sooner terminated as otherwise provided herein, or as otherwise
mutually agreed, shall remain effective for a period of [*] years from the
Launch Date.
10.2 LAUNCH DATE. Pets.com shall have the right to terminate this
Agreement upon written notice to PetPlace.com in the event that the Launch Date
has not occurred by [*].
10.3 TERMINATION FOR INSOLVENCY AND CAUSE. This Agreement may be
terminated at any time by a party, effective immediately upon notice, if the
other party: (a) undergoes an insolvency proceeding that is not dismissed within
ninety (90) days; (b) files a petition in bankruptcy, (c) makes an assignment
for the benefit of its creditors, or (d) breaches any of its material
responsibilities or obligations under this Agreement, which breach is not
remedied within thirty (30) days from receipt of written notice of such breach.
10.4 EFFECT OF TERMINATION. Upon expiration or termination of this
Agreement: (a) each party shall return or, at the disclosing party's request
destroy, the Confidential Information of the other party, (b) all licenses
granted herein shall terminate and (c) Sections 10.4, 12, 13, 14, 15 and 17
shall survive.
11. LICENSES.
11.1 GRANT OF LICENSE BY PETPLACE.COM. Subject to the terms and
conditions of this Agreement, PetPlace.com hereby grant Pets.com a nonexclusive,
royalty-free, worldwide license to use, reproduce, publicly display, publicly
perform, distribute and transmit the PetPlace.com Marks on the Pets.com Site and
in other promotional materials solely to the extent necessary to perform its
obligations under this Agreement, and provided that any such use will comply
with any brand usage guidelines communicated by PetPlace.com to Pets.com in
writing.
11.2 GRANT OF LICENSE BY PETS.COM. Subject to the terms and conditions
of this Agreement, Pets.com hereby grants PetPlace.com a non-exclusive,
royalty-free, worldwide license to use, reproduce, publicly display, publicly
perform, distribute and transmit Pets.com Marks on the PetPlace.com Site and in
other promotional materials solely to the extent necessary to perform its
obligations under this Agreement, and. provided that any such use of will comply
with any brand usage guidelines communicated by Pets.com to Petplace.com in
writing.
11.3 RESERVED RIGHTS. Without limiting the foregoing, each party
reserves all rights other than those expressly granted in this Agreement, and no
licenses are granted except as expressly set forth herein.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 8
12. PROPRIETARY INFORMATION.
12.1 CONFIDENTIALITY. PetPlace.com and Pets.com each agree to retain in
confidence the non- public terms in this Agreement and all other non-public
information and know-how disclosed pursuant to this Agreement which is either
designated as proprietary and/or confidential, or by the nature of the
circumstances surrounding disclosure, should reasonably be understood to be
confidential ("Confidential Information"). Each party agrees to: (a) preserve
and protect the confidentiality of the other party's Confidential Information;
(b) refrain from using the other party's Confidential Information except as
contemplated herein; and (c) not disclose such Confidential Information to any
third party except to employees as is reasonably required under this Agreement
(and only subject to binding use and disclosure restrictions at least as
protective as those set forth herein executed in writing by such employees).
Notwithstanding the foregoing, either party may disclose Confidential
Information of the other party which is: (i) already publicly known; (ii)
discovered or created by the receiving party without reference to the
Confidential Information of the disclosing party, as shown in records of
receiving party; (iii) otherwise known to the receiving party through no
wrongful conduct of the receiving party, or (iv) required to be disclosed by law
or court order. Moreover, either party hereto may disclose any Confidential
Information hereunder to such party's agents, attorneys and other
representatives or any court of competent jurisdiction or any other party
empowered hereunder as reasonably required to resolve any dispute between the
parties hereto.
12.2 OWNERSHIP.
(a) BY PETS.COM. As between Pets.com and PetPlace.com, Pets.com
will have and retain full and exclusive right, title and ownership interest in
and to Pets.com's Marks, together with any Intellectual Property Rights thereto.
(b) BY PETPLACE.COM. As between Petplace.com and Pets.com,
PetP1ace.com will have and retain full and exclusive right, title and ownership
interest in and to PetPlace.com's Marks, together with any Intellectual Property
Rights thereto.
13. REPRESENTATION AND WARRANTIES.
13.1 BY EACH PARTY. Each party represents and warrants to the other
that: (a) such party has the full right. power and authority to enter into this
Agreement and to perform the acts required of it hereunder; (b) the execution of
this Agreement by such party, and the performance by such party of its
obligations and duties hereunder, do not and will not violate any agreement to
which such party is a party or by which it is otherwise bound; and (c) when
executed and delivered by such party, this Agreement will constitute the legal,
valid and binding obligation of such party, enforceable against such party in
accordance with its terms.
13.2 NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE ACTIVITIES AND
SERVICES CONTEMPLATED BY
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<PAGE> 9
THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT AND ANY IMPLIED WARRANTIES ARISING FROM
COURSE OF DEALING OR COURSE OF PERFORMANCE.
14. INDEMNIFICATION
14.1 INDEMNIFICATION BY PETS.COM. Pets.com agrees, at its own expense,
to defend or at its option to settle any claim or action brought against
PetPlace.com arising out of or relating to a claim that: (a) use of Pets.com's
Marks in accordance with the terms of this Agreement infringes a third party
copyright or trademark, (b) any content on the Pets.com Site infringes the
Intellectual Property Rights of a third party, is obscene or defamatory,
violates any law or regulation, or breaches the rights of any person or entity,
including, without limitation, rights of publicity, privacy or personality,
and/or (c) results from a breach or alleged breach by Pets.com of any
representation or warranty contained in Section 13.1; and Pets.com will
indemnify PetPlace.com against any and all losses, damages, suits, judgments,
costs and expenses (including litigation costs and reasonable attorneys' fees)
arising under any such claim or action; provided that Petplace.com provides
Pets.com with: (i) prompt written notice of such claim or action, (ii) sole
control and authority over the defense or settlement of such claim or action
(provided that Pets.com shall not enter into any settlement which materially
affects PetPlace.com's rights without PetPlace.com's prior written consent), and
(iii) proper and full information and reasonable assistance to defend and/or
settle any such claim or action.
14.2 INDEMNIFICATION BY PETPLACE.COM. Petplace.com agrees, at its own
expense, to defend or at its option to settle any claim or action brought
against Pets.com arising out of or relating to a claim that: (a) use of
PetPlace.com's Marks in accordance with the terms of this Agreement infringes a
third party copyright or trademark, (b) any content on the Petplace.com Site
infringes the Intellectual Property Rights of a third party, is obscene or
defamatory, violates any law or regulation, or breaches the rights of any person
or entity, including, without limitation, rights of publicity, privacy or
personality, and/or (c) results from a breach or alleged. breach by Petplace.com
of any representation or warranty contained in Sections 13.1; and Petplace.com
will indemnify Pets.com against any and all losses, damages, suits, judgments,
costs and expenses (including litigation costs and reasonable attorneys' fees)
arising under any such claim or action, provided that Pets.com provides
PetPlace.com with: (i) prompt written notice of such claim or action, (ii) sole
control and authority over the defense or settlement of such claim or action
(provided that PetPlace.com shall not enter into any settlement which materially
affects Pets.com's rights without Pets.com's prior written consent), and (iii)
proper and full information and reasonable assistance to defend and/or settle
any such claim or action.
15. LIMITATION OF LIABILITY. EXCEPT FOR LIABILITY ARISING UNDER SECTION 14,
UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND REGARDLESS OF THE
THEORY OF
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LIABILITY), ARISING FROM ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
REMEDY.
16. RESTRICTION ON [*]. PetPlace.com [*] or otherwise [*] any of its [*],
related to [*] or related to its [*] directly [*], or (ii) effect any [*] or
otherwise) with a [*] in which the [*] of the [*], without the [*]; provided
that the foregoing [*] shall terminate on the earlier of (x) [*] of the
Effective Date, or (y) the closing of [*] resulting in aggregate [*], or (z) [*]
(i) or (ii) above, except that [*] that arise from the [*] under this Agreement
shall not [*].
17. MISCELLANEOUS.
17.1 ARBITRATION. Any dispute, claim or controversy of any kind arising
in connection with, or relating to, this Agreement, except for a dispute, claim
or controversy arising under Sections 11 or 12, shall be resolved exclusively by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, by three (3) arbitrators
appointed in accordance with said rules. Judgment on the award rendered by the
arbitrators may be entered into any court of competent jurisdiction.
17.2 NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below, or as subsequently modified by written
notice. Either party may change its address for notice purposes hereof on
written notice to the other party in accordance with this Section 17.2.
To Pets.com, Inc. To PetPlace.com, Inc.
Pets.com, Inc. PetPlace.com, Inc.
435 Brannan Street, Suite 100 71 Broadway, Suite 22A
San Francisco, CA 94107 New York. New York 10006
Attention: Julie Wainwright Attention: Jon Rappaport
Phone: 415.222.9999 Phone: 212.
Fax:415.222.9998 Fax: 212.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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17.3 COSTS AND EXPENSES. Except as express provided in this Agreement
elsewhere, each party will be responsible for all costs and expenses incurred by
such party in performing its obligations under this Agreement.
17.4 NO JOINT VENTURE OR AGENCY. Nothing in this Agreement shall
constitute or create a joint venture, partnership, or any other similar
arrangement between Pets.com and PetPlace.com. Neither party is authorized to
act as agent or bind the other party except as expressly stated in this
Agreement.
17.5 ASSIGNMENT. Neither party may transfer or assign any rights or
delegate any obligations hereunder, in whole or in part, whether voluntarily or
by operation of law, without the prior written consent of the other party except
to an acquirer of all or substantially all of that party's business or assets
(but PetPlace.com's right to transfer or assign to such an acquirer shall be
subject to Section 16 hereof). Any purported transfer, assignment or delegation
in violation of the foregoing will be null and void and of no force or effect.
17.6 HEADINGS. Sections, titles or captions in no way define, limit,
extend or describe the scope of this Agreement nor the intent of any of its
provisions.
17.7 SEVERABILITY. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
17.8 ENTIRE AGREEMENT. This Agreement together with any Exhibits
contains the entire agreement of the parties with respect to the subject matter
hereof, and supersedes all prior and/or contemporaneous agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.
17.9 GOVERNING LAW. This Agreement will be governed by and interpreted
under the laws of the State of California, without giving effect to applicable
conflicts of law principles.
17.10 AMENDMENT. This Agreement may not be amended or modified by the
parties in any manner, except by an instrument in writing signed on behalf of
each of the parties to which such amendment or modification applies by a duly
authorized officer or representative.
17.11 WAIVER. Any of the provisions of this Agreement may be waived by
the party entitled to the benefit thereof. Neither party will be deemed, by any
act or omission, to have waived any of its rights or remedies hereunder unless
such waiver is in writing and signed by the waiving party, and then only to the
extent specifically set forth in such writing. A waiver with reference to one
event will not be construed as continuing or as a bar to or waiver of any right
or remedy as to a subsequent event.
17.12 RECOVERY OF COSTS AND EXPENSES. If either party brings an action
against the other party to enforce its rights under this Agreement, the
prevailing party will be
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entitled to recover its costs and expenses, including, without limitation,
attorneys' fees and costs incurred in connection with such action, including any
appeal of such action.
17.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if both parties hereto had signed the same
document. All counterparts will be construed together and will constitute one
agreement.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers or representatives as of
the Effective Date.
PETS.COM, INC.
By: /s/ Julie Wainwright
------------------------------------
Title: CEO
----------------------------------
Date: 9.17.99
-----------------------------------
PETPLACE.COM, INC.
By: /s/ Jon J. Rappaport
------------------------------------
Title: CEO
----------------------------------
Date: 9.17.99
-----------------------------------
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<PAGE> 1
EXHIBIT 10.33
AMERICAN VETERINARY MEDICAL FOUNDATION
SPONSORSHIP AGREEMENT
This Sponsorship Agreement (this "Agreement") is executed effective as of
10/21/99 (the "Effective Date") by and between the American Veterinary Medical
Foundation (AVMF), a non-profit corporation located at 1931 N. Meacham Road,
Suite 100, Schaumburg, Illinois 60173, and Pets.com ("Sponsor"), located at 435
Brannan Street, Suite 100, San Francisco, CA 94107.
WHEREAS, AVMF is producing a fundraising campaign consisting of various
video-taped programs for the education of veterinary professionals and related
public relations materials for a national consumer education and information
program (the "Program"); and
WHEREAS, Sponsor wishes to support the campaign and have their company
and product(s) featured in the Program; and WHEREAS, in consideration for the
Sponsor's participation in the Program, AVMF is willing to provide Sponsor with
promotional messages to be included within video, the consumer public relations
materials and other parts of the Program;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and confessed by the parties
hereto, it is agreed as follows:
1. AVMF will produce a series of video programs, each approximately
one-half hour in length, to be entitled "Veterinary ClientLink" and containing
current industry news, topical veterinary features, and educational and
promotional materials targeted to practicing veterinarians and their staff
members. The series will consist of a minimum of four (4) video programs to be
distributed in each twelve (12) month period during the term of this Agreement.
The series is to be distributed, as each program is completed, to selected
members of the profession on VHS tapes for their information and continuing
education.
2. AVMF will distribute not less than ten thousand (10,000) tapes of
each Veterinary ClientLink video program (40,000 total minimum per year) to a
selected group of veterinary hospitals and other key industry professionals.
This distribution group shall be comprised of veterinarians and other AVMF
supporters contributing five hundred dollars ($500) or more per year to the AVMF
and participating in its Memorial program, as well as additional hospitals,
veterinarians or others as determined by AVMF.
3. AVMF shall provide Sponsor with commercial placements and other
sponsorship benefits in Veterinary ClientLink videos produced and distributed
during the term of this Agreement as follows:
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a. Sponsor's logo on the video jacket or packaging.
b. Recognition in the video's opening or closing credits, such as
"Produced through a grant from (Sponsor)"
c. A thirty (30) second commercial (or 2 fifteen (15) second
commercials) in each program, to be provided by Sponsor on Beta
SP tape and inserted by AVMF. The commercial(s) may either
feature a product related to Sponsor's exclusive topic or another
product of Sponsor's choosing provided it has not been selected
as an exclusive topic by another sponsor.
d. Collaboration on one (1) feature story topic per year related to
Sponsor's specialty or product issue. This topic shall be
exclusive to Sponsor and may be renewed annually.
e. Insertion of one (1) piece of Sponsor's literature in the
packaging of each video. Such material must conform to AVMF's
packaging specifications.
4. Sponsor may contribute detailed information, scientific studies,
video taped materials and other guidance to assist in the scripting of the video
feature related to Sponsor's specialty or product category. AVMF agrees to work
with Sponsor to develop a mutually acceptable video feature. Sponsor shall be
granted the right of approval for its video feature script and related media
releases to insure their accuracy and conformance with any regulatory
requirements. However, to maintain the Program's editorial integrity, all other
video content shall be determined solely by AVMF.
5. To assure timely delivery of all Program elements, Sponsor agrees to
provide all information and materials required in the production of Sponsor's
Veterinary ClientLink feature story and/or other public relations materials in
the time and manner as may be prescribed by AVMF and agreed to by Sponsor. AVMF
shall not be liable for delays or non-performance of this Agreement as a result
of Sponsor's failure to provide the required information and materials as agreed
upon.
