<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 1999
OR
& TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file No. 000-10576
PETPLANET.COM, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2298015
--------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
21 Stillman Street, Suite 600,
San Francisco, California 94107
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 243-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filings pursuant to Item
405 of Regulation S-K contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X].
State the issuer's revenues for its most recent fiscal year: $9,000.
The aggregate market value of the voting and non-voting common equity
of the registrant held by non-affiliates of the registrant at February 9, 2000
was approximately $18,964,825.00 upon the closing sale price of $6.25 for the
Registrant's Common Stock, $.01 par value, as reported by the National
Association of Securities Dealers OTC Bulletin Board on February 9, 2000.
As of February 9, 2000 the Registrant had 9,396,177 shares of Common
Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain information contained in the Proxy Statement for the Annual Meeting of
Stockholders of the Registrant to be held February 29, 2000 is incorporated by
reference into Part III hereof.
<PAGE>
PETPLANET.COM, INC.
Annual Report on Form 10-KSB
For the Fiscal Year Ended October 31, 1999
TABLE OF CONTENTS
Page
PART I
Item 1. Business 4
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters 17
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 7. Financial Statements 20
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 20
PART III
Item 9. Directors and Executive Officers of the Registrant 20
Item 10. Executive Compensation 20
Item 11. Security Ownership of Certain Beneficial Owners and Management 20
Item 12. Certain Relationships and Related Transactions 21
PART IV
Item 13. Exhibit List and Reports on Form 8-K 21
FINANCIAL STATEMENTS
Report of Independent Auditors F-2
Balance Sheet F-3
Statements of Operations F-4
Statements of Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
<PAGE>
PART I
ITEM 1. BUSINESS.
General
PETPLANET.COM, INC., a Delaware corporation ("We", the "Company" or the
"Registrant"), is a leading developer, producer, and operator of the
Internet-based network known as PetPlanet.com (www.petplanet.com) which is
designed to cater to the needs and interests of pet owners. PetPlanet.com is an
emerging global Internet network servicing the needs of a focused target
audience for pet product and service providers. In addition to its consumer
brand, the Company recently announced the launching of the Local Pet Business
Network (the Network). The Network was established to service the needs of
manufacturers, distributors and the thousands of independent retailers and
service providers in the local pet community. When fully launched, the Network
will provide the tools for brick and mortar retailers as well as pet-related
service providers to establishment a dynamic e-commerce enabled web site powered
by PetPlanet.com technology.
The Company plans to differentiate itself from its more well-funded
"Business to Consumer" competition with a unique "Business to Business to
Consumer" model. With the launch of LPBN, the Company intends to capitalize on
the most valuable e-commerce relationship between the local merchant/service
provider and its local customer. The Company plans to provide the infrastructure
and tools necessary to empower thousand of pet-related businesses to service
their loyal local customer base as well as grow their existing customer base.
The Company's principal business address is 21 Stillman Street, Suite 600, San
Francisco, California, 94107 and its telephone number is. (415) 243-9000.
Industry Overview
International Data Corporation has estimated that the current Internet
user base of approximately 196 million people will grow to 503 million in 2003.
In addition, a rapidly growing number of businesses are using the Internet to
market and sell their products and streamline business operations. Forrester
Research predicts that by 2002, 50% of all United States businesses will have an
online presence.
Revenues generated off of the Internet are also projected to skyrocket
in the next few years. Jupiter Communications has projected Internet advertising
will grow to $7.7 billion in 2002 from $1.9 billion in 1998. In addition,
Business to Consumer commerce revenues are projected by Forrester to grow to
$184 billion in 2004 from $20 billion in 1999. The significant growth is
attributable to the advances in the speed of personal computers and modems,
easier and cheaper bandwidth, and a broader range of online offerings coupled
with growing consumer awareness.
The PetPlanet.com Retail Market
The traditional pet category in the United States is a $28 billion
industry in products and services and growing (estimated at $53 Billion
worldwide); yet it remains fragmented with the community needs of the pet owner
poorly served. Over the past five years, the pet business has evolved from one
dominated by small and independent retailers to one that includes Internet
retailers, nationwide superstores, medical organizations, insurance policies and
magazines and television shows dedicated to pets. About 60% of U.S. households
own one or more pets, with an estimated 256 million pets in the U.S. More than
ever, "Pet Families" (which PetPlanet.com defines as one or more persons caring
for one or more pets) need a means to aggregate information, share knowledge,
develop relationships, and make well-informed, cost-effective purchases.
Similarly, suppliers need an effective channel to reach an increasing diverse,
growing market and local service providers need a cost effective means to retain
and maximize their relationship with their loyal customer base. The
PetPlanet.com consumer brand along with the Local Pet Business Network are
designed to meet the needs of both consumers and retailers.
The Reorganization
On May 13, 1999, the Company, then doing business under the name
Techscience Industries, Inc. and PetPlanet.com, Inc. ("PPI"), a California
corporation, and the individual holders of all of the outstanding capital
4
<PAGE>
stock of PPI (the "Holders") consummated a reverse acquisition (the
"Reorganization") pursuant to a certain Agreement and Plan of Reorganization
("Reorganization Agreement") of such date. Pursuant to the Reorganization
Agreement, the Holders tendered to the Company all issued and outstanding
(10,570,000) shares of common stock of PPI in exchange for 6,754,640 shares of
common stock of the Company, and therefore PPI became the wholly owed subsidiary
of the Company. The Company also issued options to purchase 570,360 shares of
the Company's common stock to holders of options to purchase PPI common stock.
The Reorganization was accounted for as a reverse acquisition. On May 20, 1999,
the Company amended its Certificate of Incorporation in order to change its name
from Techscience Industries, Inc. to PetPlanet.com, Inc.
Simultaneous with the closing of the Reorganization, all of the then
officers and directors of the Company tendered their respective resignations in
accordance with the terms of the Reorganization Agreement. Shareholders
representing a majority of the outstanding common stock of the Company then
elected Steven E. Marder and Kim Marder to serve on the Board of Directors of
the Company (the "Board"). The Board subsequently appointed Steven E. Marder as
the President and Chief Executive Officer of the Company.
Recent Developments
Commencement of Trading
On or about July 28, 1999, the Company changed its stock trading symbol
from "TSCID" to "EPET" and began trading its Common Stock under such symbol on
the National Association of Securities Dealers' Inc. Over-the-Counter Bulletin
Board.
Distribution Agreements
On July 30, 1999 we entered into a one year e-commerce agreement with
America Online Inc. a leading interactive service, under which the Company
became an anchor tenant in the Pet Accessory area of the newShop@AOL, AOL.com,
CompuServe and Netscape online shopping destinations. Pursuant to this
agreement, the Company receives promotional impressions in areas on AOL, AOL.com
and CompuServe. See exhibit 10.7 for detailed contract and terms.
In July of 1999, we entered into an exclusive five-year relationship with
American AGCO, a leading pet products distributor. We purchase the product
directly from American AGCO who in turn handles all pick, pack and ship
fulfillment activities for the Company. As part of the agreement, American AGCO
also received a specified amount of warrants in PetPlanet.com, Inc. See exhibit
10.9 for detailed contract and terms.
In September of 1999, the Company entered into an exclusive one-year
agreement with Mapquest.com, Inc. (Mapquest) the online leader in destination
information solutions. The agreement encompasses both the licensing of the
Mapquest tool as well as run of site ads with PetPlanet.com serving as the
exclusive pet-site partner. The Company has also incorporated its extensive
database of service providers and merchants including pet shops, veterinarians,
and pet hospitals in to the Mapquest tool allowing users to quickly and easily
find pet-related service providers in their area of interest. See exhibit 10.8
for the contract and terms.
In January of 2000, the Company inked an exclusive one year agreement
with Online Partners (Gay.com), the leading gay and lesbian affinity portal. The
combination fee and revenue share relationship will establish PetPlanet.com as
Gay.com's exclusive e-commerce, advertising and programming partner in the pet
channel. The relationship will allow the Company to gain access to the largest
number of gay and lesbian pet parents online.
Recent Financings
To fund our need for additional working capital, from September 1999
through January 2000 we sold certain notes and equity linked securities to
members of our management and a small group of private investors in private
placement transactions. Capital raised from these transactions aggregated
approximately $3.0 million.
Forward Looking Statements
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project,"
5
<PAGE>
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 regarding events, conditions
and financial trends that may affect the Company's future plans of operations,
business strategy, operating results and financial position. Current
stockholders and prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Such
factors are described under the headings "Business-Certain Considerations",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto.
Business Strategy and Plan of Operation
The Company's strategy is to develop and build the premier Internet pet
destination providing reliable content, dynamic community and comprehensive
products and services serving the needs of the pet industry and Pet Families
worldwide.
In order to achieve its objectives, the Company will seek to expand the
user base and enhance user experience with new features, services and content
through the following initiatives:
o Build our brand name and equity: We will continue to enter into online
marketing and strategic relationships where we see valuable brand
building opportunities. In addition, upon securing significant capital,
we will launch a targeted off line marketing campaign including TV,
radio and outdoor.
o Build out the Local Pet Business Network: We are currently completing
development on an exciting new web product for local pet merchants and
service providers. The Local Pet Business Network is designed to provide
turn-key tools and back-office infrastructure to empower pet businesses
on the Internet through the hosting and servicing of e-commerce enabled
web sites. The Local Pet Business Network was announced in late November
of 1999 and will go live in March of 2000. We have signed up several
charter retailers for the program and look to aggressively expand its
offering throughout the country in the coming year.
o Continue to expand product offerings: The Company has partnered with
American AGCO, Inc. (AGCO) one of the largest independent pet
distributors in the industry to provide the vast majority of product
inventory for the Petplanet.com site as well supply all of the product
fulfillment responsibilities. As we add product to the PetPlanet.com
site, many of these same products will be available for our Local Pet
Business Network partners. We currently offer several thousand products
from AGCO's vast warehouse of pet-related merchandise. Over the coming
year, we plan to add thousands of additional products to our online
offerings as well as supplement this with higher-end specialty products
not currently carried by AGCO.
o Expand our existing content offerings: We will continue to add to our
in-depth content sites in the pet space of the Internet. Our editorial
team ads approximately 10 new articles to our Petplanet.com site each
week. In the coming year, we will introduce several new advice experts
to help pet families in caring for their pets. In addition, we will
launch new community tools that will facilitate the exchanging of pet
related stories and information.
o Expand globally: We plan to expand our presence into overseas markets.