6. Sponsor has sole responsibility for the content of the materials and
information it submits to AVMF for inclusion in the Program, and warrants to
AVMF that: (i) it is authorized to sell the products or services advertised and
to use any information or depiction submitted to AVMF; (ii) it has the right to
use any trademarks, service marks, trade names, images, logos and slogans
submitted; and (iii) to the best of its knowledge the information and materials
submitted to AVMF will be true and accurate and in compliance with all
applicable laws and regulations.
7. AVMF warrants to Sponsor that it has obtained all necessary approvals
and authorizations to provide the information and materials contained in the
Program and that the Program, its contents and distribution are in compliance
with all applicable laws and regulations.
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8. Each party shall indemnify and hold harmless the other party, its
officers, directors, employees, agents and subcontractors from and against all
third party claims, demands, actions and costs to which the other party is or
may become subject insofar as they arise out of or are alleged or claimed to
arise out of (i) any breach by a party of any of its obligations under this
Agreement, or (ii) any negligent or willful act or omission by a party or its
employees, agents or subcontractors.
9. For public education and promotional purposes, AVMF will also prepare
and distribute to the media the following news releases based on Sponsor's
Veterinary ClientLink feature story:
a. Production and distribution of a Video News Release (VNR) package
which will be offered to approximately twelve hundred (1,200)
broadcast news points and distributed to television stations and
networks by satellite uplink.
b. Use of Sponsor's expert spokesperson in a one (1) to two (2) hour
Satellite Media Tour (SMT) and a similar Radio Media Tour (RMT)
providing television and radio news interview opportunities on
the same topic.
c. Production and distribution of a sixty (60) second national Radio
News Release (RNR) on the topic.
d. Production and distribution of a television Public Service
Announcement (PSA) on the topic.
e. Print releases delivering the story to major newspapers, consumer
and special interest magazines and the veterinary trade press.
f. Publication of the feature story on the Veterinary ClientLink's
Internet web site and other specialty sites used for media and
veterinary access.
g. Hyper-linking the feature story on Veterinary ClientLink's
Internet web site to Sponsor's Internet site, upon Sponsor's
request.
AVMF will provide a non-binding written schedule of the proposed
dates and times of the above news releases, media tours and publications to
Sponsor no later than thirty (30) days prior to the scheduled news release media
tour or publication. AVMF will provide Sponsor with weekly updates to the
schedule. In addition, within sixty (60) days after the end of a program run,
AVMF will provide to Sponsor a listing of the media entities that picked up the
piece and the number of media impressions made for each piece.
10. AVMF agrees that Sponsor may publicize and otherwise promote its
relationship with AVMF as an underwriter and Sponsor of the Program, provided,
however, that Sponsor shall have furnished advance copies of such materials
prior to their use. AVMF shall have a period of five (5) business days after
receipt of such materials (by overnight courier or by
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facsimile transmission) to review them and to notify Sponsor of any objection to
such use, stating with reasonable specificity the nature of the objection and
the reasons therefor. Such objection shall be based only on a reasonable
conclusion that the proposed use is materially misleading to the proposed
recipient or would imply to a reasonable recipient thereof an endorsement by
AVMF of specific Sponsor product(s) in comparison to the product(s) of any other
vendor. If Sponsor does not receive a response within the five (5) business day
period set forth above, it will be presumed that there are no objections to the
materials and Sponsor will be free to make use of such materials. If, within
such five (5) business day period, Sponsor receives AVMF's objections, Sponsor
will thereafter cooperate in good faith with AVMF to respond to and resolve and
such objections. Sponsor may reproduce and use Sponsor's featured topic in the
Veterinary ClientLink video and all AVMF-associated media releases in its
marketing and public relations activities.
11. AVMF hereby acknowledges that it does not now have and shall not
hereafter acquire, any interest in any of Sponsor's trademarks, trade names,
service marks or logos.
12. Except for the usage provided herein for Sponsor's feature story,
AVMF and its assigns retain all copyrights to and control over use of the
Veterinary ClientLink materials and other Program materials. Any other
duplication or use, other than as has been specifically granted herein to
Sponsor, may be made only with AVM F's prior written approval. Upon request by
Sponsor, AVMF agrees to provide Sponsor with copies of Veterinary ClientLink
videos for Sponsor's use in connection with Sponsor's business, and not for
resale, at AVMF's cost (such cost may include a handling fee of up to 10% of the
cost of the video).
13. To produce and promote the Veterinary ClientLink and its national
consumer media campaign, AVMF has contracted with media specialists experienced
in video production and media relations for the veterinary profession. Within
the scope of this Agreement, these agents may act as a representative of AVMF in
communicating with the Sponsor and in the production of Sponsor's features.
Notwithstanding the foregoing, AVMF shall remain liable for performance of its
obligations under this Agreement.
14. This Agreement shall commence on the Effective Date and, unless
terminated earlier as provided for in herein, shall continue for a period of
three (3) years from the release date of the first Veterinary ClientLink video.
In the event that AVMF determines to continue the Program beyond three (3)
years, Sponsor shall be granted the option and right of first refusal to
continue sponsorship, with exclusivity for the category of online or offline pet
retail companies which sell consumer pet products for the Internet, under the
terms and conditions then in effect.
15. AVMF agrees to feature Sponsor's exclusive category and Sponsor's
products in one (1) issue during the each year of this Agreement. Sponsor shall
pay AVMF [*] per issue sponsored
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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during the [*] term of this Agreement as full and final consideration for its
annual participation in the Program and all related sponsorship benefits as
described above. An initial payment (the "Initial Payment") of [*] shall be due
upon execution of the Agreement to allow immediate production scheduling of the
Veterinary ClientLink video and other promotional materials. Additional payments
(the "Additional Payments") of [*] per issue shall be due upon notification of
the scheduling of Sponsor's feature story for production, anticipated to be
November 15, in 1999. Sponsor will be notified by AVMF of the scheduling of the
feature date no later than sixty (60) days prior to production. In each
subsequent year during the term of this Agreement, the Initial Payments shall be
due and payable on the first day in June, and the Additional Payments shall be
due upon notification of the scheduling of Sponsor's feature story for
production.
16. Sponsor shall be granted category exclusivity for its Veterinary
ClientLink feature story and related media releases for each year of this
Agreement. AVMF agrees not to produce, broadcast or otherwise publish within the
scope of this Program other feature stories on this same category in
collaboration with or promoting any other Sponsor. Sponsor's category issue of
exclusivity shall be online or offline pet retail companies.
17. In the event that either party defaults or breaches any of the
material provisions of this Agreement, the other party shall have the right to
terminate this Agreement by giving written notice to the defaulting party,
provided, however, that if said defaulting party cures said default or breach
within thirty (30) days after said notice shall have been given, this Agreement
shall continue in full force and effect. The failure on the part of either of
the parties to exercise or enforce any right conferred upon it hereunder shall
not be deemed to be a waiver of any such right nor operate to bar the exercise
or enforcement thereof at any time thereafter.
18. If either party shall go into liquidation, or if a receiver or
trustee shall be appointed for its property, or if a party makes an assignment
for the benefit of creditors, the other party may terminate this Agreement
forthwith by giving written notice to such effect. Termination of this Agreement
for any cause shall not release either party from any obligation theretofore
accrued.
19. Neither party hereto shall be liable to the other for any failure to
perform or delay in performance of its obligations hereunder (other than an
obligation to pay monies) caused by (i) act of God, (ii) outbreak of
hostilities, riot, civil disturbance, acts of terrorism, (iii) the act of any
government or authority (including revocation or suspension of any license or
consent), (iv) fire, explosion, flood, fog or bad weather, (v) theft, malicious
damage, strike, lock out or industrial action of any kind (vi) any cause or
circumstance whatsoever beyond its reasonable control provided the party so
affected shall give prompt written notice to the other party. The party so
affected shall promptly notify the other party when the cause or causes
preventing
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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restricting or interfering with its performance hereunder have been eliminated.
If the failure or delay occasioned by force majeure exists for more than six
months, either party can terminate this Agreement immediately by notice in
writing to the other party, and, save in respect of any payment due, neither
party shall have any liability to the other in respect of the termination of
this Agreement as a result of an event of force majeure.
20. This Agreement represents the entire understanding between the
parties with respect to the subject matter of this Agreement and supersedes all
prior agreements. No waiver, modification or additions shall be valid unless in
writing and signed by the parties hereto. If any provision of this Agreement
shall be declared invalid or unenforceable, the remaining provisions shall
remain in full force and effect.
21. This Agreement shall be construed in accordance with the laws of the
State of Illinois, without regard to its conflicts of law principles.
22. This Agreement and the rights and obligations hereunder shall not be
assignable by either of the parties without the previous written consent of the
other party, except that either party may assign this Agreement to an affiliate
or to any entity with which it may merge or consolidate, or which it may
transfer all or substantially all of its assets to which this Agreement relates,
without obtaining the consent of the other party.
23. Notices under this Agreement shall be in writing and shall be deemed
delivered when delivered in person or deposited in the United States mail,
postage prepaid, addressed to the applicable party at the address shown at the
beginning of this Agreement. Such address may be changed from time to time by
either party by providing written notice to the other in the manner described.
24. Any dispute, claim or controversy of any kind arising in connection
with, or relating to, this Agreement shall be resolved exclusively by binding
arbitration in accordance with the rules of the American Arbitration
Association.
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IN WITNESS THEREOF, each of the parties has duly executed and delivered this
Agreement as of the Effective Date.
AMERICAN VETERINARY MEDICAL FOUNDATION:
By: /s/ R. L. Collinson, DVM Date: 10-15-99
-------------------------------- -------------
Name: R.L. Collinson, DVM
Title: Chairman
PETS.COM:
By: /s/ Chris Deyo Date: 10/21/99
-------------------------------- -------------
Name: Chris Deyo
Title: President
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EXHIBIT 10.34
EXCLUSIVE SPONSORSHIP AGREEMENT
BETWEEN PETS.COM AND AVMF
This Exclusive Sponsorship Agreement (this "Agreement") is made as of
October 21, 1999 (the "Effective Date") by and between Pets.com, Inc., a
California corporation with offices at 435 Brannan Street, Suite 100, San
Francisco, CA 94107 ("Pets.com") and American Veterinary Medical Foundation, an
Illinois corporation with offices at 1931 N. Meacham Road, Suite 100,
Schaumburg, IL 60173 ("AVMF") (each a "party" and collectively the "parties").
BACKGROUND
Whereas, Pets.com owns and operates the Pets.com Site (as defined below)
which markets and sells pet related goods to consumers;
Whereas, AVMF promotes the health and well-being of animals through the
enhancement of veterinary medical education and science; and
Whereas, the parties wish to enter into an exclusive sponsorship on the
terms and conditions set forth herein.
In consideration of the mutual promises contained herein, the parties
hereby agree as follows:
A G R E E M E N T
1. Definitions.
"AVMF Site" means the web site owned and operated by AVMF, and currently
having a URL at http://www.avma.org/avmf, and any successor site thereof.
"Content" means the data, text, audio, video, graphics, photographs,
artwork and other technology and materials of either party.
"Home Page" means that Page of the web site which is designated as the
initial end user interface for the web site.
"Intellectual Property Rights" means all rights in and to trade secrets,
patents, copyrights, trademarks, know-how, as well as moral rights and similar
rights of any type under the laws of any governmental authority, domestic or
foreign, including rights in and to all applications and registrations relating
to any of the foregoing.
"Link" means a URL hidden behind a formatting option that may take the
form of a colored item
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of text (such as a URL description), logo or image, "button" or graphic box, and
which allows a user to access Pages, web sites or other text within a Page.
"Marks" of a party means such party's trademarks, trade names, service
marks, service names, logos and other distinct brand elements that appear from
time to time in such party's properties, ventures and services worldwide,
together with any modifications to the foregoing made by such party during the
term of this Agreement.
"Page" means a document on the Internet which may be viewed in its
entirety without leaving the applicable distinct URL address.
"Partners Page" means that Page on the web site which is designated to
contain information about the strategic partners of that web site.
"Pet Retail Company" means any web site, online service, traditional
retail store or other physical or virtual entity that markets, sells, or allows
customers to purchase pet care or pet related products. Without limiting the
foregoing, the definition of Pet Retail Company includes any retailer of
consumer goods which also sells pet care products.
"Pets.com Site" means the web site owned and operated by Pets.com, and
currently having a URL at http://www.pets.com, and any successor site thereof.
2. Pets.com's Obligations.
2.1 Video Sponsorship. The parties acknowledge that Pets.com has
sponsored the AVMF Vet Link Video pursuant to a separate sponsorship agreement
dated October __, 1999.
2.2 [*] Campaign. Pets.com agrees to develop and implement an [*] (or
similar name) fund raising campaign on the Pets.com Site in which the [*]
process would provide [*] which stated [*] here to [*] for a [*] or similar
wording. Such campaign shall be made available on the [*] to be determined by
Pets.com. In the event that such campaign does not generate a minimum of [*]
("Guaranteed Contributions") of revenue to AVMF per year for the term of this
Agreement, Pets.com will compensate AVMF for the difference pursuant to Section
4.
2.3 E-mail Newsletter. Pets.com will mention its sponsorship of AVMF [*]
in its biweekly email newsletter to its customer base who have "opted-in" to
receive such newsletters, the content of which shall be mutually agreed by the
parties.
2.4 Public Relations and Press Tour. Pets.com shall include AVMF in its
public relations campaign such as, for example, by including AVMF in all press
releases and participation in at least one
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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press tour per year.
2.5 Partners Page. Pets.com shall provide a Link on its Partners Page
which shall link to the AVMF Home Page.
2.6 Pets.com Magazine. Pets.com shall place a full-page advertisement in
[*] issues of the "Pets.com" magazine at [*] cost to AVMF. Such magazine is
currently planned to be published six (6) times in the year 2000 and expected to
have a circulation of [*] per issue.
2.7 Convention Space. Pets.com shall provide AVMF booth space at the
Pets.com Dog Day Afternoon events at no cost to AVMF, which includes a national
tour of [*] cities in the year 2000.
2.8 TYDTWD. Pets.com shall provide AVMF the opportunity to participate
in Pets.com's "Take Your Dog to Work Day" annual event sponsored by Pets.com.
3. AVMF's Obligations.
3.1 Scholarship Support. AVMF agrees to administer a Veterinary
Scholarship Program in which a portion of the payments made under this Agreement
shall be used for the financial support of student scholarships. AVMF shall
allocate [*] per year to be distributed as [*] scholarships to each veterinary
school in the United States and Canada. AVMF shall acknowledge Pets.com as the
provider of such scholarship monies.
3.2 Human-Animal Bonding Research. AVMF agrees to allocate [*] per year
from the payments made under this Agreement for the support of human-animal
bonding research programs, the selection of which shall be made by both parties.
3.3 [*] Program. Subject to [*] and compliance with the [*], AVMF agrees
to consider [*].
3.4 Public Relations. AVMF agrees to include Pets.com in AVMF's public
relations efforts on at least an equal level as other similar sponsors.
3.5 Other Promotions. AVMF agrees to send a letter of introduction to
all veterinarians and/or clinics receiving the Client Link Video announcing
Pets.com as a new AVMF sponsor. AVMF further agrees to provide Pets.com a list
of all AVMF contacts, including without limitation members and individuals who
have donated money to AVMF and who have expressed no objections to AVMF so that
Pets.com may communicate with them. Any such communications shall be subject to
the review and reasonable approval by AVMF.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 4
3.6 [*]. AVMF agrees to help Pets.com [*] months of the Effective Date a
[*] to the [*].
4. Payments and Schedule. Pets.com shall pay AVMF a total of [*] for the
term of this Agreement less [*] for sponsorship of the Vet Link Video in
accordance with the following schedule: beginning on the Effective Date and for
each ninety (90) days ("Quarter") thereafter, Pets.com will pay AVMF [*] within
thirty (30) days after the end of such Quarter. At the fourth Quarter prior to
each anniversary of this Agreement, Pets.com shall adjust the fourth Quarter
payment to AVMF to compensate for any amount collected from the "Add-a-buck"
campaign exceeding the Guaranteed Contributions.
5. Exclusivity. Pets.com shall be the exclusive sponsor and Pet Retail
Company associated with the AVMF in that AVMF shall not promote any Pet Retail
Company other than Pets.com in any advertising, promotional or public relations
materials in any form or medium, including without limitation the placement of
banner advertisements, sponsorships, promotions or editorial content of any Pet
Retail Company other than Pets.com on the AVMF Site during the term of this
Agreement. Both parties acknowledge that AVMF is a non-profit foundation and can
accept contributions from other Pet Retail Companies provided that such Pet
Retail Companies do not receive any online or offline promotional acknowledgment
other than as a line listing along with other donors.
6. Term and Termination.
6.1 Term. This Agreement will become effective as of the Effective Date
and, unless sooner terminated as otherwise provided herein, or as otherwise
mutually agreed, shall remain effective for a period of [*] from the Effective
Date. This Agreement may be renewed by mutual consent of the parties.
6.2 Termination for Insolvency and Cause. This Agreement may be
terminated at any time by a party, effective immediately upon notice, if the
other party: (a) undergoes an insolvency proceeding that is not dismissed within
thirty (30) days; (b) files a petition in bankruptcy, (c) makes an assignment
for the benefit of its creditors, or (d) breaches any of its material
responsibilities or obligations under this Agreement, which breach is not cured
within thirty (30) days from receipt of written notice of such breach.
6.3 Effect of Termination. Upon expiration or termination of this
Agreement: (a) each party shall return or, at the disclosing party's request
destroy, the Confidential Information of the other party, (b) all licenses
granted herein shall terminate and (c) Sections 6.3, 8, 9, 10 and 11 shall
survive.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 5
7. Licenses.
7.1 Grant of License by AVMF. Subject to the terms and conditions of
this Agreement, AVMF hereby grant Pets.com an exclusive royalty-free, worldwide
license to use, reproduce, publicly display, publicly perform, distribute and
transmit the AVMF Marks and AVMF Content on the Pets.com Site and in other
promotional materials solely to the extent necessary to perform its obligations
under this Agreement and limited to the exclusivity provisions set forth in
Section 5, and provided that any such use will comply with any brand usage
guidelines communicated by AVMF to Pets.com in writing.
7.2 Grant of License by Pets.com. Subject to the terms and conditions of
this Agreement, Pets.com hereby grants AVMF a non-exclusive, royalty-free,
worldwide license to use, reproduce, publicly display, publicly perform,
distribute and transmit the Pets.com Marks and Pets.com Content in promotional
materials solely to the extent necessary to perform its obligations under this
Agreement, and provided that any such use will comply with any brand usage
guidelines communicated by Pets.com to AVMF in writing.
7.3 Reserved Rights. Without limiting the foregoing, each party reserves
all rights other than those expressly granted in this Agreement, and no licenses
are granted except as expressly set forth herein.
8. Proprietary Information.
8.1 Confidentiality. AVMF and Pets.com each agree to retain in
confidence the non-public terms in this Agreement and all other non-public
information and know-how disclosed pursuant to this Agreement which is either
designated as proprietary and/or confidential, or by the nature of the
circumstances surrounding disclosure, should reasonably be understood to be
confidential ("Confidential Information"). Each party agrees to: (a) preserve
and protect the confidentiality of the other party's Confidential Information;
(b) refrain from using the other party's Confidential Information except as
contemplated herein; and (c) not disclose such Confidential Information to any
third party except to employees as is reasonably required under this Agreement
(and only subject to binding use and disclosure restrictions at least as
protective as those set forth herein executed in writing by such employees).
Notwithstanding the foregoing, either party may disclose Confidential
Information of the other party which is: (i) already publicly known; (ii)
discovered or created by the receiving party without reference to the
Confidential Information of the disclosing party, as shown in records of
receiving party; (iii) otherwise known to the receiving party through no
wrongful conduct of the receiving party, or (iv) required to be disclosed by law
or court order. Moreover, either party hereto may disclose any Confidential
Information hereunder to such party's agents, attorneys and other
representatives or any court of competent jurisdiction or any other party
empowered hereunder as reasonably required to resolve any dispute between the
parties hereto.
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<PAGE> 6
8.2 Ownership.
(a) By Pets.com. As between Pets.com and AVMF, Pets.com will have
and retain full and exclusive right, title and ownership interest in and to the
Pets.com Marks and Pets.com Content, together with any Intellectual Property
Rights thereto.
(b) By AVMF. As between AVMF and Pets.com, AVMF will have and
retain full and exclusive right, title and ownership interest in and to the AVMF
Marks and AVMF Content, together with any Intellectual Property Rights thereto.
9. Representation and Warranties.
9.1 By Each Party. Each party represents and warrants to the other that:
(a) such party has the full right, power and authority to enter into this
Agreement and to perform the acts required of it hereunder; (b) the execution of
this Agreement by such party, and the performance by such party of its
obligations and duties hereunder, do not and will not violate any agreement to
which such party is a party or by which it is otherwise bound; and (c) when
executed and delivered by such party, this Agreement will constitute the legal,
valid and binding obligation of such party, enforceable against such party in
accordance with its terms.
9.2 No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS,
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE ACTIVITIES
AND SERVICES CONTEMPLATED BY THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT AND ANY
IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.
10. Indemnification.
10.1 Indemnification by Pets.com. Pets.com agrees, at its own expense,
to defend or at its option to settle any claim or action brought against AVMF
arising out of or relating to a claim that: (a) use of the Pets.com Marks or the
Pets.com Content in accordance with the terms of this Agreement infringes a
third party copyright or trademark, (b) any Content on the Pets.com Site
infringes the Intellectual Property Rights of a third party, is obscene or
defamatory, violates any law or regulation, or breaches the rights of any person
or entity, including, without limitation, rights of publicity, privacy or
personality, and/or (c) results from a breach or alleged breach by Pets.com of
any representation or warranty contained in Section 9.1; and Pets.com will
indemnify AVMF against any and all losses, damages, suits, judgments, costs and
expenses (including litigation costs and reasonable attorneys' fees) arising
under any such claim or action; provided that AVMF provides Pets.com with: (i)
prompt written notice of such claim or action, (ii) sole control and authority
over the defense or settlement of such claim
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<PAGE> 7
or action (provided that Pets.com shall not enter into any settlement which
materially affects AVMF's rights without AVMF's prior written consent), and
(iii) proper and full information and reasonable assistance to defend and/or
settle any such claim or action.
10.2 Indemnification by AVMF. AVMF agrees, at its own expense, to defend
or at its option to settle any claim or action brought against Pets.com arising
out of or relating to a claim that: (a) use of the AVMF Marks or AVMF Content in
accordance with the terms of this Agreement infringes a third party copyright or
trademark, (b) any Content on the AVMF Site infringes the Intellectual Property
Rights of a third party, is obscene or defamatory, violates any law or
regulation, or breaches the rights of any person or entity, including, without
limitation, rights of publicity, privacy or personality, and/or (c) results from
a breach or alleged breach by AVMF of any representation or warranty contained
in Sections 9.1; and AVMF will indemnify Pets.com against any and all losses,
damages, suits, judgments, costs and expenses (including litigation costs and
reasonable attorneys' fees) arising under any such claim or action; provided
that Pets.com provides AVMF with: (i) prompt written notice of such claim or
action, (ii) sole control and authority over the defense or settlement of such
claim or action (provided that AVMF shall not enter into any settlement which
materially affects Pets.com's rights without Pets.com's prior written consent),
and (iii) proper and full information and reasonable assistance to defend and/or
settle any such claim or action.
11. Limitation of Liability. EXCEPT FOR LIABILITY ARISING UNDER SECTION 10,
UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND REGARDLESS OF THE
THEORY OF LIABILITY), ARISING FROM ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT
NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY
REMEDY.
12. Miscellaneous.
12.1 Arbitration. Any dispute, claim or controversy of any kind arising
in connection with, or relating to, this Agreement, except for a dispute, claim
or controversy arising under Section 8, shall be resolved exclusively by binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect, by three (3) arbitrators appointed in
accordance with said rules. Judgment on the award rendered by the arbitrators
may be entered into any court of competent jurisdiction.
12.2 Notices. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the
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<PAGE> 8
party to be notified at such party's address or facsimile number as set forth
below, or as subsequently modified by written notice. Either party may change
its address for notice purposes hereof on written notice to the other party in
accordance with this Section.
<TABLE>
<CAPTION>
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To Pets.com To AVMF
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<S> <C>
Pets.com, Inc. American Veterinary Medical Foundation
435 Brannan Street, Suite 100 1931 N. Meacham Road, Suite 100
San Francisco, CA 94107 Schaumburg, IL 60173-4360
Attention: Julie Wainwright Attention: Executive Director and
Chairman
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Phone: 415.222.9999 Tel: 847.925.8070
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Fax: 415.222.9998 Fax: 847.925.1329
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</TABLE>
12.3 Costs and Expenses. Except as express provided in this Agreement
elsewhere, each party will be responsible for all costs and expenses incurred by
such party in performing its obligations under this Agreement.
12.4 No Joint Venture or Agency. Nothing in this Agreement shall
constitute or create a joint venture, partnership, or any other similar
arrangement between Pets.com and AVMF. Neither party is authorized to act as
agent or bind the other party except as expressly stated in this Agreement.
12.5 Assignment. Neither party may transfer or assign any rights or
delegate any obligations hereunder, in whole or in part, whether voluntarily or
by operation of law, without the prior written consent of the other party except
to an acquirer of all or substantially all of that party's business or assets.
Any purported transfer, assignment or delegation in violation of the foregoing
will be null and void and of no force or effect.
12.6 Headings. Sections, titles or captions in no way define, limit,
extend or describe the scope of this Agreement nor the intent of any of its
provisions.
12.7 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
12.8 Entire Agreement. This Agreement together with any Exhibits
contains the entire agreement of the parties with respect to the subject matter
hereof, and supersedes all prior and/or contemporaneous agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.
12.9 Governing Law. This Agreement will be governed by and interpreted
under the laws of the State of Illinois, without giving effect to applicable
conflicts of law principles.
12.10 Amendment. This Agreement may not be amended or modified by the
parties in any
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<PAGE> 9
manner, except by an instrument in writing signed on behalf of each of the
parties to which such amendment or modification applies by a duly authorized
officer or representative.
12.11 Waiver. Any of the provisions of this Agreement may be waived by
the party entitled to the benefit thereof. Neither party will be deemed, by any
act or omission, to have waived any of its rights or remedies hereunder unless
such waiver is in writing and signed by the waiving party, and then only to the
extent specifically set forth in such writing. A waiver with reference to one
event will not be construed as continuing or as a bar to or waiver of any right
or remedy as to a subsequent event.
12.12 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if both parties hereto had signed the same
document. All counterparts will be construed together and will constitute one
agreement.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers or representatives as of
the Effective Date.
PETS.COM, INC.
By: /s/ Julie Wainwright
----------------------------------------
Name: Julie Wainwright
--------------------------------------
Title: CEO
-------------------------------------
Date: 1/5/00
--------------------------------------
AMERICAN VETERINARY MEDICAL FOUNDATION
By: /s/ R. L. Collinson
----------------------------------------
Name: R. L. Collinson
--------------------------------------
Title: Board Chair
-------------------------------------
Date: 12-22-99
--------------------------------------
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<PAGE> 1
EXHIBIT 10.35
CONTENT PARTNER/DISTRIBUTION AGREEMENT
This Content Partner/Distribution Agreement ("Agreement") is entered into by and
among Pets.com, Inc., a corporation duly organized under the laws of the State
of Delaware, with its principal place of business at 435 Brannan Street, San
Francisco, California 94107 ("Content Partner"), Buena Vista Internet Group, a
corporation duly organized under the laws of the State of California, with its
principal place of business at 500 South Buena Vista Street, Burbank, CA
91521-0607 ("BVIG"), and Infoseek Corporation, a corporation duly organized
under the laws of the State of California, with its principal place of business
at 1399 Moffett Park Drive, Sunnyvale, California 94089-1134 ("Infoseek") (BVIG
and Infoseek collectively referred to herein as the "GO Entities"). The
effective date of this Agreement is January 15, 2000 (the "Effective Date").
WITNESSETH:
WHEREAS, BVIG hosts and maintains the U.S. versions of certain Internet sites,
including Family.com and Disney.com, which sites are part of GO Network.
WHEREAS, Infoseek hosts and maintains the U.S. version of the Internet portal
service which is part of GO Network.
WHEREAS, Catalyst Investments, L.L.C. ("Catalyst") is a limited liability
corporation which makes and holds certain investments for The Walt Disney
Company.
WHEREAS, ABC, Inc. ("ABC") owns and/or operates certain broadcast properties.
WHEREAS, BVIG, Infoseek, Catalyst and ABC are subsidiaries and Affiliates of The
Walt Disney Company.
WHEREAS, Content Partner is an online retailer of pet products, information and
resources.
WHEREAS, the GO Entities wish to enter into a relationship with Content Partner
for, among other things, the distribution and placement of certain Content
Partner content and advertising on GO Network, advertising by Content Partner on
the ABC broadcast properties, Catalyst's equity investment in Content Partner
and joint on-line and offline promotion opportunities.
NOW, THEREFORE, for good and valuable consideration, and in consideration of the
mutual covenants and conditions herein set forth, and with the intent to be
legally bound thereby, BVIG, Infoseek and Content Partner hereby agree as
follows:
ARTICLE 1 DEFINITIONS
1.1 AFFILIATE means with respect to a party to this Agreement, any
entity that directly or indirectly controls, or is under common
control with, or is controlled by, such party or in which such
party beneficially owns at least fifty percent (50%) of the
equity interests; "control" (including, with its correlative
meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of the power to direct or
cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership
interests, by contract or otherwise).
1.2 CONTENT means editorial content, products, services, tools,
applications and commerce provided by Content Partner to the GO
Entities or distributed by Content Partner to GO
<PAGE> 2
Network Users through the GO Network-Wrapped Pages relating to
pets and animals and as further described in Appendix A,
including, without limitation, advertisements for Content Partner
or its services and/or products.
1.3 CONTENT PARTNER COMPETITORS mean the following pet supply
retailers: [*] and their subsidiaries and direct successors. Upon
written notice to the GO Entities, Content Partner may from time
to time [*] or [*] for the [*] or, subject to the limit described
herein, [*] to the [*] subject to the approval of the GO Entities
which will not be unreasonably withheld. In no event shall the
[*] designated by Content Partner as [*] at any one time.
1.4 CONTENT PARTNER SERVICE means the U.S. version of the web site
located at www.pets.com and/or such other successor, extension or
replacement site(s) as may be designated by Content Partner.
1.5 DISNEY.COM is the U.S. version of the Internet service for The
Walt Disney Company currently located at disney.go.com.
1.6 EFFECTIVE DATE shall have the meaning set forth in the Preamble
to this Agreement.
1.7 FAMILY.COM is the U.S. version of the Internet service related to
family issues currently located at family.go.com.