The Company has targeted several opportunities in select foreign
markets. We plan to leverage the tools and infrastructure supporting
PetPlanet.com to aggressively pursue acquisitions and pet-related
strategic partnerships in Asia and Europe.
PetPlanet.com's business model is founded upon the concept of "community
driven e-commerce". We believe that in order to build a successful e-commerce
business that derives its sales from Pet Families, the experience must blend
elements focused on community, content and commerce. The network will also offer
elements such as its classified listings service, personalized e-mail, chat and
a personalized calendar with local and national events.
6
<PAGE>
Sales and Marketing
We believe that a strong sales and marketing organization is essential
to effectively sell our services and to promote PetPlanet.com. Upcoming
marketing plans will include a blend of online and targeted offline advertising
as well as continued sponsorship of pet-related events with local humane
societies and animal shelters. The Company plans to use a combination of
internal resources as well as our outside ad agency Pickett Communications to
design, produce and distribute it FY 2000 campaign.
PetPlanet.com's web site
The website offers users a variety of information and pet-related
products servicing all major animal categories: Dog, Cat, Bird, Fish, Small
Pets, Reptiles and Equine.
Content: The site offers hundreds of useful and relevant articles for
Pet Parents written primarily by our network of accredited freelancers and
experts. Each writer brings a unique perspective drawn from their expertise in
specific animal categories. The Company offers animal care advice from various
experts and answers questions from users on a regular basis. We also offer an
extensive list of animal shelters and rescue centers with strong support and
sponsorship from the Human Society of the United States.
The site also provides various database type products such as the
classified advertising are which offers users the ability to advertise their
pet-related products for sale. In addition, the Company has partnered with
Heather Walters and Eileen Barish, two top pet-related travel experts, to
provide an extensive directory of pet friendly hotels and other useful advise
when traveling with your pet.
Community: The site provides a variety of community tools allowing
users to share information and anecdotes with others. Tools available on the
site include chat, message boards, postcards and pet polls. We also launched a
feature called matchmaking that allows users to find others that share a similar
affinity for pets.
Commerce: Our site superstore offers customers a strong breadth and
depth of product selections across most popular pet types and product
categories. The Company plans to add thousands of additional products to the
site in the coming year and also incorporate an equine section for horse
enthusiasts.
Operating Infrastructure
Fulfillment and Distribution: The Company sources the vast majority of
the inventory on the Petplanet.com site from its exclusive pet product
distributor, American AGCO, located in St. Paul, MN operating out of a 125,000
square foot facility. Most products are part of AGCO' s current product
offerings and are picked, packed, and shipped from their MN facility. Utilizing
an existing pet-products distributor allows the Company the freedom to invest a
much smaller percentage of its capital on infrastructure and inventory while
taking advantage of AGCO's expertise in product management and fulfillment.
While this model frees up resources for other essential uses, it does create
less control over inventory levels and warehouse practices than we would be
enjoy if the facility was wholly owned and operated by the Company.
To-date, our volumes have been comfortably supported by American AGCO
from its existing facility. When and if volume levels increase significantly, it
may become more economically feasible for the Company to pursue bringing the
fulfillment process in-house. We currently have no timetable as to when or if
this event may occur.
Customer Service: The Company's customer service function is operated
out of the American AGCO distribution facility in Minnesota. We use a
combination of internal staff and employees of American AGCO to service our
customer base. The Company firmly believes that exceptional customer service is
essential for our success. We anticipate expanding our customer service
offerings in the coming year and increasing the number of internal employees in
this area.
Technology and Development: Outlook Technology, Inc. based in Chicago,
Illinois, has been our primary
7
<PAGE>
developer of site tools and technology since the Petplanet.com site was launched
in early 1999. Outlook also hosts our site out of their offices in Chicago and
provides virtually 100% of all maintenance and support. Most site functionality
has been developed with little use of licensed technology. The Company employs a
modest team of in-house designers to ensure the look and feel of the site is
consistent with the Company's overall message.
The use of an external development team was deemed advantageous to more
quickly develop and integrate the many community tools and features needed on
the site versus hiring a team of in-house technologists. As the Company moves
into its next phase of development, it will look to supplement our external
development with more internal expertise.
Research and Development
During the seven months ended October 31, 1999, the Company spent $1.6
million on product research including stock based compensation of over $200,000.
Only minimal dollars were spent on product development prior to this period.
Such figures include costs of outside developers and consultants. The majority
of the expenditures are attributable to Outlook Technologies, our primary
developer of tools and technology. During the seven month period ending October
31, 1999 period, Outlook made significant progress in designing and developing
an e-commerce component to the site as well as additional community features and
tools including our Travel and Adventure area and Adoption and Rescue.
Competition
Competition in the Internet pet services market is intense. We expect
competition in our market to continue to intensify as a result of increasing
market size, greater visibility of the market opportunity for our services and
minimal barriers to entry. Competition may also increase as a result of industry
consolidation. We believe that our ability to compete depends on many factors
both within and beyond our control, including the following:
o the success of the sales and marketing efforts of us and our
competitors;
o the ease of use, performance, price and stability of the product versus
our competition
o the timing and market acceptance of new services developed by us and our
competitors.
Our PetPlanet.com brands compete directly with several significantly
financed Internet sites in the Pet space including Pets.com, Petsmart.com,
Petopia.com and Petstore.com. We also compete with offline companies, large
Internet publishers, search engine and other portal companies, a variety of
Internet advertising networks and other companies that facilitate the marketing
of products and services on the Internet.
Please see "Certain Considerations--We face significant competition,
and we may not be able to compete successfully" for a more detailed description
of the risks of our competition.
Proprietary Rights
We protect our technology and proprietary rights through a combination
of copyright, trade secret and trademark law. The mark PETPLANET.COM is a
federally registered trademark in International Class 035 (disseminating,
preparing, and placing advertising for others via on-line computer communication
networks), Registration Number 2263382.
Applications are currently pending for PETPLANET.COM in International
Class 041 (providing information via on-line computer communication networks
featuring animal training, 042 (providing access to an interactive computer
database in the field of pets, pet stories, pet products and activities with
pets) and 035 (providing retail store services available through on-line
computer communication networks featuring products and services for pets and pet
owners), Serial Numbers 75-129,837 and 75-129,836. An opposition to those
applications has been filed and stayed pending settlement negotiations. There is
a strong possibility that settlement will be reached. There is also a
possibility that the opposition will be defeated and the trademark granted if
the registration procedure is simply allowed to run its course. Finally, there
is always the possibility that the registrations may be denied altogether for
totally unforeseen reasons. Therefore, based on the unpredictable actions of the
participants and the uncertainties of the trademark litigation process and
despite any appearance of likely success, we cannot be certain of any potential
outcome.
8
<PAGE>
We have also recently filed an application to federally register the
mark PETSTROLOGY. As that mark was recently filed, we have no further
information on the application at this time.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our proprietary rights. We cannot be certain that the steps we have taken will
prevent misappropriation of our proprietary rights, particularly in foreign
countries where the laws or law enforcement may not protect our proprietary
rights as fully as in the United States.
Government Regulation
Regulation Concerning Privacy
Congress has passed the Children's Online Privacy Protection Act, and
the Federal Trade Commission has issued a Notice of Proposed Rulemaking
regarding the adoption of regulations regarding the collection and use of
personal identifying information obtained from individuals when accessing web
sites, with particular emphasis on access by minors. These regulations may
include requirements that companies establish certain procedures to, among other
things:
o give adequate notice to consumers regarding information collection and
disclosure practices;
o provide consumers with the ability to have personal identifying
information deleted from a company's database;
o provide consumers with access to their personal information and with
the ability to rectify inaccurate information; and
o obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
These regulations may also include enforcement and redress provisions.
While we have a privacy policy designed to enhance the protection of the privacy
of our users, there can be no assurance that these programs will conform with
any regulations adopted by the FTC. Moreover, even in the absence of those
regulations, the FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. One investigation resulted
in a consent decree pursuant to which an Internet company agreed to establish
programs to implement the principles noted above. We may become subject to a
similar investigation, or the FTC's regulatory and enforcement efforts may
adversely affect our ability to collect demographic and personal information
from users, which could have an adverse effect on our ability to provide
effective pet community and content provider s. Any of these developments would
have a material adverse effect on our business, results of operations and
financial condition.
It is also possible that cookies, or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, which are used to track
demographic information and to target advertising, may become subject to laws
limiting or prohibiting their use. A number of Internet commentators, advocates
and governmental bodies in the United States and other countries have urged the
passage of laws limiting or abolishing the use of cookies. Limitations on or
elimination of our use of cookies could limit the effectiveness of our pet
community and content provider s, which could have a material adverse effect on
our business, results of operations and financial condition.