1.8 GO.COM (THE ENTITY) refers to the online properties of The Walt
Disney Company, including the following subsidiaries and
organizations of The Walt Disney Company: BVIG (which operates
Disney.com, Family.com, mrshowbiz.com and certain other sites),
Infoseek (which operates the GO Portal), ABC News/Starwave
Partners d/b/a AIV Ventures and ESPN/Starwave Partners d/b/a EIV
Ventures, which respectively operate ABCNews.com and ESPN.com.
1.9 GO.COM COMPETITORS mean the following [*] companies: [*]; and the
following [*] companies: [*]; and their subsidiaries and direct
successors. Upon written notice to Content Partner, the GO
Entities may from time to time [*] or [*] for the [*] subject to
the approval of Content Partner which will not be unreasonably
withheld. In no event shall the [*] designated by the GO Entities
as [*] exceed [*] at any one time.
1.10 GO ENTITIES has the meaning set forth in the Preamble to this
Agreement and specifically excludes AIV Ventures and EIV
Ventures, which respectively operate ABCNews.com and ESPN.com.
1.11 GO NETWORK is the U.S. version of the Internet service currently
located at go.com and certain subdomains of go.com which service
includes the GO Portal and certain vertical Internet sites such
as Family.com, Disney.com, ABCNews.com and ESPN.com.
1.12 GO NETWORK-WRAPPED PAGES means co-branded pages with the GO
Wrapper that display the Content, as further described herein.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 3
1.13 GO PORTAL means the U.S. version of the Internet portal service
located at www.go.com and/or such other successor, extension or
replacement site(s) as may be designated by the GO Entities.
1.14 GO WRAPPER means a page with the GO Network Trademarks and
includes the GO Network header, footer, tabs, breadcrumb and
other navigational elements and copyright notice as provided by
the GO Entities.
1.15 INITIAL TERM has the meaning set forth in Section 12.1.
1.16 LINK means a so-called "hot link" in graphical and/or textual
format located on the applicable areas of the Service which takes
a User directly to another web site or area within the site.
1.17 [*] AGREEMENT has the meaning set forth in Section 3.4.
1.18 STANDARD DISTRIBUTION DEAL means an advertising and/or shopping
opportunity that is available to multiple parties in a party's
same space. For example, "Standard Distribution Deal" includes
key word buys, advertising banner and button buys, and merchant
slotting buys.
1.19 TDSO means The Disney Store online currently located at
Store.Disney.go.com.
1.20 TRADEMARKS means trade names, logos and trademarks, and
representations of the foregoing.
1.21 USERS means individuals or entities that access GO Network.
ARTICLE 2 EQUITY INVESTMENT AND ABC TV ADVERTISING
2.1 Equity Investment. Content Partner will issue to Catalyst [*]
shares of Content Partner's Series C Preferred Stock (the
"Shares") which represent no less than [*] of the total number of
outstanding shares of Content Partner's capital stock (assuming
exercise of all outstanding options and warrants) as of the
Effective Date in exchange for [*] of Promotion as described
below. Terms and conditions regarding the Shares will be as set
forth in executed definitive equity documents substantially in
the form attached hereto as Appendix B (the "Equity Documents").
In the event and to the extent there is a conflict between the
terms and conditions set forth in the Equity Documents and the
terms and conditions set forth in this Agreement, the terms and
conditions in the Equity Documents shall govern.
2.2 Consideration For Shares. Content Partner and the GO Entities
agree that in consideration for the Shares, "Promotion" shall
consist of the ABC Media Rights as described on Appendix C
attached hereto, rights to which will not vest until, but will
become irrevocable upon, the transfer of the Shares to Catalyst.
In the event the GO Entities are unable to provide Promotion as
described herein with an aggregate market value of [*] by the
date [*] years from the Effective Date, the GO Entities shall pay
Content Partner cash in the amount for which it was unable to
provide Promotion. Such make-good cash payment shall be Content
Partner's sole and exclusive remedy for the GO Entities' failure
to provide such Promotion.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 4
ARTICLE 3 PURCHASE OF ONLINE MEDIA PLACEMENT
3.1 Purchase of Online Advertising and Sponsorship. Content Partner
hereby agrees to purchase online media placement on GO Network
("Online Advertising") in an aggregate amount of at least [*]
during the Initial Term of the Agreement. Online Advertising may
be placed on GO Network properties operated by BVIG or Infoseek
and on properties such as ABCNews.com and ESPN.com operated by
GO.com entities which are not parties to this Agreement.
3.2 Terms and Conditions of Advertising Purchase. Such purchase of
online media placement shall be on substantially the terms and
conditions set forth in the forms of Advertising Agreement and
Advertising Insertion Order attached hereto as Appendices D-1 and
D-2, respectively (the "Advertising Agreements").
3.3 Placement of Advertising. Content Partner, BVIG and Infoseek will
determine an initial placement schedule and will meet no less
than once every quarter during the Initial Term to review media
placements and actual performance against projected impressions
and to determine future placement schedules to optimize
performance within the projected impression ranges. The initial
placement schedule is attached hereto as Appendix E. Placements
and impression levels on the initial placement schedule are
projections only and are subject to change. Content Partner's
Online Advertising will Link to a page in the Content Partner
Service. Content Partner may determine the page in the Content
Partner Service to which such Online Advertising Links; provided
however that no Link shall take a User directly to a registration
page in the Content Partner Service. All Online Advertising,
including Links from such Online Advertising, shall comply with
the then current GO.com Advertising Guidelines, the current form
of which is attached hereto as Appendix F-2, and the terms and
conditions of the relevant Advertising Agreement.
3.4 [*] Agreement. Content Partner acknowledges that Infoseek is a
party to an agreement with [*] which agreement contains certain
advertising and other restrictions. During the term of the [*]
Agreement, Infoseek will be restricted from accepting certain
placements of Content Partner Content, including advertising.
Content Partner acknowledges and agrees that nothing in this
Agreement is intended to put Infoseek in breach of its
obligations under the [*] Agreement and any actions taken by
Infoseek which Infoseek deems necessary or advisable to comply
with the [*] Agreement shall not be deemed a breach of this
Agreement. In the event the advertising purchase portion of the
[*] Agreement becomes available during the term of this
Agreement, Infoseek will grant Content Partner [*] to purchase
such advertising placement.
3.5 Fees and Payments. Content Partner will pay advertising fees in
accordance with the schedule set forth on Appendix D-3 and the
provisions in Article 8.
ARTICLE 4 DISPLAY OF CONTENT ON GO NETWORK
4.1 General. Subject to the license set forth in Section 6.1, the GO
Entities and Content Partner plan to integrate Content into
certain areas of GO Network and may display Content on GO
Network-Wrapped Pages as described below during the term of this
Agreement. In addition, the GO Entities and Content Partner plan
to enter into certain joint marketing activities as described
herein and as mutually agreed.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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<PAGE> 5
4.2 Display of Content on GO Network.
a. Content Placement. Subject to the license set forth in Section
6.1, the GO Entities will place Content on GO Network as
follows:
- Disney.com will integrate Content on its Animal/Pets Channel
- Disney.com may include a Link to the Content Partner Service
from a fixed position on its Animals/Pets Channel
It is intended that Content will be integrated into the GO
Network so as to retain the "look and feel" of the site/page
where the Content is being integrated. The GO Entities will
host such Content and shall prepare such Content for display
on GO Network by editing and making such other technical
alterations conforming such Content to GO Network format
provided that the GO Entities shall not alter the substantive
meaning of Content. The frequency and actual placement of
Content shall be at the sole discretion of the GO Entities.
The GO Entities will retain ultimate creative approval over
any and all Content displayed on GO Network.
b. Exclusive Content. Content Partner will provide certain
exclusive content to the GO Entities for use on GO Network.
Such exclusive Content will not be provided to third parties;
provided however, that Content Partner may use such exclusive
Content on the Content Partner Service or in its magazine,
newsletters or other online and off-line marketing
communications. The parties will mutually agree upon the
exclusive content to be provided. The GO Entities' use of such
exclusive content shall be subject to the license set forth in
Section 6.1.
c. Attribution. Content Partner will generally receive static
textual attribution at the top-level page where its Content is
distributed on GO Network (other than on the GO
Network-Wrapped Pages) and dynamic Link textual attribution at
the lowest-level page or end of the Content. For example, a
Content Partner article will have a static textual attribution
at the beginning of the article and a dynamic "Find Out More"
Link at the end. Such Link will Link to the Content Partner
Service.
d. Other Distribution of Content. In addition to distribution of
the Content as described above, Content Partner agrees that
the GO Entities may distribute such of Content Partner's
Content elsewhere on GO Network as the GO Entities deem
appropriate. Content displayed on other areas of GO Network
will be subject to the terms and conditions stated herein.
e. Hosting; GO Network Attributes. Disney.com, Family.com and the
GO Portal will be hosted by the GO Entities. Notwithstanding
anything herein, the GO Entities retain the right to adapt or
otherwise alter the design, look and any other attributes of
Disney.com, Family.com, the GO Portal and any other pages in
GO Network.
4.3 GO Network-Wrapped Pages.
a. General; Hosting. The GO Entities may request that Content
Partner create GO Network-Wrapped Pages. GO Network-Wrapped
Pages are co-branded pages which will contain the GO Wrapper
and display Content from Content Partner. It is intended that
the GO Network-Wrapped Pages contain substantially the content
and features of the Content Partner Service and other content
and features as the parties mutually agree. The GO
Network-Wrapped Pages may include an opportunity for Users to
register with GO Network and Content Partner as described in
Article 7 below.
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Content Partner will host the GO Network-Wrapped Pages and
will serve such pages out of a dynamic virtual domain to be
located at http://[virtual domain name].go.com (the "Virtual
Domain"); provided however, that Users in the Virtual Domain
who are accessing product/commerce pages (as opposed to pages
with editorial content) may be served from the Content Partner
Service as follows: (i) a User in the Virtual Domain who has
been reviewing editorial content who then clicks on a
product/commerce page may be served from a page in the Content
Partner Service upon clicking on to a product/commerce image
or Link and (ii) a User who comes to the Virtual Domain by
clicking on to a product/commerce page, e.g., through a search
for pet supplies, will be served from a GO Network-Wrapped
Page in the Virtual Domain until such time as such User puts a
product into a Content Partner shopping cart at which time
such User maybe served from the Content Partner Service.
Content Partner shall own all revenues generated from commerce
on the Content Partner Service. The parties anticipate that,
excluding virtual domains which may be created for promotions,
Content Partner will not be required to maintain more than one
Virtual Domain to host the GO Network-Wrapped Pages. All GO
Network-Wrapped Pages will include the GO Wrapper but the GO
Wrapper will not displace Content Partner's "look and feel,"
including placement of the Content Partner name and logo.
Content Partner will offer its services and products to Users
through the GO Network-Wrapped Pages on substantially the same
terms and conditions as it offers such services and products
to visitors to the Content Partner Service.
b. Advertising. The GO Entities will be responsible for selling
and serving all advertising on the GO Network-Wrapped Pages.
The GO Entities will not place advertisements from Content
Partner Competitors on the pages in the Virtual Domain;
provided however that such restriction shall not apply to
run-of-site (ROS) banner advertisements. Any advertising
placements in the GO Wrapper will be of a size consistent with
other advertising placements across GO Network. In addition,
Content Partner acknowledges and agrees that the following
shall not constitute a breach of this Section 4.3.b: (a) the
GO.com search technology may search the sites of the Content
Partner Competitors and (b) the GO Entities may provide
search-related products that may include results from the
Content Partner Competitors on the Virtual Domain pages.
c. Counting Page Views. The GO Entities will count all page views
on the Virtual Domain.
d. Distribution of Content Displayed on GO Network-Wrapped Pages.
The GO Entities shall not have any rights pursuant to Section
4.2 to integrate, display or otherwise distribute Content
which has been distributed by Content Partner to GO Network
Users through the GO Network-Wrapped Pages simply as a result
of Content Partner's distribution of such Content through the
GO Network-Wrapped Pages.
4.4 Content Guidelines; Delivery of Content; Error Correction.
a. Content Guidelines. All Content will comply with the then
current Content Guidelines and Advertising Guidelines for GO
Network. The current forms of Content Guidelines and
Advertising Guidelines are set forth in Appendices F-1 and
F-2. The GO Entities shall have the right, but not the
obligation, to remove, or direct Content Partner to remove,
any Content, or any information or other material from any
Content, which the GO Entities determine to be offensive, in
poor taste, or otherwise objectionable or which would cause
one of the GO Entities to be in violation of any agreements
existing at the Effective Date with third parties (for
example, exclusivity agreements prohibiting the provision of
credit card services), and Content Partner shall immediately
comply with such request.
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b. Delivery of Content. Content Partner will deliver to the GO
Entities the Content to be included on GO Network in a digital
format (such as HTML) or in another mutually agreeable
electronic format, via modem or Internet access (e.g. Internet
ftp or Internet e-mail). Content Partner agrees to certify
that all deliveries hereunder were made electronically. The
initial delivery of Content shall include all items listed on
Appendix A and shall be made no later than March 31, 2000.
Content Partner will provide additional Content elements and
make updates to the Content available to the GO Entities, and
the GO Entities will update the Content on GO Network, on a
mutually agreed upon schedule and basis.
c. Error Correction. Content Partner shall promptly remedy and/or
correct any material limitations or errors in the Content.
Content Partner shall cooperate and assist the GO Entities by
promptly answering questions and complaints regarding the
Content. Each party shall promptly inform the other parties of
any event or circumstance, and provide all information
pertaining to such event or circumstance, related or arising
from this Agreement which could reasonably lead to a claim or
demand against the other parties by any third party.
4.5 Marketing Agreements.
a. Inclusion of Promotional Materials. Content Partner will
permit the GO Entities, The Walt Disney Company or any of The
Walt Disney Company's Affiliates to place promotional
materials in at least [*] Content Partner customer packages
per year. The GO Entities, The Walt Disney Company or The Walt
Disney Company's Affiliates, as applicable, shall be
responsible for providing such promotional materials. Content
Partner will be responsible only for labor-related costs
associated with including and shipping such promotional
materials with the Content Partner customer packages. The
content of such promotional materials and timing of inclusion
shall be subjection to approval by Content Partner, which
approval will not be unreasonably withheld.
b. Online Promotions. Content Partner and the Go Entities agree
to create [*] online promotions, such as contests, sweepstakes
or games, during the Initial Term. The details of the online
promotions will be determined as part of the joint marketing
plan described in Section 4.5.c below.
c. [*] Plan. Within [*] of the Effective Date, the GO Entities
and Content Partner will jointly draft and agree upon [*]
which may include, among other things:
i. Special Content Partner offers [*] interested in pets.
ii. Special Content Partner offers targeted at [*] customers.
iii. An opportunity for Content Partner to be an online
distribution source for the purchase of pet-related [*],
other than through [*] (online or off-line).
iv. Opportunity for [*] to send [*] to its customers.
v. Web casts and web chats.
a. Coordination of [*] Efforts. The GO Entities and Content
Partner will coordinate and communicate [*] efforts aimed at
Content Partner Users in order to avoid [*]; provided however
that the foregoing excludes a party's [*] to a User who has
opted to receive [*] from such party.
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e. Other [*] Discussions. The GO Entities and Content Partner
agree to discuss the following additional [*] ideas:
i. Content Partner Inc. [*] in the [*].
ii. Content Partner [*] within the Content Partner [*].
iii. Content Partner [*] and [*] on the Content Partner [*].
iv. Content Partner [*].
v. Content Partner special offers within [*] sent to
customers and [*] within Content Partner [*] sent to
Content Partner customers.
vi. Opportunities for sponsorship around [*] sold at the
[*]).
vii. Development of [*], possibly [*] to Content Partner.
viii. Development of [*] merchandise for sale in Disney
Stores.
ix. Opportunities for event sponsorship (e.g. [*].
x. Possibility for Content Partner to participate in
sweepstakes and/or contests with [*].
f. Marketing and Promotions. All joint marketing and promotional
activities shall be subject to final approval and mutual
agreement of all parties involved, including, where
applicable, TDSO and other GO.com entities or Affiliates. No
party shall have any obligation to enter into joint marketing
and promotional activities except on terms and conditions
expressly agreed to in writing by such party.
4.6 Exclusivity.
a. Restriction on Content Partner. Content Partner agrees not to
enter into an agreement with any GO.com Competitor during the
term of this Agreement except for Standard Distribution Deals
unless mutually agreed to by the parties. Notwithstanding the
foregoing; the GO Entities acknowledge that Content Partner
has entered into an agreement with Blue Mountain Arts/Excite
which will expire on [*] which agreement will be deemed
exempted from the restriction set forth in this Section 4.6.a.
In addition, Content Partner may pursue an extension of such
agreement on terms and conditions substantially similar to
those of the current deal and excluding any provision which
requires Content Partner to provide exclusive content to Blue
Mountain Arts/Excite.
b. Restriction on the GO Entities.
i. The GO Entities agree not to enter into any strategic
equity relationship (i.e., of a similar nature to the
relationship among the parties described in this
Agreement) with any Content Partner Competitor during the
term of this Agreement. Notwithstanding the foregoing, the
GO Entities may make open market purchases or other
investments of any kind strictly for financial investment
purposes (i.e., unrelated to a strategic relationship).
ii. The GO Entities will not include advertisements or branded
(i.e. including attribution) content from Content Partner
Competitors on the pages within the Animals/Pets Channel
on Disney.com and the Pets Category on Family.com, or
successor channels/online properties designated by the GO
Entities; provided however that the foregoing exclusivity
will not apply to: (i) run-of site advertisements from
Content Partner Competitors or (ii) Content Partner
Competitors to the extent related to sales of pet supplies
or accessories with licensed animated characters, such as
a Lion King cat bowl or a 101 Dalmations dog bed. In
addition, the following shall not constitute a breach of
this Section 4.6.b.ii: (a) the GO.com search technology
may search the sites of the Content Partner Competitors,
(b) the GO Entities may provide search-related products
that may include results from the
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Content Partner Competitors on pages within the
Animal/Pets Channel on Disney.com and the Pets Category on
Family.com, and (c) the Content Partner Competitors may be
included in the Search Directory. As used herein, "Search
Directory" means the general directory on the GO Portal
which is currently accessed through the tab "Search."
iii In the event the GO Entities or their Affiliates determine
to make a significant product change or change of
strategic or product focus, for example merging two or
more of its online properties, which affects the
Animals/Pets Channel on Disney.com and/or the Pets
Category on Family.com, then the GO Entities' obligations
under Section 4.6.b.ii above shall terminate with respect
to the affected online property. The GO Entities and
Content Partner will work together to make appropriate
substitutions of online media placements and Content
Partner will be entitled to receive a [*] discount on such
substitutions of affected online media placements. The GO
Entities will not be entitled to exercise its rights
hereunder prior to three (3) months from the Effective
Date nor later than June 1, 2001.
4.7 Technical Resources; Key Contacts; Reports.
a. Technical Resources. Content Partner will provide sufficient
resources in order to implement Content and advertising
placements by March 31, 2000.
b. Key Contacts. The GO Entities, on the one hand, and Content
Partner, on the other hand, will each appoint a single point
of contact to manage the relationship among the GO Entities
and Content Partner and will identify key contacts in product
development, merchandising, customer service and technical
support to ensure that the GO Network-Wrapped Pages are
working effectively. Content Partner shall further provide the
GO Entities with a support contact to provide 24-hour
emergency technical support. Until a party provides notice
otherwise to the other parties in accordance with Section
16.6, the contacts shall be as follows:
<TABLE>
<CAPTION>
GO Entities: Content Partner:
----------- ---------------
<S> <C> <C>
Relationship Manager: [*] Relationship Manager: [*]
Telephone No.: [*] Telephone No.: [*]
Email address: [*] Email address: [*]
Product Development Contact: [name] Product Development Contact: [*]
Albright
Telephone No.: Telephone No.: [*]
Email address: Email address: [*]
Merchandising: [name] Merchandising: [*]
Telephone No.: Telephone No.: [*]
Email address: Email address: [*]
Customer Service: [name] Customer Service: [*]
Telephone No.: Telephone No.: [*]
Email address: Email address: [*]
</TABLE>
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<TABLE>
<S> <C> <C>
Technical Support: [name] Technical Support: [*]
Telephone No.: Telephone No.: [*]
Email address: Email address: [*]
Emergency Technical Support Contact Emergency Technical Support Contact
(24) hours): (24 hours): [*]
Telephone No.: Telephone No.: [*]
(40 character limit)
Email address: Email address: [*]
</TABLE>
c. Reports. Content Partner will provide monthly traffic reports
to the GO Entities containing the number of visitors to the GO
Network-Wrapped Pages, the number of Content Partner Users and
such other information as the GO Entities reasonably request
related to Users and usage of the GO Network-Wrapped Pages.
Reports hereunder will be due within ten (10) business days
after the end of the month to which such report relates.
4.8 Ownership of Intellectual Property. For content or promotions
developed by Content Partner solely for distribution, display or
other use on GO Network or by the GO Entities, which has not been
already incorporated into the Content Partner Service, the GO
Entities shall own all design, technology, code and other
materials produced in relation to this Agreement. Except as set
forth herein, for all content or promotions not created by
Content Partner solely for distribution, display or other use on
GO Network or by the GO Entities, the party creating such content
or promotion shall own such content or promotion, including all
related intellectual property rights. If content or promotions
are jointly created by Content Partner and one or more of the GO
Entities, then the GO Entities will own such content or
promotion, including all related intellectual property right;
provided however that the GO Entities may not license or
otherwise provide such content or promotions to Content Partner
Competitors during the term of this Agreement. In clarification
and not in modification of the foregoing, each party shall retain
all rights for copyrighted material and Trademarks and the GO
Entities shall not have any ownership rights to the Pets.com,
Inc. Sock Puppet and Content Partner will not have any ownership
rights to any character owned or controlled by The Walt Disney
Company during or after the term of this Agreement.
4.9 Linking. Content Partner agrees not to override browser back
button functionality to prevent Users who link to the Content
Partner Service from GO Network from returning to GO Network.
4.10 Costs. Each party will be responsible for its respective
telecommunications charges with respect to the provision of
respective portions of the Content to Infoseek and to Users.
ARTICLE 5 SHOPPING/E-COMMERCE
5.1 GO Network Commerce Areas. The following shopping areas currently
exist on the GO Network Portal, Family.com and Disney.com: GO
Shopping (currently at shop.go.com), FamilySHOP, and TDSO.
5.2 Content Partner Placement in GO Network Commerce Areas. Content
Partner will have placement in TDSO (if and as agreed as part of
the marketing agreements described in Section 4.5) and
FamilySHOP, and, following the expiration or termination of the
[*] Agreement, on GO Shopping. Content Partner Content will be
included in the rotation for the
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"Deal of the Week" feature of the FamilySHOP area on the
Family.com home page or other comparable feature. Except as
expressly set forth herein, placement of promotions on GO Network
shall be at the discretion of the GO Entities. Any placements of
Content in GO Network Commerce Areas will be subject to the
standard terms and conditions, if any, governing content
placement in such Commerce Areas.
5.3 Commerce Transactions/ Content. Content Partner placement of
Content on GO Network commerce areas, including placement on
FamilySHOP and other BVIG commerce areas, will be on terms and
conditions mutually agreed; provided however that the following
provision shall govern Content Placement on FamilySHOP and other
BVIG commerce areas:
a. Order Fulfillment. Content Partner shall be solely responsible
for (i) processing and fulfilling all orders made through the
Content Partner Service or the GO Network-Wrapped Pages, (ii)
all accounting with respect to such orders, and (c) all
customer service and support with respect to such orders,
purchases and returns. Content Partner shall provide all of
the foregoing services at the highest levels of quality
consistent with the BVIG name and the Walt Disney Company
reputation. Content Partner acknowledges and agrees that it is
solely responsible for the security of any transactions
initiated within the Content Partner Service.
ARTICLE 6 LICENSE
6.1 Grant of License by Content Partner. Subject to the terms and
conditions of this Agreement, Content Partner hereby grants to
the GO Entities and their respective Affiliates, a fully-paid,
worldwide (to the extent necessary to implement this Agreement),
limited, non-exclusive, non-transferable right and license,
without right to sub-license, to use, reproduce, incorporate,
integrate and distribute the Content on GO Network and a license
and right to use Content Partner's trade names, trade dress, and
trademarks as reasonably necessary with respect to the display
and use of the Content on GO Network in accordance with the terms
of this Agreement during the term of this Agreement.
6.2 Grant of License by Infoseek. Subject to the terms and conditions
of this Agreement, Infoseek hereby grants to Content Partner a
fully-paid, worldwide (to the extent necessary to implement this
Agreement) limited, non-exclusive, non-transferable right and
license, without right to sub-license, to use, reproduce,
incorporate, integrate and distribute the GO Wrapper and related
GO Network Trademarks solely on the GO Network Wrapped Pages in
accordance with the terms of this Agreement or as otherwise
expressly approved in writing by Infoseek during the term of this
Agreement.
6.3 Acknowledgment by GO Entities. The GO Entities acknowledge that
except as expressly set forth in Section 6.1 above, they may not
use the Content Partner name or other Trademarks owned by Content
Partner without Content Partner's prior written permission.
6.4 Acknowledgment by Content Partner. Content Partner acknowledges
that, except as expressly set forth in Appendix G, it may not use
The Walt Disney Company name or, except as expressly set forth in
Section 6.2 above or Appendix G, Trademarks owned by The Walt
Disney Company or the GO Entities, without the prior written
permission of The Walt Disney Company or the GO Entities, as
applicable.
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ARTICLE 7 USER DATA
7.1 User Registration.
a. Privacy Policy. Content Partner shall ensure that its privacy
policy applicable to the Content Partner Service, to the
extent applicable to its performance under this Agreement, is
substantially consistent with the privacy policy of GO
Network, as may be changed from time to time, including,
without limitation, including a mechanism that allows Users to
opt out of sharing of User data with third parties.
b. User Registration Experience. The User registration experience
that shall be implemented pursuant to this Agreement shall be
as follows:
i. "Global Registration". An unregistered User on GO Network
or on a GO Network-Wrapped Page hosted by Content Partner
who encounters Content Partner functionality or Content
that provides the User with an opportunity to register
will be presented with a standard series of GO Network
user registration screens, the first of which explains
that this is a simultaneous registration for Content
Partner and GO Network. The User then has the option to
continue to register or to click back to his/her original
starting point. If the User responds "yes", then the
User's data will go simultaneously to Content Partner and
the GO Entities. If the User elects to opt-in to
simultaneous registration, the User shall only be required
to execute "one click" to transfer the registration data
to Content Partner ("Global Registration"). It is
anticipated that Global Registration will be required only
for certain joint promotions.
ii. "GO-Tagged Users". A User originating from GO Network and
Linking to the Content Partner Service shall be identified
in the Content Partner User database as originating from
GO Network and will be tagged as a "GO-Tagged User."
Content Partner represents that it has the technology to
identify GO-Tagged Users.
7.2 Ownership of User Data
a. Content Partner and the GO Entities shall jointly own all
right, title and interest in all User data generated on GO
Network-Wrapped Pages hosted by Content Partner and User data
for GO-Tagged Users ("Content Partner Users") who register on
the Content Partner Service. In clarification of the
foregoing, the parties will not jointly own User data for
GO-Tagged Users which data is generated on pages in GO Network
not hosted by Content Partner. Content Partner shall make
available to the GO Entities, via a method and timing to be
mutually agreed upon, all first and last names and email
addresses from each such Content Partner User provided that
such User has not opted out of sharing his/her data with third
parties and provided such disclosure is not prohibited by law
or regulation. In addition, except as prohibited by law and
provided the User has not opted out of sharing his/her data,
Content Partner may, to the extent not in violation of Content
Partner's privacy policy, provide to the GO Entities all
available data concerning Users who access the Content Partner
Service and/or the Content from GO Network, concerning
products and/or services purchased by such Users, survey and
promotion responses, and other demographic information
concerning such Users. The parties agree that they will not
sell or share Content Partner User data during the term of the
Agreement or thereafter; provided however that a party may
disclose such aggregate information to third parties as it
deems appropriate in connection with its operations. Aggregate
information described hereunder will include only such
statistical information which relates to a broad category of
Content Partner Users such as gender, age range or level of
education and which is generic enough so as not to identify
particular Users.
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b. The GO Entities shall own all right, title and interest in and
to and the exclusive right to use all data concerning Users
which data is generated on all pages of GO Network hosted by
the GO Entities.
c. Content Partner shall own all right, title and interest in and
to and the exclusive right to use all data concerning Users
which data is generated on all pages of the Content Partner
Service, except for jointly-owned User data as specifically
described in Section 7.2.a above.
7.3 Use of User Data.
a. Content Partner shall not specifically target or invite Users
co-owned with the GO Entities to visit a GO.com Competitor at
any time during the term of this Agreement.
b. [*] will not specifically [*] with [*] via [*] at any time
during the term of this Agreement; provided however, that [*]
may take such [*] as it reasonably deems necessary or
appropriate to comply with its obligations under the [*].
ARTICLE 8 FEES AND PAYMENTS
8.1 Payments. Content Partner will make payments to Infoseek in the
amounts and at the times specified in Appendix D-3. Content
Partner will be responsible for the proper payment of all taxes,
including sales, excise and value added taxes, which may be
levied in connection therewith, exclusive of taxes based upon
Infoseek's net income.
8.2 Wire Transfers. All payments made to Infoseek hereunder shall be
made via wire transfer in accordance with the following
instructions, or such other instructions as may be provided to
Content Partner in writing by an authorized representative of
Infoseek:
Wire transfer, EFT/ACH Payment remittance instructions:
Bank of America
San Francisco, California
ABA Number: 121000358
Account Name: Infoseek Corporation
Account Number: 12335-30390
Swift ID: BOFAUS6S
ARTICLE 9 CONFIDENTIAL INFORMATION
9.1 Disclosures. The GO Entities, on the one hand, or Content
Partner, on the other hand, may disclose to the other (the
"Receiving Party") certain information that the disclosing party
deems to be confidential and proprietary, including technical and
other business information of the disclosing party that is not
generally available to the public ("Confidential Information").
Confidential Information shall include the terms and conditions
of this Agreement.
9.2 Obligations of Receiving Party. The Receiving Party agrees to use
Confidential Information solely in conjunction with its
performance under this Agreement and not to disclose or otherwise
use such information in any fashion. The Receiving Party,
however, will not be required to keep confidential such
Confidential Information that becomes generally available without
fault on its part; is already rightfully in the Receiving Party's
possession without restriction prior to its receipt from the
disclosing party; is independently developed by the Receiving
Party; is rightfully obtained by the Receiving Party from third
parties without
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restriction; or is otherwise required to be disclosed by law or
judicial process. In the event disclosure of Confidential
Information, including the terms and conditions of this
Agreement, is required by law or judicial process, the Receiving
Party shall promptly notify the disclosing party of such
requirement and provide the disclosing party with a timely and
reasonable opportunity to review the proposed disclosure in
advance and will cooperate with the disclosing party to limit the
scope of disclosure or seek confidential treatment of material
required to be disclosed, if confidential treatment is available.