Regulation of the Internet
We are currently subject to federal and state laws and regulations that
are applicable to specific activities on the Internet. Although there are
currently few laws or regulations directly governing access to or commerce on
the Internet, due to the increasing popularity and use of the Internet, a number
of laws and regulations may be adopted
9
<PAGE>
regarding user privacy, pricing, acceptable content, taxation and quality of
products and services. In addition, the government has been requested to
regulate and impose fees on Internet service providers and online service
providers in a manner similar to long distance telephone carriers. This
regulation may place our activities under increased regulation, increase our
cost of doing business, decrease the growth in Internet use or otherwise have a
material adverse effect on our business. See "Certain Considerations--Laws and
regulations pertaining to the Internet may adversely affect our business."
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,
qualifications to do business and export or import matters. The vast majority of
these laws were adopted prior to the Internet. As a result, they do not
contemplate or address the unique issues of the Internet and related
technologies. Changes in the laws intended to address these issues 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 the regulations applicable to businesses generally, we
are regulated by federal, state or local governmental agencies with respect to
the shipment of pet food, pet products and advise related to animal care. 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
could 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.
Employees
The Company currently has 18 employees. The Company plans to grow
aggressively as additional financing is secured. The Company intends to double
in the number of employees over the next 12 months to support its growth.
Management believes these resources will be necessary to execute on the business
initiatives scheduled for the following months and as a result of higher
business volumes
Certain Considerations
This Form 10-KSB, other documents of the Company and statements made by
members of management of the Company, in each case, may contain forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in such forward-looking
statements. Factors that might cause such a difference include the following:
Considerations Relating to our Business
Overall Business Risk
There can be no assurance that the Company's business activities will result in
any profits in the future. The Company is currently not profitable and it is
anticipated that the Company will continue to incur losses for an indeterminate
period of time. The Company's future operating results will depend on many other
uncertainties and related risks, including, but not limited to:
o The overall growth rate for the pet market in which we compete;
o The level of market acceptance of, and demand for, the pet products and pet
services we offer on our site;
o The level of product and price competition we encounter in the market;
o Our ability to establish strategic marketing relationships, develop and
market new and enhanced products, and control costs;
o Our ability to build a sales force and distribution channels;
o Our ability to develop and maintain awareness of our brands;
o Our ability to attract, train, and retain key personnel;
o The lack of growth or decline in Internet usage or the lack of acceptance
of commerce conducted via the Internet;
o A decline in the confidence of retailers in sourcing products over the
Internet because of inadequate development of the necessary infrastructure
or as a result of fraud, or any other cause;
10
<PAGE>
o Intense competition and increasing consolidation in the pet industry
creating stronger competitors and harming or eliminating the need or demand
for our products and services;
o Our failure to develop or introduce new products, services and enhancements
in a timely manner in response to changing market conditions, customer
requirements or any other reasons;
o Market price fluctuations based on the unpredictability of the Company's
quarterly operating results or any other reason;
o The development of international operations creating additional and
unforeseen risks.
We may not be able to successfully address these and other unforeseen risks.
Many of the aforementioned risks are set forth in more detail below.
Limited Operating History.
We launched our site in the first quarter of 1999 with e-commerce
introduced in September 1999. As such we are still in the early stages of
operation. The operations of the Company are subject to all the risks inherent
in an immature business enterprise, including the absence of an extensive
operating history.
Accumulated Deficit and Operating Losses; Anticipated Continuing Losses.
The Company had an accumulated deficit at October 31, 1999 of
approximately $5.8 million. The Company incurred operating losses of $ $6.3
million for the seven months ended October 31, 1999 and the Company anticipates
that it will incur additional losses in the foreseeable future as it implements
its business strategy.
We Need Significant Additional Capital For Our Growth.
Significant capital will be required to develop the Company's site, secure
online distribution, generate brand identity and complete domestic and
international acquisitions. We expect to incur significant losses in the first
several years of operation as it invests heavily in acquisition of market share.
Spending will concentrate primarily in building the brand through aggressive
marketing, taking advantage of newer technologies to enhance the network, and
building an adequate level of infrastructure to sustain the growth in the
business. We will also stress the formation of strategic acquisitions. The
Company will require significant additional financing and/or strategic alliances
with a well-funded development partner or partners to complete its business
plan. The Company has no current arrangements with respect to, or sources of,
additional financing, and there can be no assurance that additional financing
will be available to the Company on acceptable terms, if at all. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
We Have Not Been Profitable And May Not Become Profitable, In Which Event Our
Business And Stock Price Would Be Adversely Affected.
To date, we have not been profitable. We may never be profitable, or, if
we become profitable, we may be unable to sustain profitability. We expect to
continue to incur losses for the foreseeable future because we expect to
continue to spend significant resources to expand our business. Although we have
experienced minor revenue growth in the last quarter due to the launch of the
Pet Store, that growth rate may not be sustainable or indicative of future
growth and is otherwise insufficient to sustain further growth. For us to make a
profit, our revenues will need to increase sufficiently to cover our costs and
expenses.
Viability of Company as Going Concern.
In event that we are unable to generate a sufficient amount of funds to
meet capital and operational requirements, we may be unable to continue as a
going concern.
Reliance on Third Parties
One of our present strategies is to seek collaborative partners, mainly
retailers, for the purpose of developing the Local Pet Business Network and
other business-to-business collaborative relationships. Such collaborative
arrangements, if entered into, may provide us with additional revenues. There
can be no assurance, however, that
11
<PAGE>
we will be successful in attracting, developing and maintaining relationships
with these third parties at a level or to a degree sufficient to create revenue
or make the relationships at all profitable for the Company.
Our Quarterly Operating Results May Fluctuate, Which May Cause The Price Of Our
Common Stock To Decrease.
We expect our operating results to vary significantly from quarter to
quarter due to many factors discussed herein and many unforeseen factors, some
or all of which are beyond our control. It is possible that in future periods
our results of operations will be below the expectations of public market
analysts and investors. In this event, the price of our common stock would
likely decrease. You should not rely on quarter-to-quarter comparisons of our
results of operations as an indication of future performance.
The rapidly evolving market in which we operate and potential seasonal
fluctuations in pet community spending, in particular, and Internet use, in
general, make it difficult to forecast our revenues accurately. Our operating
expenses are based on our expectations of future revenues and are relatively
fixed in the short term. Accordingly, we may not be able to adjust our spending
in a timely manner to compensate for any unexpected revenue shortfall. If we
have a shortfall in revenues in relation to our expenses, or if our expenses
precede expected revenues, then our results of operations and financial
condition would be materially adversely affected.
If We Are Unable To Attract Visitors To Petplanet.Com, Our Business, Results Of
Operations And Financial Condition Would Be Materially Adversely Affected.
Our future success depends upon our ability to continue to attract and retain
visitors interested in the community and content we offer. Although it is
unlikely that our visitors will lose interest in their pets, it is possible that
other avenues of expression of that interest will become available to businesses
and consumers in our target market.
If We Are Unsuccessful In Broadening Our Product Offerings, Our Revenue Growth
Will Be Limited.
To date, substantially all of our revenues have been derived from sales at our
Pet Store. Our growth is largely dependent upon our ability to leverage this
expertise to become a full-service Internet pet community and content provider
and significantly expand our revenue resources. In the event that we are unable
to successfully implement our growth strategy and to avail the company of
existing and potential revenue sources, our business, results of operations and
financial condition would be materially adversely affected.
We Face Significant Competition, And We May Not Be Able To Compete Successfully.
The market for Internet pet community and content services is intensely
competitive. We expect competition in our market to continue to intensify as a
result of increasing market size, greater visibility of the market opportunity
for Internet pet community and content services and minimal barriers to entry.
Industry consolidation may also increase competition. We compete with many types
of companies, including both online and offline pet industry companies, large
Internet publishers, and search engine and other Internet portal companies. Many
of our existing competitors, as well as a number of potential new competitors,
have longer operating histories, greater name recognition, larger client bases
and significantly greater financial, technical and marketing resources than we
do. This may allow them to compete more effectively and be more responsive to
industry and technological change than us. In addition, no assurances can be
given that competition from a new source or entity could not choose to enter
this industry. Such entry could have a substantial impact on the future success
and viability of the Corporation. In addition, no assurances can be given that
competition from a new source or entity could not choose to enter this industry.
Such entry could have a substantial impact on the future success and viability
of the Corporation. In either case, we may not be able to compete successfully
and competitive pressures may reduce our revenues and result in increased losses
or reduced profits.
Volatility of Share Price.
Although we intend to apply for listing on the NASDAQ National Market or
Small Cap Market once we raise additional equity capital, if the common stock is
listed, there can be no assurance as to the ability of any market to sustain the
offering price. Furthermore, the trading price of the common stock is likely to
be highly volatile and could be subject to wide fluctuations in response to
factors such as actual or anticipated variation in our quarterly
12
<PAGE>
operation results, announcement of technological innovations, or new services or
our competitors, changes in financial estimates by securities analysts,
conditions or trends in the Internet and online commerce industries, changes in
the market valuations of other Internet or online service companies,
announcements by us our competitors of significant acquisitions, strategic
relationships, joint ventures or capital commitments, additions or departures of
key personnel, sales of common stock or other securities in the open market and
other events or factors, many of which are beyond our control. Further, the
stock markets in general, and the NASDAQ National Market and the market for
Internet-related companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of such companies. The trading prices of many technology
companies' stocks are at or near historical highs and reflect valuations
substantially above historic levels. There can be no assurance that these
trading prices and valuations will be sustained. These broad market and industry
factors may materially and adversely affect the market price of our stock,
regardless of our operating performance. Market fluctuations, as well as general
political and economic conditions such as recession or interest rate or currency
rate fluctuations, may also adversely affect the market price of a company's
securities. Securities class-action litigation has often been instituted against
companies as a result of such market fluctuations. Such litigation, if
instituted, could result in substantial costs and a diversion of management's
attention to and resources, which would have a material adverse effect on our
business, results of operations and financial condition.