9.3 Limitations. Unless required by law or to assert its rights under
this Agreement, and except for disclosure on a "need to know
basis" to its own employees, and its legal, investment, financial
and other professional advisers on a confidential basis, each
party agrees not to disclose the terms of this Agreement or
matters related thereto without the prior written consent of the
other party.
ARTICLE 10 REPRESENTATIONS AND WARRANTIES
10.1 Content Partner. Content Partner represents, warrants and
covenants to the GO Entities and their respective Affiliates that
it is the owner of the Content and/or has the right to grant the
rights hereunder. Content Partner represents, warrants and
covenants to the GO Entities and their respective Affiliates that
it holds the necessary rights to permit the use of the Content by
the GO Entities and their respective Affiliates for the purpose
of this Agreement; that its entry into this Agreement does not
violate any agreement with any other party; that its performance
under this Agreement will conform to applicable laws and
government rules and regulations; and that, to the best of its
knowledge after reasonable inquiry, the Content is true, accurate
and does not contain material omissions. Content Partner further
represents, warrants, and covenants to the GO Entities and their
respective Affiliates that the use, reproduction, distribution,
transmission, or display of the Content and Content Partner's
Trademarks, Content Partner's collection and use of Content
Partner User Data and the sale of products and services by
Content Partner as contemplated in this Agreement will not (a)
violate any laws or any rights of any third parties, including,
but not limited to, such violations as infringement or
misappropriation of any copyright, patent, trademark, trade
dress, trade secret, music, image, or other proprietary or
property right, false advertising, unfair competition,
defamation, invasion of privacy or publicity rights, moral or
otherwise, or rights of celebrity, violation of any
antidiscrimination law or regulation, or any other right of any
person or entity; or (b) contain any material that is: unlawful,
harmful, fraudulent, threatening, abusive, harassing, defamatory,
vulgar, obscene, profane, hateful, racially, or ethnically
objectionable, including, without limitation, any material that
supports, promotes or otherwise encourages wrongful conduct that
would constitute a criminal offense, give rise to civil
liability, or otherwise violate any applicable local, state,
national or international laws.
10.2 Year 2000 - Content Partner. Content Partner represents, warrants
and covenants that, to the best of its knowledge after reasonable
inquiry, the systems and technology utilized to operate the
Content Partner Service (including, without limitation, order
fulfillment systems relating to products sold by Content Partner,
if any) are compliant with the following Year 2000 requirements:
(a) the occurrence in or use by such systems of dates before, on
or after January 1, 2000 will not adversely affect the
performance of such systems with respect to date-dependent data,
computations, output, or other functions (including, without
limitations, calculating, comparing and sequencing); and (b) such
systems will not abnormally end or provide invalid or incorrect
results as a result of date dependent data.
10.3 BVIG. BVIG represents, warrants and covenants to Content Partner
that its entry into this Agreement does not violate any agreement
with any other party, that it has the full right, power and
authority to enter into this Agreement and to perform the acts
required of it
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hereunder, and that BVIG Content will not (a) violate any laws or
any rights of any third parties, including, but not limited to,
such violations as infringement or misappropriation of any
copyright, patent, trademark, trade dress, trade secret, music,
image, or other proprietary or property right, false advertising,
unfair competition, defamation, invasion of privacy or publicity
rights, moral or otherwise, or rights of celebrity, violation of
any antidiscrimination law or regulation, or any other right of
any person or entity; or (b) contain any material that is:
unlawful, harmful, fraudulent, threatening, abusive, harassing,
defamatory, vulgar, obscene, profane, hateful, racially, or
ethnically objectionable, including, without limitation, any
material that supports, promotes or otherwise encourages wrongful
conduct that would constitute a criminal offense, give rise to
civil liability, or otherwise violate any applicable local,
state, national or international laws. As used herein, "BVIG
Content" means any content on the Disney.com and Family.com pages
where Content is distributed that has been authored and created
solely by BVIG.
10.4 Infoseek. Except with respect to the litigation involving
Goto.com which has previously been disclosed to Content Partner,
Infoseek represents, warrants and covenants to Content Partner
that its entry into this Agreement does not violate any agreement
with any other party, that it has the full right, power and
authority to enter into this Agreement and to perform the acts
required of it hereunder, and that Infoseek Content will not (a)
violate any laws or any rights of any third parties, including,
but not limited to, such violations as infringement or
misappropriation of any copyright, patent, trademark, trade
dress, trade secret, music, image, or other proprietary or
property right, false advertising, unfair competition,
defamation, invasion of privacy or publicity rights, moral or
otherwise, or rights of celebrity, violation of any
antidiscrimination law or regulation, or any other right of any
person or entity; or (b) contain any material that is: unlawful,
harmful, fraudulent, threatening, abusive, harassing, defamatory,
vulgar, obscene, profane, hateful, racially, or ethnically
objectionable, including, without limitation, any material that
supports, promotes or otherwise encourages wrongful conduct that
would constitute a criminal offense, give rise to civil
liability, or otherwise violate any applicable local, state,
national or international laws. As used herein, "Infoseek
Content" means any content on the GO Wrapper that has been
authored and created solely by Infoseek.
ARTICLE 11 LIMITATION OF LIABILITY; DISCLAIMER
11.1 NO CONSEQUENTIAL DAMAGES. EXCEPT FOR A PARTY'S LIABILITY FOR
THIRD PARTY CLAIMS AS SPECIFIED IN ARTICLE 15 BELOW, OR A PARTY'S
BREACH OF ARTICLE9, OR DAMAGES ARISING FROM PERSONAL INJURY, IN
NO EVENT SHALL A PARTY HERETO OR ITS AFFILIATES BE LIABLE TO
ANOTHER PARTY HERETO OR ITS AFFILIATES FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR EXEMPLARY DAMAGES OF ANY NATURE, EVEN IF SUCH
PARTY SHALL HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THE FOREGOING SHALL APPLY REGARDLESS OF THE NEGLIGENCE OR OTHER
FAULT OF A PARTY HERETO AND REGARDLESS OF WHETHER SUCH LIABILITY
SOUNDS IN CONTRACT, NEGLIGENCE, TORT, STRICT LIABILITY OR ANY
OTHER THEORY OF LIABILITY.
11.2 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN ARTICLE 10, NO PARTY
HERETO MAKES ANY, AND EACH PARTY ACKNOWLEDGES THAT EACH OTHER
PARTY HAS NOT MADE ANY, AND HEREBY SPECIFICALLY DISCLAIMS ANY,
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING GO
NETWORK, THE CONTENT PARTNER SERVICE, THE CONTENT, OR THE
OPERATION OF THE CONTENT ON GO NETWORK, INCLUDING, BUT NOT
LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE.
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ARTICLE 12 TERM AND TERMINATION
12.1 Term. This Agreement shall be effective on the Effective Date and
shall continue in force for an initial term ending [*] from the
Effective Date (the "Initial Term"). Upon prior mutual written
agreement, the term of this Agreement may be renewed at the end
of the Initial Term and each anniversary date thereafter for one
(1) year renewal terms.
12.2 Termination. This Agreement may be terminated as follows:
a. For Breach. Content Partner, on the one hand, and the GO
Entities, on the other hand, will have the right to terminate
this Agreement upon thirty (30) days prior written notice if a
GO Entity, on one hand, or Content Partner, on the other hand,
is in default of any obligation herein, including failure of
Content Partner to provide the Content, and such breach is
incapable of being cured within thirty (30) days, or if such
breach is capable of cure within thirty (30) days, such breach
is not cured within thirty (30) days (or fourteen (14) days
with respect to any default in any payment obligation) after
receipt of written notice of such default from the
non-defaulting party/parties. The non-defaulting party/parties
may authorize an additional cure period in its/their sole
discretion.
b. Performance.
i. By Content Partner. If the Content Partner Service or GO
Network-Wrapped Pages hosted by Content Partner do not
meet the following performance standards (which shall be
measured by the GO Entities), and such failure is not due
to force majeure events or the failure of any third party
services, hardware, software or telecommunications systems
not controlled by Content Partner, one or both of the GO
Entities shall notify the Content Partner in writing and
Content Partner shall cure the breach within 24 hours. In
the event of more than 3 performance failures pursuant to
this Section 12.2.b.i in any 30 day period, the GO
Entities shall have the right to terminate, without
providing an opportunity to cure. Termination of this
Agreement shall be the GO Entities' sole remedy for such
performance failures. The performance standards are as
follows:
A. Uptime/Downtime. Excluding maintenance downtime, the
Content Partner Service and GO Network-Wrapped Pages
hosted by Content Partner will have a minimum uptime
operation of [*] percent (downtime of [*] percent)
measured quarterly. Downtime shall mean any 30 second
interval in which the Content Partner Service is not
able to process queries.
B. Unscheduled Downtime Limits. The Content Partner
Service and GO Network-Wrapped Pages hosted by Content
Partner will not have aggregate unscheduled downtime
exceeding [*] hours per quarter.
C. Maintenance Downtime. The Content Partner Service and
GO Network-Wrapped Pages hosted by Content Partner may
be disabled for up to 3 hours per month for
maintenance. All maintenance downtimes will occur
between 9:00 p.m. and 6:00 a.m. Pacific time (Standard
or Daylight as applicable).
ii. By the GO Entities. If the pages in the GO Network hosted
by Infoseek or BVIG which prominently display Content (the
"GO-Hosted Pages") do not meet the following performance
standards and such failure is not due to force majeure
events
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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or the failure of any third party services, hardware,
software or telecommunications systems not controlled
by the GO Entity hosting the GO-Hosted Pages, Content
Partner notify the GO Entity hosting the GO-Hosted
Pages in writing and such GO Entity shall cure the
breach within 24 hours. In the event of more than 3
performance failures pursuant to this Section
12.2.b.ii in any 30 day period, Content Partner shall
have the right to terminate, without providing an
opportunity to cure. Termination of this Agreement
shall be Content Partner's sole remedy for such
performance failures. The performance standards are as
follows:
A. Uptime/Downtime. Excluding maintenance downtime, the
GO-Hosted Pages will have a minimum uptime operation
of [*] percent (downtime of [*] percent) measured
quarterly. Downtime shall mean any 30 second interval
in which the GO-Hosted Pages are not able to process
queries.
B. Unscheduled Downtime Limits. The GO-Hosted Pages will
not have any aggregate unscheduled downtime exceeding
[*] hours per quarter.
C. Maintenance Downtime. The GO-Hosted Pages may be
disabled for up to 3 hours per month for maintenance.
12.3 Effect of Termination.
a. Transition Period. At least ninety (90) days prior to
termination, the parties will effect the following transition
process:
i. The parties will inventory all material online Content
being exchanged and will jointly draft a Content
transition plan for material Content Partner Content that
will not remain on the GO Network beyond the termination
of the Agreement.
ii. The parties will inventory any products and promotions
that have been jointly developed and (A) agree upon a
termination date by which such products can no longer be
sold and promotions can no longer run, respectively.
iii. Either party holding any surplus product or promotional
inventory bearing Trademarks, or other copyrighted
material of the other parties will destroy such product
or promotional inventory within 30 days of termination of
this Agreement unless mutually agreed.
iv. Content Partner will make one final transfer of all the
names and email addresses of Content Partner Users (in
accordance with and as described in Section 7.2).
b. Survival. The following provisions of this Agreement shall
survive the termination or expiration of this Agreement:
Article 1, Article 2, Section 4.8, Section 7.2.a (first
sentence and last two sentences) and Section 7.2.b, Article 8:
Fees and Payments (as to fees accrued prior to termination or
expiration), Article 9: Confidential Information, Article 10:
Representations and Warranties (as to claims arising prior to
termination or expiration or claims based on events arising
prior to termination or expiration), Article 11: Limitation of
Liability; Disclaimer, Section 12.3: Term and Termination -
Effect of Termination, Article 14: Publicity (other than first
two sentences), Article 15: Indemnification and Article 16:
General Terms and Conditions.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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c. Return of Materials. Upon the termination or expiration of
this Agreement, each party shall (i) promptly return all
Confidential Information, and other information, documents,
manuals and other materials belonging to the other parties,
except as may be otherwise provided in this Agreement; and
(ii) promptly remove the other parties' content, branding,
links, and any other material provided under this Agreement.
ARTICLE 13 FORCE MAJEURE
No party hereto will be liable for delay or default in the performance
of its obligations under this Agreement (other than for non-payment) if
such delay or default is caused by conditions beyond its reasonable
control, including, but not limited to, fire, flood, accident,
earthquakes, telecommunications line failures, storm, acts of war, riot,
government interference, strikes and/or walk-outs. In the event of a
force majeure event which lasts longer than thirty (30) days, a party
not experiencing the force majeure event may terminate this Agreement
upon prior written notice to the other parties.
ARTICLE 14 PUBLICITY
The parties will draft a joint press release to announce the execution
of this Agreement to be issued at a mutually agreed upon time. The GO
Entities will use commercially reasonable efforts to approve such joint
press release for issuance within one week of the Effective Date. Except
as expressly set forth herein or as described on Appendix G, Content
Partner shall not issue or permit the issuance of any press release or
publicity regarding or grant any interview, or make any public
statements whatsoever concerning, this Agreement, GO Network or the GO
Entities (or their respective Affiliates) without prior coordination
with and written approval from the GO Entities, which approval may be
granted or withheld in such GO Entity's sole discretion. Except as
expressly set forth herein, the GO Entities shall not issue or permit
the issuance of any press releases or publicity regarding, or grant any
interview, or make any public statements whatsoever concerning this
Agreement or Content Partner without prior coordination with and written
approval from Content Partner, which approval may be granted or withheld
in Content Partner's sole discretion. All Content Partner endorsements
and public statements concerning this Agreement must receive the GO
Entities' prior review and approval; provided however that all items
attached hereto as Appendix G shall be deemed approved. Notwithstanding
the foregoing, Content Partner shall not state or imply, in
advertisements, writings, or otherwise, that a GO Entity or its
respective Affiliates endorse Content Partner's products or services or
any other product or service.
ARTICLE 15 INDEMNIFICATION
15.1 Content Partner. Content Partner agees to defend, indemnify and
hold the GO Entities and their respective officers, directors,
agents, employees, and Affiliates harmless from and against any
and all claims, demands, liabilities, actions, judgments, and
expenses, including reasonable fees and expenses of attorneys,
paralegals and other professionals, arising out of or related to
(i) any breach or alleged breach of any of Content Partner's
representations and warranties set forth in Section 10.1; (ii)
any injury to person or property caused by any products or
services sold by Content Partner, or any User's use of or
reliance on the Content; (iii) any injury to person or property
caused by any products or services sold through the Content; (iv)
any other claim with respect to Content Partner, the Content, or
products or services sold by or through Content Partner or its
agents, or (v) Content Partner's sales or marketing practices.
Content Partner shall bear full responsibility for the defense
(including any settlements) of any such claim; provided, however,
that (a) Content Partner shall keep the GO Entities (as
applicable) informed of, and consult with the GO Entities (as
applicable) in connection with, the progress of such litigation
or settlement; and (b) Content Partner shall not have any right,
without the written consent of the Go Entities (as applicable),
to settle any such claim if such settlement arises from or is
part of any
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criminal action, suit or proceeding or contains a stipulation to
or admission or acknowledgment of, any liability or wrongdoing
(whether in contract, tort or otherwise) on the part of the GO
Entities (as applicable) or their respective Affiliates or
otherwise requires the GO Entities (as applicable) or their
respective Affiliates to take or refrain from taking any material
action (such as the payment of fees).