Our Brand May Not Achieve The Recognition Necessary To Increase Our Membership
Base And Attract Clients And Partners.
To be successful, we must continue to build our brand identity. We believe that
the importance of brand recognition will increase as more companies enter our
market. We may not be successful in our marketing efforts or in increasing our
brand awareness.
Our Failure To Manage Our Growth Effectively Could Adversely Affect Our
Business.
In order to be successful in implementation of our business plan, we must grow
significantly. Our anticipated future growth will likely place a significant
strain on our management resources and systems. To manage our growth
effectively, we will need to continue to improve our operational, financial and
managerial controls and reporting systems and procedures, and we will need to
continue to expand, train and manage our workforce. If we do not manage our
growth effectively, our business, results of operations and financial condition
would be materially adversely affected.
Our Business May Suffer If We Are Unable To Retain Key Personnel.
The success of the Company is substantially dependent on the efforts and
abilities of its founder, Chairman and Chief Executive Officer, Steven E.
Marder, its co-founder, Executive Vice President of Marketing, Kim Marder, Vice
President of Operations, Jeff Harris, Vice President of Online Development, Phil
Schein, Vice President of Advertising and Promotion, Rick Ferber and Vice
President of Product Management, Mark Brown. Many of our executive officers have
only been employed by us for a short time. Decisions concerning the Company's
business and its management are and will continue to be made or significantly
influenced by these individuals. We do not currently have "key person" life
insurance policies on any of our employees. Competition for senior management is
intense, and we may not be successful in attracting and retaining key personnel.
Were any of these people to leave the employ of the Company, the loss or
interruption of their continued services would have a materially adverse effect
on the Company's business operations and prospects.
The Inability To Protect Our Intellectual Property Rights, And Any Infringement
On The Intellectual Property Rights Of Others, Could Adversely Affect Our
Business And Financial Condition.
Third parties may infringe or misappropriate our patents, trademarks or other
intellectual property rights, which could have a material adverse effect on our
business, results of operations or financial condition. The actions we take to
protect our trademarks and other proprietary rights may not be adequate. In
addition, the validity, enforceability and scope of protection of proprietary
rights in Internet-related industries are uncertain and still evolving.
There is currently an opposition pending to the federal registration of the
trademark "PETPLANET.COM," although
13
<PAGE>
the parties have reached a tentative settlement agreement. See "PROPRIETARY
RIGHTS." Such litigation, whether successful or unsuccessful, could result in
substantial costs, diversions of resources, either of which could have a
material adverse effect on the Company's business, financial condition, and
operating results.
Third parties may assert infringement claims against us. Any claims and any
result litigation, should they occur, could subject us to significant liability
for damages. In addition, even if we prevail, litigation could be time-consuming
and expensive to defend, and could result in the diversion of our time and
attention. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are
able to enter into contractual arrangements with the third parties making these
claims, which arrangements may not be available on commercially reasonable
terms.
Management of Potential Growth.
Our ability to manage our future growth, if any, will require us to
continue to implement and improve our operations, financial and management
information systems and control, hire and train new employees, including
management, marketing and technical personnel, and also to motivate and manage
new employees and to integrate them into our overall operations and culture.
There can be assurance that we will be able to perform such actions
successfully. Our failure to manage growth effectively will have a material
adverse effect on our operations and our ability to execute our business
strategy.
Any Acquisitions That We Make May Not Be Successful.
We have no experience in making acquisitions. If we make an acquisition,
we could have difficulty in assimilating the acquired company's personnel and
operations. In addition, the key personnel of the acquired business may not
continue to work for us. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations. In addition, effecting acquisitions could
require use of a significant portion of our available cash or force us to incur
additional debt. Alternatively, we may have to issue equity or equity-linked
securities to pay for future acquisitions and any of these issuances could be
dilutive to existing and future stockholders. Any indebtedness incurred to pay
for acquisitions may contain covenants that limit our operations or our ability
to pay dividends.
We Are Controlled By Our Current Stockholders, Officers and Directors.
Management and affiliates of the Company currently beneficially own
(including shares they have the right to acquire whether or not currently
vested) approximately sixy-nine percent (69%) of the outstanding Common Stock.
These persons are and will continue to be able to exercise control over the
election of the Company's directors and the appointment of officers, increase
the authorized capital, dissolve, merge or engage the Company in other
fundamental corporate transactions. Messrs. Steven Marder, Kim Marder and Jeff
Harris all have standard change of control provisions in the employment
agreements whereby all options held under the Company's 1999 Stock Option Plan
shall become immediately vested upon a the closing date of the applicable
transaction constituting a change in control. Such provisions may have the
effect of discouraging, delaying or preventing a change in control of the
Company.
There Is A Limited Public Market For Our Common Stock.
There has been a limited public market for the Common Stock. Although the
Common Stock has been approved for inclusion on the OTC Bulletin Board, it has
been thinly traded, and there can be no assurance that a more fluid trading
market for the securities will develop or that, if developed, it will be
sustained. The OTC Bulletin Board is an unorganized, inter-dealer,
over-the-counter market which provides significantly less liquidity than the
NASDAQ Stock Market, and quotes for stocks included on the OTC Bulletin Board
are not listed in the financial sections of newspapers as are those for the
NASDAQ Stock Market. Therefore, prices for securities traded solely on the OTC
Bulletin Board may be difficult to obtain and purchasers of the Common Stock may
have difficulty reselling shares. See "Possible Adverse Effect of "Penny Stock"
Rules in Liquidity for the Company's Securities."
Outstanding Options And Warrants May Dilute Ownership.
The Company has reserved up to 3,000,000 shares of its Common Stock for
issuance upon exercise of stock options and warrants. Of the reserved shares,
options to purchase a total of 2,709,300 shares have been issued, of which
approximately twenty percent (20%) are vested, at a weighted average exercise
price of $0.39.
14
<PAGE>
Exercise of these registration rights could involve a substantial expense
to the Company and could prove a hindrance to future financings. Exercise of the
outstanding warrants and stock options, and those which may be granted under the
Stock Option Plan (collectively, the "Convertible Securities"), will reduce the
percentage of Common Stock held by the public stockholders. Further, the terms
on which the Company could obtain additional capital during the life of the
Convertible Securities may be adversely affected, and it should be expected that
the holders of the Convertible Securities would exercise them at a time when the
Company would be able to obtain equity capital on terms more favorable than
those provided for by such Convertible Securities.
A number of holders of convertible notes and warrants to purchase stock
have piggy-back registration rights compelling the Company to include their
restricted shares in any underwritten public offering of restricted shares of
the Company's common stock. A limited number of those holders have demand
registration rights as part of their convertible notes and warrants to purchase
stock providing those holder the option to force the Company to make such a
filing within a six (6) month period or upon a public offering, whichever event
occurs first.
Possible Resales Of Common Stock Under Rule 144 May Adversely Affect The Market
Price.
Of the 9,396,177 shares of Common Stock held by the Company's present
stockholders, only 1,600,000 are unrestricted shares, trading on the
Over-the-Counter Bulletin Board market. The remainder of the 9,396,177 shares of
Common Stock have not been registered under the Securities Act of 1933, as
amended (the "Act"), were issued in a private placement and are subject to a
restrictive legend. Under certain circumstances, the unregistered shares may be
available for public sale by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Act, subject to certain
limitations.
"Penny Stock" Rules May Adversely Affect Liquidity for the Company's Securities.
Commission regulations define a "penny stock" to be any equity security
that is not traded on a national securities exchange or NASDAQ and that has a
market price (as therein defined) of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require delivery prior to any transaction in a penny stock, of a
disclosure schedule prepared in accordance with Commission rules relating to the
penny stock market. Disclosure is also required to be made about commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
If the Company's Common Stock trades on the OTC Bulletin Board at less
than $5.00 per share, the Company's securities may become subject to Rule 15g-9
under the Exchange Act that imposes additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally, such investors have assets in
excess of $1,000,000 or an individual annual income exceeding $200,000, or,
together with the investor's spouse, a joint income of $300,000). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require, among other things, the delivery, prior to the transaction, of a
risk disclosure document mandated by the Commission relating to the penny stock
market and the risks associated therewith. The broker-dealer must also disclose
the commission payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the broker-dealer
is the sole market-maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. Consequently,
such rule may adversely affect the ability of broker-dealers to sell the
Company's securities and may adversely affect the ability of purchasers in this
offering to sell in the secondary market any of the securities acquired hereby.
There can be no assurance that the Company's securities will continue to qualify
for exemption from these restrictions. In such event, the regulations on penny
stocks could limit the ability of broker-dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities to
sell their securities in the secondary market.
Limitation on Directors' Liabilities under Delaware Law.
Pursuant to the Company's Certificate of Incorporation and under
Delaware law, directors of the Company
15
<PAGE>
are not liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty, except for liability in connection with a breach of
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Delaware law or any transaction in which a
director has derived an improper personal benefit.
Indemnification of Directors under Delaware Law.