15.2 BVIG. BVIG agrees to defend, indemnify and hold Content Partner
and its officers, directors, agents and employees harmless from
and against any and all claims, demands, liabilities, actions,
judgments, and expenses, including reasonable fees and expenses
of attorneys, paralegals and other professionals, arising out of
or related to any breach or alleged breach of any of BVIG's
representations and warranties set forth in Section 10.3. BVIG
shall bear full responsibility for the defense (including any
settlements) of any such claim; provided, however, that (a) BVIG
shall keep Content Partner informed of, and consult with Content
Partner in connection with, the progress of such litigation or
settlement; and (b) BVIG shall not have any right, without
Content Partner's written consent, to settle any such claim if
such settlement arises from or is part of any criminal action,
suit or proceeding or contains a stipulation to or admission or
acknowledgment of, any liability or wrongdoing (whether in
contract, tort or otherwise) on the part of Content Provider or
otherwise requires Content Partner to take or refrain from taking
any material action (such as the payment of fees).
15.3 Infoseek. Infoseek agrees to defend, indemnify and hold Content
Partner and its officers, directors, agents and employees
harmless from and against any and all claims, demands,
liabilities, actions, judgments, and expenses, including
reasonable fees and expenses of attorneys, paralegals and other
professionals, arising out of or related to any breach or alleged
breach of any of Infoseek's representations and warranties set
forth in Section 10.4. Infoseek shall bear full responsibility
for the defense (including any settlements) of any such claim;
provided, however, that (a) Infoseek shall keep Content Partner
informed of, and consult with Content Partner in connection with,
the progress of such litigation or settlement; and (b) Infoseek
shall not have any right, without Content Partner's written
consent, to settle any such claim if such settlement arises from
or is part of any criminal action, suit or proceeding or contains
a stipulation to or admission or acknowledgment of, any liability
or wrongdoing (whether in contract, tort or otherwise) on the
part of Content Provider or otherwise requires Content Partner to
take or refrain from taking any material action (such as the
payment of fees).
ARTICLE 16 GENERAL TERMS AND CONDITIONS
16.1 Independent Contractors. The parties to this Agreement are
independent contractors. No party hereto is an agent,
representative or partner of the other parties hereto. No party
hereto shall have any right, power or authority to enter into any
agreement for or on behalf of, or to incur any obligation or
liability for, or to otherwise bind, the other parties hereto.
This Agreement shall not be interpreted or construed to create an
association, joint venture, co-ownership, co-authorship, or
partnership among the parties or to impose any partnership
obligation or liability upon any other party hereto.
16.2 No Assignment. No party hereto shall assign, sublicense or
otherwise transfer (voluntarily, by operation of law, through a
change of control or otherwise) this Agreement or any right,
interest or benefit under this Agreement, without the prior
written consent of the other parties hereto; provided, however,
that a party hereto may assign this Agreement to any entity that
acquires all or substantially all of the assets or shares of such
party; provided that the acquiring entity is not (i) [*] or
(ii) [*]. Any attempted assignment, sublicense or transfer by a
party in derogation
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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hereof shall be null and void. Subject to the foregoing, this
Agreement shall be fully binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective
successors and assigns.
16.3 No Modifications. No change, amendment or modification of any
provision of this Agreement or waiver of any of its terms will be
valid unless set forth in writing and signed by the party to be
bound thereby.
16.4 Governing Law. This Agreement shall be interpreted, construed and
enforced in all respects in accordance with the laws of the State
of California. Each party hereto irrevocably consents to the
exclusive jurisdiction of any state or federal court for or
within Santa Clara County, California over any action or
proceeding arising out of or related to this Agreement, and
waives any objection to venue or inconvenience of the forum in
any such court.
16.5 No Waiver. The failure of a party to insist upon or enforce
strict performance by another party of any provision of this
Agreement or to exercise any right under this Agreement shall not
be construed as a waiver or relinquishment to any extent of such
party's right to assert or rely upon any such provision or right
in that or any other instance; rather the same shall be and
remain in full force and effect.
16.6 Notices. Any notice, approval, request, authorization, direction
or other communication under this Agreement shall be given in
writing, will reference this Agreement, and shall be deemed to
have been delivered and given (a) when delivered personally; (b)
three (3) business days after having been sent by registered or
certified U.S. mail, return receipt requested, postage and
charges prepaid; or (c) one (1) business day after deposit with a
commercial overnight courier, with written verification of
receipt. All communications will be sent to the addresses set
forth below or to such other address as may be designated by a
party by giving written notice to the other parties pursuant to
this Section 16.6.
If to BVIG: If to Content Partner:
Buena Vista Internet Group Pets.com, Inc.
[*] 435 Brannan Street
[*] San Francisco, CA 94107
Attention: Legal Department Attention: President
Tel: [*] Tel: (415) 222-9999
If to Infoseek:
Infoseek Corporation
[*]
[*]
Attention: Legal Department
Tel: [*]
16.7 Entire Agreement. This Agreement and the Appendices attached
hereto and incorporated herein by reference constitutes the
entire agreement between the parties and supersede any and all
prior agreements or understandings between the parties with
respect to the subject matter hereof. No party hereto shall be
bound by, and each party specifically objects to, any term,
condition or other provision or other condition which is
different from or in addition to the provisions of this Agreement
(whether or not it would materially alter this Agreement) and
which is proffered by another party hereto in any purchase order,
correspondence or other document, unless the party to be bound
thereby specifically agrees to such provision in writing.
* CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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16.8 Headings/Construction. The headings used in this Agreement are
for convenience only and are not to be construed to have legal
significance. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be
construed or if any such provision is held invalid by a court
with jurisdiction over the parties to this Agreement, such
provision shall be deemed to be restated to reflect as nearly as
possible the original intentions of the parties in accordance
with applicable law, and the remainder of this Agreement shall
remain in full force and effect.
16.9 Counterparts; Facsimile Signatures. This Agreement may be
executed in counterparts which taken together shall be regarded
as one and the same Agreement. A party's facsimile signature will
be deemed a binding acceptance of this Agreement by such party.
BUENA VISTA INTERNET GROUP PETS.COM, INC.
By: /s/ Mort Marcus By: /s/ Paul Manca
------------------------------------ ---------------------------------
Authorized Signature Authorized Signature
Print Name: Mort Marcus Print Name: Paul Manca
---------------------------- -------------------------
Title: Title: CFO
--------------------------------- ------------------------------
Date: Date: 1/17/00
---------------------------------- -------------------------------
INFOSEEK CORPORATION
By: /s/ Mort Marcus
------------------------------------
Authorized Signature
Print Name: Mort Marcus
----------------------------
Title:
---------------------------------
Date:
----------------------------------
<PAGE> 1
EXHIBIT 10.36
PETS.COM, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
made as of the 18th day of January 2000 by and between Pets.com, Inc., a
California corporation (the "Company"), and 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 C PREFERRED STOCK .
(a) The Company shall adopt and file with the Secretary of
State of the State of California on or before the Closing (as defined below) the
Fifth Amended and Restated Articles of Incorporation in the form attached hereto
as Exhibit B (the "Restated Articles").
(b) The Company has, or will have before the Closing (as
defined in Section 1.2(a) below) authorized the sale and issuance of up to
1,378,000 shares of Series C Preferred Stock. Subject to the terms and
conditions of this Agreement, each Purchaser agrees, severally and not jointly,
to purchase at the Closing (as defined below) and the Company agrees to sell and
issue to each Purchaser at the Closing that number of shares of Series C
Preferred Stock set forth opposite each such Purchaser's name on Exhibit A
attached hereto at a purchase price of $8.55 per share. The shares of Series C
Preferred Stock issued to the Purchaser pursuant to this Agreement shall be
hereinafter referred to as the "Stock; and the Stock and the Common Stock
issuable upon conversion of the Stock shall collectively be referred to
hereinafter as the "Securities."
1.2 CLOSING; DELIVERY. The purchase and sale of the Stock shall
take place at the offices of Venture Law Group, 2775 Sand Hill Road, Menlo Park,
California, at 10:00 a.m., on January __, 2000, or at such other time and place
as the Company and the Purchasers mutually agree upon, orally or in writing
(which time and place are designated as the "Closing"). At the Closing, the
Company shall deliver to each Purchaser a certificate representing the Stock
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, or by
the transfer of other consideration as may be mutually agreed by the Company and
such Purchaser.
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, which exceptions shall be
deemed to be representations and warranties as if made hereunder:
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<PAGE> 2
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 California and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted in the future. The Company is duly qualified to transact business and
is in good standing in each jurisdiction in which the failure so to 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) 22,627,328 shares of Preferred Stock, 7,227,328 of which
shares have been designated Series A Preferred Stock, all of which are issued
and outstanding immediately prior to the Closing, 13,900,000 of which shares
have been designated Series B Preferred Stock, 13,148,347 of which are issued
and outstanding immediately prior to the Closing, and 1,500,000 of which shares
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 Preferred Stock are as stated in the Restated Articles. All
of the outstanding shares of Preferred Stock have been duly authorized, fully
paid and are nonassessable and issued in compliance with all applicable federal
and state securities laws.
(b) 36,000,000 shares of Common Stock, 5,802,246 shares of
which are issued and outstanding immediately prior to the Closing. All of the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws.
(c) The Company has reserved 7,269,159 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 shareholders (the "Stock Plan"). Of such reserved
shares of Common Stock, 3,930,409 shares have been issued pursuant to restricted
stock purchase agreements or exercised options, options to purchase 1,216,250
shares have been granted or are currently outstanding, and 2,098,000 shares of
Common Stock remain available for issuance to officers, directors, employees and
consultants pursuant to the Stock Plan. The Company has reserved 500,000 shares
of Common Stock for issuance to employees of the Company pursuant to its 2000
Employee Stock Purchase Plan duly adopted by the Board of Directors and approved
by the Company shareholders (the "ESPP Plan"). Of such reserved shares of Common
Stock, no shares have been issued and 500,000 shares of Common Stock remain
available for issuance and sale pursuant to the ESPP Plan. Except as set forth
on the Schedule of Exceptions, options and Common Stock granted to employees by
the Company pursuant to the Stock Plan are subject to the following vesting
schedule: 25% of the shares comprising each grant to employees shall vest on the
one-year anniversary of the vesting commencement date for such grant, and
thereafter 1/48th of the shares comprising the grant shall vest on each monthly
anniversary of the vesting commencement date for such grant over the following
36 months. Unvested shares of Common Stock issued to employees pursuant to the
Stock Plan are subject to the Company's right of repurchase at the original
grantee's purchase price.
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(d) Except for (a) the conversion privileges of the
outstanding Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock to be issued pursuant to this Agreement, (b) the Right
of First Offer set forth in Section 2.3 of the Amended and Restated Investors
Rights Agreement to be entered into by the Company, Greg McLemore, the
Purchasers, the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock, and the holders of Series C Preferred Stock at the Closing, (c)
outstanding options issued pursuant to the Stock Plan, and (d) rights under the
ESPP Plan to purchase shares of Common Stock, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of first
refusal or similar rights) or agreements, orally or in writing, for the purchase
or acquisition from the Company of any shares of its capital stock. Other than
the Amended and Restated Voting Agreement of even date herewith by and among the
Company, Greg McLemore, Julie Wainwright, the holders of Series A Preferred
Stock and the holders of Series B Preferred Stock, the Company is not a party or
subject to any agreement or understanding, and to the best of its knowledge,
there is no agreement or understanding between any persons and/or entities, that
affects or relates to the voting or giving of written consents with respect to
any security or by a director of the Company.
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. The Company is not a participant in any joint venture,
partnership or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Amended and
Restated Investors' Rights Agreement, in the form attached hereto as Exhibit D
(the "Investors' Rights Agreement" and collectively with this Agreement, the
"Agreements") and the performance of all obligations of the Company hereunder
and thereunder and the authorization, issuance (or reservation for issuance),
sale and delivery of the Securities has been taken or will be taken prior to the
Closing, and the Agreements, 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, as limited by laws relating to the availability of
specific performance, injunctive relief, or other equitable remedies, or (ii) to
the extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable federal or state securities laws. The
sale of the Securities is not and will not be subject to any preemptive rights
or rights of first refusal, except for those rights waived or exercised by
certain Purchasers purchasing the Stock set forth on Exhibit A.
2.5 VALID ISSUANCE OF SECURITIES. The Securities that are 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
Investors' Rights Agreement and applicable state and federal securities laws.
Based in part upon the representations of the Purchasers in this Agreement and
subject to the provisions of
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Section 2.6 below, the Securities will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock has been duly and validly reserved for issuance, and
upon issuance in accordance with the terms of the Restated Articles, 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
Investors' Rights Agreement and applicable federal and state securities laws and
will be issued in compliance with all 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, except for the filing of the Restated Articles
and 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 OFFERING. Subject in part to the truth and accuracy of each
Purchaser's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Securities as contemplated by this Agreement are, to
the Company's knowledge, exempt from the registration requirements of any
applicable state and federal securities laws, and neither the Company nor any
authorized agent acting on its behalf will knowingly take any action hereafter
that would cause the loss of such exemption.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of the 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 changes 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. The foregoing includes, without limitation, actions,
suits, proceedings or investigations pending or threatened involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with former
employers. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality nor has the Company received any notice thereof. There is no
action, suit, proceeding or investigation by the Company or any of its
subsidiaries currently pending or which the Company or any of its subsidiaries
intends to initiate.
2.9 INTELLECTUAL PROPERTY. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now conducted and
as proposed to be conducted in the future without any conflict with, or
infringement of, the rights of others and believes it can obtain, on
commercially reasonable terms, any additional rights necessary for the conduct
of its business as proposed to be
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conducted. The Company has not received any communications alleging that the
Company has violated or, by conducting its business as currently conducted or as
presently proposed, 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. 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 as currently conducted or as
proposed to be conducted. Neither the execution or delivery of the Agreements,
nor the carrying on of the Company's business by the employees of the Company,
nor the conduct of the Company's business as proposed, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any such employee is now obligated. The Company does not
believe it is or will be necessary to use any inventions, trade secrets or
proprietary information of any of its employees (or persons it currently intends
to hire) made prior to their employment by the Company. The Schedule of
Exceptions includes a list of all patents, copyrights, trademarks and domain
names claimed or owned by the Company and all licenses by the Company of any
intellectual property or technology from third parties.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default of any
provisions of its Restated Articles or Bylaws or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound
or, 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 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 or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
(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, permit,
authorization, distribution agreement or other agreement.
2.11 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, members of their
immediate families, affiliates, or any affiliate thereof.
(b) Except for agreements explicitly contemplated by the
Agreements, there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs, or decrees to which the Company
is a party or by which it is bound that
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involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000, (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company, (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 or services, or
(iv) indemnification by the Company with respect to infringement of proprietary
rights.
(c) The Company has not (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 nor, in the
case of indebtedness and/or liabilities individually less than $50,000, 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.
(d) For purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Articles or Bylaws that, to its knowledge, adversely affects its
business as now conducted and as proposed to be conducted in the future, its
properties or its financial condition.
(f) The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the merger of the Company with or into any such corporation or
corporations, (ii) with any representative of any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or Series of related transactions in which more than
fifty percent (50%) of the voting power of the Company would be disposed of, or
(iii) regarding any other form of liquidation, dissolution or winding up of the
Company.
2.12 DISCLOSURE. The Company has fully provided the Purchasers with
all the information that the Purchasers have requested for deciding whether to
acquire the Securities and all information that the Company believes is
reasonably necessary to enable the Purchasers to make such a decision, including
certain financial projections. No representation or warranty of the Company
contained in this Agreement and the exhibits attached hereto, any certificate
furnished or to be furnished to Purchasers at the Closing, or other information
furnished to the Purchasers (when read together) contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. To the extent the financial
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projections were prepared by management of the Company, such financial
projections were prepared in good faith. The assumptions applied in preparing
such projections appeared reasonable to management as of the date thereof and as
of the date hereof. The Purchasers understand that actual results may differ
substantially from those projections.
2.13 NO CONFLICT OF INTEREST. The Company is not indebted (or
committed to make loans or extend or guarantee credit), directly or indirectly,
to any of its employees, 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 nor is the Company contemplating such indebtedness as of
the date of this Agreement. None of the Company's employees, 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, to the Company's knowledge, 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 nor is the Company contemplating
such indebtedness as of the date of this Agreement, except that employees,
officers, directors and/or shareholders 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, directors or shareholders or any members of their
immediate families are, directly or indirectly, interested in any material
contract with the Company, nor does any such person own, directly or indirectly,
in whole or in part, any material tangible or intangible property that the
Company uses or contemplates using in the conduct of its business. The Company
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation.
2.14 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. Except as contemplated in the Voting Agreement dated as of
November 5, 1999 between the Company, Greg McLemore, Julie Wainwright and
certain purchasers of the Company's Series A Preferred Stock and/or Series B
Preferred Stock, to the Company's knowledge, no shareholder of the Company has
entered into any agreements with respect to the voting of capital shares of the
Company.
2.15 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. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrances.
2.16 BALANCE SHEET. The Company's Balance Sheet as of September 30,
1999 set forth in its audited financial statements contained in its Registration
Statement on Form S-1 as filed with the Securities and Exchange Commission on
December 9, 1999 (the "Balance Sheet") has been prepared in accordance with
generally accepted accounting principles and fairly
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presents the financial condition of the Company as of the date indicated
therein, subject to normal year-end audit adjustments. Except as set forth in
the Balance Sheet, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1999 that are not material, individually or
in the aggregate, and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Balance Sheet, which, in both
cases, individually or in the aggregate are not material to the financial
condition or operating results of the Company. Except as disclosed to the
Purchasers, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation. The Company maintains and will continue
to maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.17 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.
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 (as is presently conducted and as
it is proposed to be conducted), nor is the Company aware of any labor
organization activity involving its employees. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have the
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company is terminable at the will
of the Company. To its knowledge, the Company has complied in all material
respects with all applicable state and federal equal employment opportunity laws
and with other laws related to employment. The Company is not a party to or
bound by any currently effective employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation plan or agreement.
2.19 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AND EMPLOYEE
STOCK PURCHASE AGREEMENTS. Each current and former employee, consultant and
officer of the Company has executed agreements with the Company regarding
confidentiality and proprietary information (the "Confidential Information and
Invention Assignment Agreement") and any stock purchases. No current employee,
officer or consultant of the Company has excluded works or inventions made prior
to his or her employment with the Company from his or her assignment of
inventions pursuant to such employee, officer or consultant's Confidential
Information and Invention Assignment Agreement. The Company is not aware that
any of its employees or consultants is in violation thereof, and the Company
will use its best efforts to prevent any such
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violation. The Company as taken reasonable security measures to maintain the
confidentiality of the Company's proprietary information.
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, prospects,
or financial condition of the Company. The Company believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.21 CORPORATE DOCUMENTS. The Restated Articles and Bylaws of the
Company are in the form provided to counsel for the Purchasers.
2.22 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted exclusive rights to develop, manufacture, produce, assemble, license,
market, distribute or sell its products or services to any other person or
entity and is not bound by any agreement that affects the Company's exclusive
right to develop, manufacture, produce, assemble, license, distribute, market or
sell its products, services or any other products that use its proprietary
information. 2.23 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
tax returns and reports (including information returns and reports) as required
by law. These returns and reports are true and correct in all material respects.
The Company has paid all taxes and other assessments due. The Company has not
elected pursuant to the Code to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material adverse effect on the Company, its
financial condition, its business as presently conducted or proposed to be
conducted or any of its properties or material assets. The Company has never had
any tax deficiency proposed or assessed against it and has not executed any
waiver of any statute of limitations on the assessment or collection of any tax
or governmental charge. None of the Company's federal income tax returns and
none of its state income or franchise tax or sales or use tax returns has ever
been audited by governmental authorities. Since the date of the Balance Sheet,
the Company has not incurred any taxes, assessments or governmental charges
other than in the ordinary course of business and the Company has made adequate
provisions on its books of account for all taxes, assessments and governmental
charges with respect to its business, properties and operations for such period.
The Company has withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment
Tax Act taxes) required to be withheld or collected therefrom, and has paid the
same to the proper tax receiving officers or authorized depositories.
2.24 SECTION 83(B) ELECTIONS. To the best of the Company's
knowledge, all individuals who have purchased unvested shares of the Company's
Common Stock have timely filed elections under Section 83(b) of the Code and any
analogous provisions of applicable state tax laws.
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2.25 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
2.26 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed and to satisfy its contractual obligations.
The Company has in full force and effect products liability and errors and
omissions insurance in amounts customary for companies similarly situated.
2.27 YEAR 2000. To the Company's knowledge, each hardware and
software product and other computer and information technology used by the
Company in its business (collectively, the "Software") will accurately receive,
provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the twentieth and
twenty-first centuries, including, without limitation, leap year calculations,
without a decrease in the functionality of the Software so that the Software
will not malfunction, cease to function or provide invalid or incorrect results
as a result of date or time data, to the extent that other information
technology, used in combination with the information technology being acquired,
properly exchanges date and/or time data with it. To the Company's knowledge,
the Software is designed to be used prior to, during and after the calendar year
2000 A.D. and will operate during each such time period without error relating
to date or time data, specifically including any error relating to, or the
product of, date data which represents or references different centuries or more
than one century. Without limiting the generality of the foregoing, to the
Company's knowledge, the Software (a) will not abnormally end or provide invalid
or incorrect results as a result of date or time data, specifically including
date or time data which represents or references different centuries or more
than one century, (b) has been designed to ensure year 2000 compatibility,
including, but not limited to, date and time data century recognition,
calculations which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century, and (c)
includes "Year 2000 Capabilities," meaning that the Software (i) will manage and
manipulate data involving dates or time, including single century formulas and
multi-century formulas, and will not cause an abnormally ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (ii) provides that all date-related user interface functionalities and
data fields include the indication of century, and (iii) provides that all
date-related data interface functionalities include the indication of century.
2.28 COMPLIANCE WITH LAWS. To its knowledge, the Company is not in
violation of any applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties which
violation would materially and adversely affect the business, assets,
liabilities, financial condition operations or prospects of the Company. To the
best of the Company's knowledge, the Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and to the best of the Company's knowledge, no
material expenditures are or will be required in order to comply with any such
existing statute, law or regulation.
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2.29 OBLIGATIONS OF MANAGEMENT. To the best of the Company's
knowledge, each of the Company's Chief Executive Officer, President and Chief
Financial Officer is currently devoting one hundred percent (100%) of his or her
business time to the conduct of the business of the Company. The Company is not
aware that any such officer or key employee of the Company is planning to work
less than full time at the Company in the future.
2.30 USE OF PROCEEDS. The Company will use proceeds from the sale
of the Stock for working capital purposes. Such proceeds shall not be used to
repay indebtedness to any shareholders of the Company.
2.31 CHANGES. Since September 30, 1999, there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the Balance
Sheet, except changes in the ordinary course of business that have not been or
are expected to be, in the aggregate, materially adverse;
(b) any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(c) any material change in any compensation arrangement or
agreement (including salary, bonus, insurance or pension benefits) with any
employee, officer, director or shareholder;
(d) any change or amendment to any of the governing
documents of the Company (including the Restated Articles and Bylaws of the
Company), except as contemplated hereunder; or
(e) any arrangement or commitment by the Company to do any
of the things described in this Section 2.31.
2.32 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or supplier
that was significant to the Company during the period from February 17, 1999 to
the date hereof has terminated, materially reduced or threatened to terminate or
materially reduce its purchases from, or provision of products or services to,
the Company, as the case may be.
2.33 ALL TERMS. The Agreements, together with the Restated
Articles, Series A Preferred Stock Purchase Agreement dated as of April 22,
1999, Series B Preferred Stock Purchase Agreement dated as of June 18, 1999,
Series B Preferred Stock and Convertible Note Purchase Agreement dated as of
November 5, 1999, Amended and Restated Right of First Refusal and Co-Sale
Agreement dated as of November 5, 1999 and Amended and Restated Voting Agreement
dated as of November 5, 1999, contain all terms relating to the issuances of
Series A Preferred Stock and Series B Preferred Stock and the relationships
among the holders of such stock, except as set forth in the Schedule of
Exceptions.
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3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser,
severally and not jointly, hereby represents and warrants to the Company that:
3.1 AUTHORIZATION. Such Purchaser has full power and authority to
enter into the Agreements. The Agreements, when executed and delivered by the
Purchaser and the other parties hereto and thereto that are required to enter
into the Agreements, 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, and
(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 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 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. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the investors to
rely thereon.
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
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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 other 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 QUALIFIED INSTITUTIONAL INVESTOR. The Purchaser is a qualified
institutional investor as defined in Rule 144A of the rules and regulations
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 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 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
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and 4.2 have been fulfilled, and stating that there shall have been no adverse
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company since the date of the Balance Sheet.
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 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Purchasers' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it has
reasonably requested. This may include, without limitation, good standing
certificates and certification by the Company's Secretary regarding the
Company's Restated Articles and Bylaws and Board of Director and shareholder
resolutions relating to this transaction.
4.6 OPINION OF COMPANY COUNSEL. The Purchasers shall have received
from Venture Law Group, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit E.
4.7 BYLAWS. As of the Closing, the Bylaws of the Company shall
provide that the Board of Directors of the Company shall consist of five (5)
persons, which number shall not be changed by an amendment to the Restated
Articles or the Bylaws without consent of holders of seventy percent (70%) of
the outstanding shares of Preferred Stock.
4.8 BOARD OF DIRECTORS. As of the Closing, the Board shall be
comprised of five (5) directors: one representative designated by Bowman Capital
Management, one representative designated by Hummer Winblad Venture Partners,
one director designated by Amazon.com, the Company's Chief Executive Officer,
and Jack Balousek.
4.9 INVESTORS' RIGHTS AGREEMENT. The Company, each Purchaser, the
holders of Series A Preferred Stock, the holders of Series B Preferred Stock and
Greg McLemore shall have executed and delivered the Investors' Rights Agreement
in substantially the form attached as Exhibit D.
4.10 RESTATED ARTICLES. The Company shall have filed the Restated
Articles with the Secretary of State of California on or prior to the Closing
Date, and shall deliver a copy of such filed Restated Articles to each Purchaser
at Closing.
4.11 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AND EMPLOYEE
STOCK PURCHASE AGREEMENTS. The Company and each of its employees and consultants
shall have entered into the Company's standard form Confidential Information and
Invention Assignment Agreement, in substantially the form provided to the
Purchasers' legal counsel. Each holder of Common Stock of the Company shall have
entered into an Employee Stock Purchase Agreement, in substantially the form
provided to the Purchasers' legal counsel.
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<PAGE> 15
4.12 SECURITIES COMPLIANCE. The Company shall have taken all
actions necessary to comply with any federal or state securities laws applicable
to the transactions contemplated hereunder that are required to be taken prior
to the Closing.
4.13 STOCK CERTIFICATES. The Company shall have delivered to each
Purchaser a duly executed stock certificate evidencing the Stock purchased by
such Purchaser hereunder.
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 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 Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.
6. MISCELLANEOUS.
6.1 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 and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Purchasers or the Company.
6.2 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 (including transferees of any securities).
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. The parties agree
that the Purchaser may assign their rights and obligations under this Agreement
to any of their affiliates (as defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933, as amended) or to any successors to the
Purchasers or such affiliates.
6.3 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
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<PAGE> 16
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
6.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts and may be executed by facsimile, any of which shall be deemed an
original and all of which together shall constitute one instrument.
6.5 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.
6.6 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 fax (with confirmation of
successful electronic transmission), 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:
Venture Law Group
2775 Sand Hill Road
Menlo Park, CA 94025
Attn: John V. Bautista
Tel: 650-854-4488
Fax: 650-854-1121
(b) if to Catalyst Investments, L.L.C., with a copy to:
_______________________________
_______________________________
_______________________________
Attn: _________________________
Tel: _________________________
Fax: _________________________
6.7 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.
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<PAGE> 17
6.8 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of any of the
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.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of at least 70% of the Stock (or the Common Stock issuable upon
conversion of the Stock). Any amendment or waiver effected in accordance with
this Section 6.9 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. Notwithstanding the foregoing, this
Agreement (including Exhibit A hereto) may be amended with only the written
consent of the Company to include additional purchasers of Series C Preferred
Stock at a subsequent closing as "Purchasers."
6.10 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.
6.11 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 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.
6.12 ENTIRE AGREEMENT. This Agreement, and the documents 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.
6.13 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
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<PAGE> 18
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.
6.14 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 Stock purchased hereunder ("Confidential Information"); provided,
however, that (a) Confidential Information shall not include (i) information
that is or becomes available to the general public other than as a result of
disclosure by any Purchaser, (ii) information known to any Purchaser prior to
discussions or negotiations related to this Agreement as demonstrated by
tangible evidence of such prior knowledge by such Purchaser, or (iii) general
knowledge of the Company's industry not specifically related to the Company's
business. The provisions of this Section 6.14 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.
6.15 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.
6.16 AGGREGATION OF STOCK. All shares of stock held or acquired by
affiliated entities or persons hereunder shall be aggregated together for the
purpose of determining the availability of rights under this Agreement.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 19
The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.
COMPANY:
PETS.COM, INC.
By: /s/ JULIE WAINWRIGHT
-----------------------------------
Name: Julie Wainwright
-----------------------------------
(print)
Title: CEO
----------------------------------
Address: 435 Brannan Street
San Francisco, CA 94107
Tel: (415) 222-9999
Fax: (415) 222-9998
PURCHASER:
CATALYST INVESTMENTS, L.L.C.
By: The Walt Disney Company, its sole
member
By: /s/ THOMAS O. STAGGS
------------------------------------
Thomas O. Staggs
Senior Executive Vice President and
Chief Financial Officer
Address: 500 South Buena Vista Street
Burbank, CA 91521
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF PETS.COM, INC.
NAME JURISDICTION OF INCORPORATION
Pets.com Distribution Services Corporation Delaware
Pets.com, Inc. Delaware
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 14, 2000, in the Registration Statement
(Form S-1) and related Prospectus of Pets.com, Inc. for the registration of
shares of its common stock.
Ernst & Young LLP
San Francisco, California
January 14, 2000, except for
Note 10 as to which
the date is January 19, 2000
- --------------------------------------------------------------------------------
The foregoing is the consent in the form that will be signed upon
ratification by the Company's stockholders of the reverse stock split described
in note 10 to the financial statements.
/s/ Ernst & Young LLP
San Francisco, California
January 19, 2000