Pursuant to both the Company's Certificate of Incorporation and
Delaware law, the Company's officers and directors are indemnified by the
Company for monetary damages for breach of fiduciary duty, except for liability
which arises in connection with (i) a breach of duty or loyalty, (ii) acts or
omissions not made in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for dividend payments or stock repurchases
illegal under Delaware law, or (iv) any transaction in which the officer or
director derived an improper personal benefit. The Company's Certificate of
Incorporation does not have any effect on the availability of equitable remedies
(such as an injunction or rescissions) for breach of fiduciary duty. However, as
a practical matter, equitable remedies may not be available in particular
circumstances
Considerations Relating to the Internet
In addition to business specific considerations, various risks to our
business exist because we are Internet based. These risks include, but are not
limited to the following:
o our growth will depend on the growth of Internet usage;
o we may be unable to respond to technological change effectively;
o the failure of our computer or communications systems may adversely
affect our business;
o we depend on the continued viability of the Internet infrastructure;
and
o laws and regulations pertaining to the Internet may adversely affect
our business.
ITEM 2. PROPERTIES
The Company's executive offices are located at 21 Stillman Street,
Suite 600, San Francisco, California. The facility, constituting approximately
2,000 square feet and is occupied under a lease expiring May of 2000, providing
for monthly rent payments of under $4,000. The Company also operates a satellite
office in New York City at 26 Broadway in Manhattan. The office is approximately
1,500 square feet and occupied under a 3-year lease expiring in 2002, providing
escalating monthly payments over the three-year period. First year monthly are
slightly under $3,000. Upon securing additional funding, the Company anticipates
moving to larger space in the San Francisco area in the coming year to
accommodate growth in staff.
ITEM 3. LEGAL PROCEEDINGS
We currently have trademark applications pending for PETPLANET.COM in
International Class 041 (providing information via on-line computer
communication networks featuring animal training), 042 (providing access to an
interactive computer database in the field of pets, pet stories, pet products
and activities with pets) and 035 (providing retail store services available
through on-line computer communication networks featuring products and services
for pets and pet owners), Serial Numbers 75-129,837 and 75-129,836. An
opposition to those applications has been filed and stayed pending settlement
negotiations with the opposer. There is a strong possibility that settlement
will be reached. There is also a possibility that the opposition will be
defeated (as a result of the recently filed motion to dismiss or otherwise) and
the trademark granted if the registration procedure is simply allowed to run its
course. Finally, there is always the possibility that the registration may be
denied altogether for totally unforeseen reasons. Therefore, based on the
unpredictable actions of the participants and the uncertainties of the trademark
litigation process and despite any appearance of likely success, we cannot be
certain of any potential outcome.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to a vote of security holders, though the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED
SECURITYHOLDER MATTERS
(a) Market Information. Since July 1999 the Company's Common Stock has
traded in the over-the-counter market on the National Association of Securities
Dealers, Inc. OTC Bulletin Board System ("OTCBB") under the symbol "EPET". The
following table sets forth the range of high and low closing bid quotations of
the Common Stock as reported by the OTCBB for each fiscal quarter for the past
two fiscal years or such shorter period that there has been a public trading
market. High and low bid quotations represent prices between dealers without
adjustment for retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
FISCAL QUARTER Bid Prices
----------
High Low
---- ---
FISCAL 1999
Third Quarter (July 27, 1999 through July 31, 1999) 7.75 6.50
Fourth Quarter (August 1, 1999 through October 31, 1999) 8.19 4.00
FISCAL 2000
First Quarter (November 1, 1999 through January 31, 2000) 6.69 3.94
The closing bid price of the Company's Common Stock as reported by the
OTCBB was $6.25 on February 9, 2000.
(b) Holders. As of the close of business on January 31, 2000, there were
approximately 531 record holders of our Common Stock.
(c) Dividends. The Company has never declared or paid a dividend on its
Common Stock, and management expects that all or a substantial portion of the
Company's future earnings will be retained for expansion or development of the
Company's business. The decision to pay dividends, if any, in the future is
within the discretion of the Board of Directors and will depend upon the
Company's earnings, capital requirements, financial condition and other relevant
factors such as contractual obligations. Management does not anticipate that the
Company will pay dividends on the Common Stock in the foreseeable future.
17
<PAGE>
ITEM 6. 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 filing.
General
PetPlanet.com is a leading online retailer of pet products, integrating
high quality products with a wealth of useful pet-related information for Pet
Parents geared to enrich the experience of both the pet and their parents. To
that end, the site contains hundreds of useful articles on caring for your pet
as well as thousands of products at reasonable prices that can be ordered online
through the site. In addition, the Company has established the Local Pet
Business Network to help local pet retailers and service providers to utilize
the power of the web to supplement their existing brick and mortar based
businesses.
PetPlanet.com, a California corporation that was a party to the
Reorganization, and the predecessor to the "the Company" was founded in October
of1996 and started its initial shipment of product in September of 1999. As a
result, the Company has had a history of recurring losses from operations,
giving rise to an accumulated deficit at October 31, 1999 of approximately $6.3
million. The future growth and profitability of the Company will be principally
dependent upon its ability to successfully implement its growth strategy and
obtain additional financing.
All of our orders are fulfilled from our distribution partner American
AGCO and billed to a customer supplied credit card. Generally, we collect cash
from credit cards in two to five days from the date ordered. If a customer is
not happy with a product, we will offer them to return the product within 30
days for a refund. To -date, our refunds have been minimal.
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Net Sales. Net sales consist of product sales and charges to customers
for outbound shipping and handling and are net of allowance for product returns,
and certain promotional discounts. The Company recognizes product and shipping
revenues when the product is shipped.
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. The Company may continue to expand it existing
promotional offerings which could impact margins negatively in the future.
Marketing and Sales Expenses. Marketing and sales expenses consist
primarily of advertising and promotional expenditures, supplies, payroll and
development costs. We intend to continue to pursue an aggressive branding and
marketing campaign and therefore expect marketing and sales to increase to the
extend our sales volume increases and our funding permits. We intend to continue
expanding our current online marketing program in addition to adding a limited
offline marketing plan. Marketing and sales expenses may also vary considerably
as a percentage of net revenue from quarter to quarter depending on the timing
of our advertising campaign.
Product Development Expenses. Product development expenses consist
primarily of costs for outside developers and consultants for our web site
development including the pet store. Over the coming year, the Company plans to
increase the absolute dollar spending on product development while moving more
of the costs to internal resources versus third party developers. We believe
that continued investment in product development is critical to attaining our
strategic objectives. However, these charges will fluctuate quarter to quarter
based on the timing of the initiatives.
General and Administrative Expenses. General and administrative
expenses consist of payroll and related expenses for administration of all back
office personal including sales and marketing, internal development, operations,
finance, and executive related staff. We expect general and administrative costs
to increase in absolute dollars as we expand the staff and incur additional
costs related to the anticipated growth of the Company.
18
<PAGE>
Amortization of Stock-based Compensation. We have recorded total
stock-based compensation of 1.8 million for the period from April 1, 1999 to
October 31, 1999 in connection with stock options granted to employees,
consultants and others. 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 grants, 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 497,000 for the period from April, 1999 to
October 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 October 31, 1999 that will be
subsequently recognized as expense for each of the next four years is estimated
to be as follows:
YEAR AMOUNT
(000's)
2000 1,191
2001 1,162
2002 1,162
2003 1,162
2004 114
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 October 31, 1999,
we had 3,650,000 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.
Results of Operations
The Company was initially launched in the first half of 1999 and
started selling products on the site in September. We therefore have a limited
operating history on which to evaluate the business. Much of the success of the
business will be depend upon the Company's ability to execute on its business
strategies going forward which are outlined in Item 1 of this document.
Fiscal Year 1999 Compared to Fiscal Year 1998
The Company started actively developing and marketing its website
business in fiscal year 1999. As such, comparisons from the prior fiscal year
are not considered meaningful.
Liquidity and Capital Resources
From its inception, the Company's principal sources of capital have
been provided by operations, private placements of its securities, as well as
loans and capital contributions from the Company's principal stockholders. At
October 31, 1999 the Company had a working capital deficit of approximately
$(2.9 million) as compared to a working capital deficit of $(87,000) at March
31, 1999 representing a net decrease in working capital of approximately $2.9
million.
Trademark Application - We currently have trademark applications
pending for our name "PetPlanet.com". An opposition to those applications has
been filed and stayed pending settlement negotiations with the opposer.
Management believes there is a strong possibility that settlement will be
reached which we allow the Company to continue using our existing name. There is
also a possibility that the opposition will be defeated (as a result of the
recently filed motion to dismiss or otherwise) and the trademark granted if the
registration procedure is simply allowed to run its course. Finally, there is
always the possibility that the registration may be denied altogether for
totally unforeseen reasons. Therefore, based on the unpredictable actions of the
participants and the uncertainties of the trademark litigation process and
despite any appearance of likely success, we cannot be certain of any potential
outcome.
The Company believes that its current cash levels together with
revenues from operations, will be sufficient to satisfy its cash requirements
for the next two months and has substantial doubt about its ability to continue
19
<PAGE>
operations beyond such period without obtaining additional financing and/or
consummating a strategic alliance with a well-funded business partner. No
assurance can be given that future unforeseen events will not adversely affect
the Company's ability to continue operations or to successfully obtain
additional financing, which may not be available on terms acceptable to the
Company, if at all.
Inflation
The Company does not believe that inflation has had a material effect
on its results of operations during the past three fiscal years. There can be no
assurance that the Company's business will not be affected by inflation in the
future.
New Accounting Pronouncements
See Note 1 to the Financial Statements for a discussion of New
Accounting Pronouncements affecting the Company.
ITEM 7. FINANCIAL STATEMENTS
The response to this item is included as a separate section of this
report commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
20
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a) (1)-(3) Identify Directors and Executive Officers.
The following table sets forth: (1) names and ages of all persons who
presently are and who have been selected as directors of the Company;
(2) all positions and offices with the Company held by each such
person; (3) the term or office of each person named as a director; and
(4) any period during which he or she has served as such:
- ---------------------------- -------------------------- ------------------------
Name Position & Office with Age and Director Since
the Company
- ---------------------------- -------------------------- ------------------------
Steven E. Marder President, Chief 38, October 3, 1996 (1)
Executive Officer
- ---------------------------- -------------------------- ------------------------
Kim Marder Vice President of 36, August 7, 1997 (1)
Marketing
- ---------------------------- -------------------------- ------------------------
Jeffrey P. Harris Vice President of 36, May 15, 1999
Operations and Finance
- ---------------------------- -------------------------- ------------------------
The terms for each director will expire at the next annual meeting of
shareholders or at such time as a successor is duly elected. Officers serve at
the discretion of the Board of Directors.
There is one family relationship among the Directors and Officers.
Steven and Kim Marder are husband and wife.
There is no understanding or arrangement between any directors or any
other person or persons pursuant to which such individual was or is to be
selected as a director or nominee of the Company.
21
<PAGE>
The following is certain biographical information concerning the
directors and executive officers of the Company:
Steven Marder is a co-founder of PetPlanet.com, Inc. Mr. Marder is also
an attorney admitted in the States of New York and California. He specializes in
Entertainment and Intellectual Property laws. Prior to joining the Company, Mr.
Marder, was the President and CEO of Marder Media Group, Inc. a privately held
media consulting company and a principal of Double Impact, Inc., a privately
held development company, positions he held since 1996. From 1994 to 1996, Mr.
Marder was director of business development and licensing for Compton's NewMedia
(Tribune Company). Mr. Marder is on the Board of Directors of the New Zealand
based privately held Internet company, Globalbrain.net. He holds a B.A. degree
from Columbia College/Columbia University in New York and a J.D. from St. John's
University School of Law.
Kim Marder is a co-founder of PetPlanet.com, Inc. From 1997 until she
joined the Company, Ms. Marder served as Vice President of Marketing for
WorldPlay Entertainment, a division of America Online (AOL). From 1996 until
1997 Ms. Marder was Vice President of Marketing, for Theatrix Interactive, Inc.,
a privately held software publishing and distribution company. Prior to her
position at Theatrix Interactive, Inc., Ms. Marder was the Executive Director of
Marketing, for Compton's NewMedia (Tribune Company).
Jeffrey P. Harris, a certified public accountant, joined the Company in
1999. From 1996 until he joined the Company, Mr. Harris was employed by Disney
Consumer Products, Inc., first as Sr. Mgr. Business Operations and later as
Director of Finance for Walt Disney Art Classics, a division of Disney Consumer
Products, Inc. Prior to Disney Consumer Products, Mr. Harris was the Director of
Finance, Compton's NewMedia.
22
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for the fiscal year ending 1999 of those persons who were, at
October 31, 1999, (i) the chief executive officer and (ii) the certain other
most highly compensated executive officers (the "named executive officers") of
the Company for the fiscal year ended October 31, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
STOCK COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------
Long Term Compensation
- -------------------------------------------------------------------------------------------------------------
Annual Compensation
Paid 5/15/99-10/31/99 Awards Payouts
- -------------------------------------------------------------------------------------------------------------
Name and Restricted Securities
Principle Salary Stock Underlying LTIP All Other
Position Year (000's) Other Award(s) Options/SAR's Payouts Comp.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven
Marder, CEO 1999 $70,788(1) Stock N/A 700,000 shares N/A N/A
- option of Common
grant of Stock
700,000
shares of
common
stock*
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $13,400 paid to Mr. Marder as an officer of the Company's
subsidiary prior to the Reorganization. See "Item 1 -- Business."
23
<PAGE>
(b) Options/SAR Grants Table. No SARs have been granted.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Option Grants in Last Fiscal Year
- -------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
- -------------------------------------------------------------------------------------------------------------
Name Number of % of Total Exercise or Expiration Date Material Term
Securities Options Granted Base Price
Underlying to Employees in ($/Sh)
Options Granted Fiscal Year
(#)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Steven E. Marder 700,000 29% $4.00 5/15/09 Fully vests
CEO 5/15/03
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Aggregate Option Exercises in Last Fiscal Year and FY-End Option Values
- -------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- -------------------------------------------------------------------------------------------------------------
Name Shares Acquired on Value Realized Number of Value of
Exercise (#) Securities Unexercised
Underlying In-the-Money
Unexercised Options Options at FY-E
at FY-End (#) ($) (FY-E FMV of
stock = $6.31)
- -------------------------------------------------------------------------------------------------------------
Steven E. Marder 0/700,000 0/$1,617,000
- -------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Steven E. Marder entered into an employment agreement with the Company
dated as of April 1, 1999 and providing for an annual base salary of $125,000
for serving as Chairman of the Board and Chief Executive Officer of the Company
on a full-time basis. In addition, Mr. Marder is entitled to receive an annual
bonus of two percent (2%) of the Company's net revenues for the fiscal year as
determined in accordance with the terms of his agreement. The obligation of the
Company to pay the bonus to Mr. Marder for the fiscal year ended March 31, 2000
and 2001 shall be in the discretion of the Board of Directors if the annual net
income of the Company is less than $1,300,000 and $11,000,000, respectively. Mr.
Marder is also entitled to receive an annual dollar bonus equal to five percent
(5%) of the average monthly unique visitor or unique user level for the
Company's network of internet sites during the last six months of each fiscal
year, as determined by an independent internet traffic audit bureau ("Visitor
Average"). The obligation of the Company to pay this bonus to Mr. Marder shall
be in the discretion of the Board of Directors if the Visitor Average is less
than 1,000,000.
Also, in the event that shareholder value ("Shareholder Value" defined
for purposes of this paragraph as the closing stock price on the last day of
each fiscal year) reflects an annual increase in excess of twenty percent (20%)
from the prior fiscal year, Mr. Marder will be entitled to a Shareholder Value
bonus equaling an option to purchase 50,000 shares of the Company's common stock
for each incremental increase of twenty percent (20%) attained, granted at an
exercise price equal to the Shareholder Value) up to a maximum of 500,000 per
year. In the event that the Shareholder Value does not reflect an increase of
twenty percent (20%) or more for the applicable fisal year, Mr. Marder shall not
be entitled to any bonus, otherwise subject to the discretion of the Board of
Directors.
Under the terms of his employment agreement, Mr. Marder was granted
options to purchase 700,000 shares of the Company's common stock with a grant
date of May 15, 1999, in accordance with the terms of the Company's stock option
plan. 175,000 of these options vest on the first annual anniversary of the
agreement and the remaining options vest in equal quarterly installments over
the next following 12 fiscal quarters. In the event of a Change of Control, as
that term is defined in Mr. Marder's employment agreement, the options will vest
immediately. If Mr. Marder's employment is terminated following a Change in
Control, the options will continue to be exercisable for the duration of their
term notwithstanding the termination. Subject to certain limitations, Mr. Marder
will be entitled to a credit of up to three times his aggregate annual
compensation for the calendar year preceding the Change of Controls against the
exercise price of the options.
The agreement has an initial term of two years unless sooner terminated
upon the death, disability or termination for cause of Mr. Marder. The agreement
further provides for severance payments equal to one year's base salary if the
Company and Mr. Marder fail to renew the term of the agreement following the end
of the initial term. The Company has agreed to permit Mr. Marder to participate
in any employee benefit plans established for senior management employees of the
Company and to make payments not in excess of $600 per month on an automobile
for his use.
The Company maintains a broad-based stock option plan. There are
currently 3,000,000 shares authorized for issuance, subject to shareholder
approval. See Notes to Financial Statements for further information.
25
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
(1) (2) (3)
Name and Address of Amount and Percent of
Beneficial Owner Nature of Outstanding
Beneficial Ownership Common Stock
- --------------------------------------------------------------------------------
Steven E. Marder, 5,730,313(1) 60.99%
President and CEO
(address above)
- --------------------------------------------------------------------------------
Kim Marder, 214,718(2) 2.23%
VP Advertising
438 Boynton Ave.
Berkeley, CA 94707
- --------------------------------------------------------------------------------
Saul Kassin, 550,000 5.67%
30 Waterview
Long Branch, NJ
07740
- --------------------------------------------------------------------------------
All Officers, 5,934,805 64.26%
Directors and
Beneficial Owners as
a group (6 persons)
- --------------------------------------------------------------------------------
* Comprises less than one percent of outstanding Common Stock of the Company.
(1) Does not include 214,718 shares beneficially owned by Kim Marder, Mr.
Marder's wife. Includes 280,000 shares beneficially owned by Mr. Marder
which underly options granted by Mr. Marder to third parties.
(2) Does not include 5,730,313 shares beneficially owned by Steven E. Marder,
Ms. Marder's husband.
26
<PAGE>
(b) Changes in Control
As of the date of this Report, the Company has not entered into any
agreements, the operation of which may at a subsequent date result in a change
of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Steven E. Marder has granted options to acquire an aggregate of 280,000
shares of common stock held by him to third parties. The options were granted by
Mr. Marder [to individual lenders in connection with a loan transaction pursuant
to which the Company borrowed $700,000. The options constitute additional
consideration to the lenders on behalf of the Company. The options bear an
exercise price of $0.10 per share and are exercisable in the following
increments: 100,000 shares in whole or part from and after September 2, 1999,
100,000 shares from and after September 9, 1999 and 80,000 shares from and after
October 27, 1999.
In addition, in connection with the loan transaction, Mr. Marder
obtained an option to acquire 25,000 shares of the Company's common stock from a
third party. Except as set forth in this paragraph, from October 31, 1998 until
February 1, 2000, and except as otherwise enumerated in this Report, no officer,
director or relative or spouse of the foregoing persons or any relative of such
person who has the same home as such person, or is a director or other officer
of any parent or subsidiary of the Registrant or any shareholder known by the
Regisrant to own of record or beneficially more than five percent (5%) of the
Registrant's Common Stock, had a direct or indirect material interest in any
transaction or presently proposed transaction to which the Registrant or any of
its parents or subsidiaries was or is a party.
(c) Parents. Inapplicable.
(d) Transactions with Promoters. Inapplicable.
(e) Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. During the Company's last fiscal year,
Steven and Kim Marder each failed to timely file a report on Form 3 on one
occasion. Each of Mr. & Mrs. Marder failed to timely file reports on Form 4 on
two occasions during the fiscal year, representing a failure to timely file
reports in respect of an aggregate of six transactions.
27
<PAGE>
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
List of Exhibits
The exhibits that are filed with this report or that are incorporated
herein by reference are set forth in the Exhibit Index appearing on page E-1
hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
fiscal 1999
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PETPLANET.COM, INC.
Date: February 12, 2000 By: /s/ Steven E. Marder
-----------------------------
Steven E. Marder, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report is signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
MUST BE SIGNED BY EACH MEMBER OF THE BOARD AND ITS PRINCIPAL EXEC OFFICER, ITS
CONTROLLER OR PRINCIPAL ACCOUNTING OFFICER IF ANY AND ITS PRINCIPAL FINANCIAL
OFFICER
Signatures Title Date
/s/ Steven E. Marder Chairman, President and February 12, 2000
- ------------------------ Chief Executive Officer
Steven E. Marder (Principal Executive Officer)
/s/ Jeffrey P. Harris Chief Financial Officer February 12, 2000
- ------------------------ (Principal Financial Officer)
Jeffrey P. Harris
/s/ Kim Marder Executive Vice President of February 12, 2000
- ------------------------ Marketing and Director
Kim Marder
<PAGE>
<TABLE>
<CAPTION>
Incorporated Documents SEC Exhibit Reference
---------------------- ---------------------
<S> <C> <C>
2.1 Agreement of Reorganization dated May 12, As filed with the Registrant's Current Report on
1999 Form 8-K on June 3, 1999, File No. 000-10576
3.1 Certificate of Incorporation of the As filed with the Registrant's Form 8-K, on May
Registrant, as amended 13, 1999, File No. 2-68701
Filed herewith
3.2 Bylaws of the Registrant
4.1 Standard Form #1 of Convertible Note and
Warrant used for private financing
4.2 Standard Form #2 of Convertible Note and
Warrant used for private financing
4.3 Standard Form Subscription Agreement used
for private financing
4.4 Standard Form Warrant
10.1 Form Employment Agreement
10.2 Shopping Channel Promotional Agreement with
American Online, Inc., dated June 28, 1999
10.3 License Agreement with MapQuest.com, Inc.,
dated August 17, 1999
10.4 Exclusive Distribution and Fulfillment
Agreement with American AGCO, Inc., dated
September 10, 1999
10.5 Representation Agreement with Adsmart
Network, dated December 14, 1999
10.6 Registrant's 1999 Stock Option Plan
10.7 Form of Option Agreement under the 1999
Stock Option Plan
11.1 Computation of earnings per share
27.1 Financial Data Schedule for fiscal year
ended October 31, 1999
</TABLE>
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
FINANCIAL REPORT
OCTOBER 31, 1999
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page 2
------
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets at October 31, 1999 and March 31, 1999 F-3
Statements of Operations for the seven months ended October 31, 1999 and for
years ended March 31, 1999 and 1998 and for the period October 3, 1996,
(Date of Inception), to October 31, 1999
F-4
Statements of Changes in Stockholders' Equity (Deficiency) for the periods from October 3,
1996, (Date of Inception) to October 31, 1999 F-5
Statements of Cash Flows for the seven months ended October 31, 1999 and for
years ended March 31, 1999 and 1998 and for the period October 3, 1996,
(Date of Inception), to October 31, 1999
F-6
Notes to Financial Statements F-7 to 17
</TABLE>
F-1
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Petplanet.com, Inc.
(A Development Stage Company)
We have audited the balance sheets of PetPlanet.com, Inc., a California
Corporation (A Development Stage Company) as of October 31, 1999 and March 31,
1999 and the related statements of operations, changes in stockholders' equity
(deficiency) and cash flows for the seven months ended October 31, 1999, the
years ended March 31, 1999 and 1998 and the period October 3, 1996, (Date of
Inception) to October 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 audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PetPlanet.com, Inc. at October
31, 1999 and March 31, 1999, and the results of its operations and its cash
flows for the seven months ended October 31, 1999, the years ended March 31,
1999 and 1998 and the period October 3, 1996 (Date of Inception) through October
31, 1999 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 of the
financial statements, the Company is a development stage company, has suffered
recurring losses from operations and needs significant additional financing to
continue the development of its product. Resulting operating losses and negative
cash flows from operations are likely to occur until, if ever, profitability can
be achieved through successful marketing of its newly developed media. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WISS & COMPANY, LLP
Livington, New Jersey
February 8, 2000
See accompanying notes to financial statements.
F-2
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
See accompanying notes to financial statements.
BALANCE SHEETS
(In 000's)
<TABLE>
<CAPTION>
October 31, March 31,
1999 1999
----------- ----------
<S> <C> <C>
CURRENT ASSETS -
Cash $ - $ 105
Accounts Receivable 1 -
Inventory 3 -
Prepaid Expenses - -
--------- ---------
Total Current Assets 4 105
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF
$17,000 AT OCTOBER 31, 1999 AND $1,000 AT MARCH 31, 1999 179 5
Other Assets 17 -
-------- ---------
TOTAL ASSETS $ 200 $ 110
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accrued Liabilities $ 1,853 $ 23
Loans/Notes Payable 1,032 174
Current portion of Capital Lease Liability 17 -
--------- ---------
Total Current Liabilities $2,902 $197
NONCURRENT LIABILITIES -
Loans/Notes Payable - Long Term - 53
Capital Lease Liability 31 -
--------- ---------
TOTAL LIABILITIES 2,933 250
COMMITMENTS & CONTINGENCY
STOCKHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, no par:
Authorized -2,000,000 shares at October 31, 1999 - 2,000,00 shares
at March 31, 1999
Issued and outstanding - -0- shares Common stock, no par, $.01 par
value:
Authorized - 20,000,000 shares
Issued and outstanding - 9,104,000 at October 31, 1999,
6,550,000 at March 31, 1999 91 66
Additional paid-in capital 3,628 382
Deficit Accumulated During Development Stage (6,303) (473)
Loans Receivable - Option Exercise (64) -
Deferred Consulting Fees (85) (115)
-------- --------
Total Stockholders' Equity (Deficiency) (2,733) (140)
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY (DEFICIENCY) $ 200 $ 110
======== =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
STATEMENTS OF OPERATIONS
(in 000's)
<TABLE>
<CAPTION>
October 3,
Seven Months 1996 (Date of
Ended Year Ended Year Ended Inception) to
October 31, March 31, March 31, October 31,
1999 1999 1998 1999
-------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 9 $ - $ - $ 9
COST OF GOODS 12 - - 12
---------- -------------- -------------- ----------
GROSS LOSS (3) - - (3)
COSTS AND EXPENSES:
Product Development 1,553 11 - 1,564
Sales and Marketing 1,235 - - 1,235
General and Administrative 1,176 284 144 1,628
Depreciation/Amortization 16 1 - 17
Interest 1,847 7 2 1,856
---------- --------- --------- ----------
5,827 303 146 6,300
---------- --------- --------- ----------
NET LOSS $ (5,830) $ (303) $ (146) $ (6,303)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,739 6,425 1,278 4,360
========== ========= ========= ==========
BASIC AND DILUTED LOSS PER COMMON SHARE $ (.67) $ (.05) $ (.11) $ (1.45)
========== ========= ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(In 000's)
<TABLE>
<CAPTION>
Common Stock Additional Deficit Accumulated
No Par $.01 Paid-in During Development
Shares Stated Value Capital Stage
---------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
OCTOBER 3, 1996 (DATE OF INCEPTION) TO MARCH 31, 1997
Common stock issued in October 1996 1,278 $ 13 $ - $ -
Stockholder services contributed - - 12 -
Net loss - - - (24)
--------- ---------- ---------- ----------
-
BALANCE, MARCH 31, 1997 1,278 13 12 (24)
YEAR ENDED MARCH 31, 1998 -
Stockholder services contributed - - 100 -
Net loss - - - (146)
--------- ---------- ---------- ----------
BALANCE, MARCH 31, 1998 1,278 13 112 (170)
YEAR ENDED MARCH 31, 1999 -
Common stock issued in April 1998 5,112 51 (47) -
Stockholder services contributed - - 100 -
Common stock issued for services in January 1999 160 2 115 -
Options issued for services - - 102 -
Net loss - - - (303)
--------- ---------- ---------- ----------
BALANCE, MARCH 31, 1999 6,550 $ 66 $ 382 $ (473)
========= ========== ========== ===========
PERIOD ENDED October 31, 1999
Effect of merger as described in Note 8 along with 2,250 22 961 -
underlying equity financing in May 1999
Conversion of bridge financing into equity in May 1999 100 1 49 -
Exercise of options by employee in May 1999 at $.29 per 204 2 62 -
share
Issuance of Company options for:
Interest - - 1,763 -
Consulting Services - - 287 -
Vendors - - 53 -
Discount on issuance of convertible debt - - 71 -
Net Loss for period - - - (5,830)
--------- ---------- ---------- ----------
BALANCE OCTOBER 31, 1999 9,104 $ 91 $ 3,628 $ (6,303)
========= ========== ========== ==========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Deferred Stockholders'
Note Consulting Equity
Fees (Deficiency)
----------- -------------- -------------
<S> <C> <C> <C>
OCTOBER 3, 1996 (DATE OF INCEPTION) TO MARCH 31, 1997
Common stock issued in October 1996 $ - $ - 13
Stockholder services contributed - - 12
Net loss - - (24)
-------- -------- ---------
BALANCE, MARCH 31, 1997 - - 1
YEAR ENDED MARCH 31, 1998 -
Stockholder services contributed - - 100
Net loss - - (146)
-------- -------- ---------
BALANCE, MARCH 31, 1998 - - (45)
YEAR ENDED MARCH 31, 1999 -
Common stock issued in April 1998 - - 4
Stockholder services contributed - - 100
Common stock issued for services in January 1999 - (115) 2
Options issued for services - - 102
Net loss - - (303)
-------- -------- ---------
BALANCE, MARCH 31, 1999 $ - $ (115) $ (140)
======== ======== =========
PERIOD ENDED October 31, 1999
Effect of merger as described in Note 8 along with - - 983
underlying equity financing in May 1999
Conversion of bridge financing into equity in May 1999 - - 50
Exercise of options by employee in May 1999 at $.29 per (64) - -
share
Issuance of Company options for:
Interest - - 1,763
Consulting Services - - 287
Vendors - - 53
Discount on issuance of convertible debt - - 71
Net Loss for period - 30 (5,800)
-------- -------- ---------
BALANCE OCTOBER 31, 1999 $ (64) $ (85) $ (2,733)
======== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
STATEMENTS OF CASH FLOWS
(In 000's)
<TABLE>
<CAPTION>
October 3,
Seven Months 1996 (Date of
Ended Year Ended Year Ended Inception) to
October 31, March 31, March 31, October 31,
1999 1999 1998 1999
------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,830) $ (303) $ (146) $ (6,303)
Adjustments to reconcile net income (loss) to net
cash flows from operating activities:
Depreciation 16 1 - 17
Deferred Consulting Fees 30 - - 30
Stockholders services contributed - 100 100 224
Common stock issued for services - 2 - 2
Discount on issuance of convertible debt 71 - - 71
Options issued for interest and services 2,103 102 - 2,205
Changes in operating assets and liabilities
Accounts Receivable (1) - - (1)
Inventory (3) - - (3)
Deposits (17) - - (17)
Accrued liabilities 1,829 27 2 1,858
---------- ---------- --------- ----------
Net cash flows - operating activities (1,802) (71) (44) (1,917)
---------- ---------- --------- ----------
CASH FLOW FROM INVESTING ACTIVITIES -
Purchase of property and equipment (138) (6) - (144)
---------- ---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from issuance of common stock 984 4 - 988
Proceeds of loans payable 855 150 - 1,005
Proceeds of notes from affiliated company - 27 44 71
Capital Lease Liability (4) - - (4)
---------- ----------- --------- -------------
Net cash flows - financing activities 1,835 181 44 2,060
---------- ---------- --------- ----------
NET CHANGE IN CASH (105) 104 - -
CASH, BEGINNING OF PERIOD $ 105 1 1 -
---------- ---------- --------- ----------
CASH, END OF PERIOD $ - $ 105 $ 1 $ -
========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 15 $ - $ - $ 15
========== ========== ========== ===========
Income taxes paid $ - $ - $ - $ -
========== ========== ========== ==========
Property acquired through capital leases $ 52 $ - $ - $ 52
========== ========== ========== ==========
Payment of notes payable with stock $ 50 $ - $ - $ 50
========== ========== ========== ==========
Stock issued for deferred consulting fees $ - $ 115 $ - $ 115
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of the Business - PetPlanet.Com, Inc. (the "Company" or "PPI")
is a development stage company, located in San Francisco, California and was
incorporated under the laws of the State of California in October 1996 (Date of
Inception) (Note 8). On May 15, 1999, the Company consummated a reverse merger
with Techscience Industries., a Delaware Corporation ("TSCI"). As part of this
transaction, TSCI changed its name to PetPlanet.com, Inc.
The Company's core product and brand intends to feature personalized,
national and local information, community driven content, entertainment and
unique products and services. Company revenues are expected to come from
electronic commerce associated with the sale of pet foods and related products,
advertising and sponsorships and other sources.
Fiscal Year - As part of the reverse merger with TSCI, PPI changed its
fiscal year-end from March 31 to October 31.
Financial Instruments - Financial instruments include cash, account's
receivable, and loans and notes payable and accrued expenses. The amounts
reported for financial instruments are considered to be reasonable
approximations of their fair values, based on market and other information
available to management.
Revenue Recognition - Revenues from product sales, net of product
discounts, are recognized upon shipment of the related goods. Outbound shipping
and handling charges fees are included in product sales upon shipment.
Advertising - Advertising costs are expensed as incurred. Advertising
expense was $1.2 million for the seven month period ended October 31, 1999.
Inventory - Inventories are stated at the lower of cost (using the
first-in, first-out method) or market.
Property and Equipment - Property and equipment includes office
furniture, equipment and computer equipment and are stated at cost and are
depreciated using the straight-line method over their estimated useful lives of
3 to 7 years. The Company also has several capital leases that are stated at
their net present value of the underlying lease payments.
Income Taxes - Deferred income taxes result primarily from net
operating losses, and use the cash method for Income Tax Reporting purposes.
F-7
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Risk Concentrations:
(a) Dependence on the Internet - The success of the Company's operations is
contingent upon its ability to attract a market on the Internet. There
can be no assurance that the Company may not be adversely affected by
the matters affecting the Internet.
(b) Cash - The Company maintains its cash balances in financial
institutions which are insured by the Federal Deposit Insurance
Corporation up to $100,000 and are subject to the risk associated with
maintaining cash balances in excess of insured amounts.
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 reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Product Development - Product development expenses consist primarily of
consultant fees for website development, independent contractors and other
website related costs. As the company believes that its website is subject to
continual and substantial change, expenditures relating to product development
are expensed as incurred.
Earnings (Loss) Per Share - Basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Basic
earnings per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted-average number of common and common stock equivalent shares
outstanding during the period. Common equivalent shares are excluded from the
computation if their effect is antidilutive.
Stock compensation - Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation", requires companies
to measure employee stock compensation plans based on the fair value method of
accounting. However, the statement allows the alternative of continued use of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, " with pro forma disclosure of net income and earnings per share
determined as if the fair value based method had been applied in measuring
compensation. The Company has determined it will continue to apply APB Opinion
No. 25 in accounting for its stock options plans.
Reorganization - As a result of the TSCI transaction (Note 8), the
Company's common stockholders received .639 shares of TSCI common stock for each
share of the Company's common stock held. All share and per-share amounts in the
accompanying financial statements have been restated to give effect to this
transaction.
F-8
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - GOING CONCERN:
The Company's financial statements have been presented on the basis
that it is a going concern which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company is a
development stage company and has had a history of losses since its inception in
October 1996.
The Company's continued existence is dependent upon its ability to
achieve profitable operations and obtain additional financing. The following
represents the Company's principal operating and liquidity problems and
management's plans to overcome them.
Operating Trends and Future Prospects - The Company is a development
stage company and has had minimal revenues since its inception. The Company is
currently attempting to develop an Internet market for individuals with an
interest in pets. The future growth and profitability of the Company will be
principally dependent upon its ability to successfully develop and market its
services on the Internet. The Company has not enhanced its identity in this
media to the point where it has been able to generate meaningful revenues. The
Company anticipates that it will incur substantial operating expenses in
connection with this effort and expects these expenses to result in continuing
and significant operating losses until such time, if ever, the Company is able
to achieve adequate revenue levels.
F-9
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Recent Financing Activities - The Company's capital requirements have
been and will continue to be significant. In the past, the Company has financed
its working capital requirements through a private placement consummated on May
15, 1999 and cash flow generated from loans from officers of the Company and
high net-worth individuals. The Company is dependent on obtaining additional
financing to fund its future operations and working capital requirements and
continues to seek to raise additional capital through the sale of common stock
and issuance of loans and other convertible debt. The Company is aggressively
seeking arrangements with respect to, or sources of, additional financing (Note
10). However, there can be no assurance that additional financing will be
available to the Company on acceptable terms, or at all. In view of the
Company's limited resources, its anticipated expenses and the competitive
environment in which the Company operates, any inability to obtain additional
financing would severely limit the Company's ability to enhance its identity on
the Internet.
NOTE 3 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Stated in 000's
October 31, March 31,
----------- ---------
1999 1999
---- ----
Accrued Advertising $ 432 $ -
Accrued Consulting 63 -
Accrued Development Costs 656 -
Accrued Promotional Costs 133 -
Accrued Other 568 23
------ ----
Total Accrued Liabilities $1,852 $ 23
====== ====
NOTE 4 - LOAN PAYABLE:
During October 1999, the Company borrowed $100,000 in the form of a
convertible note bearing interest at 10% per annum through May 2000. The Company
has recorded a finance charge of $21,000 representing the discount on
conversion.
NOTE 5 - RELATED PARTY TRANSACTIONS:
Notes Payable- Officers - During the seven month period ended October
31, 1999, various officers of the company contributed cash to the Company in the
form of convertible notes. The notes were short-term in duration (less than one
year) and carried a 10% per annum interest rate. The total of these notes is
$230,000. The Company has recorded a charge to interest of approximately $49,000
in connection with a conversion discount offered to the officers on the
aforementioned debt.
F-10
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Notes Payable - Stockholders - During September and October, 1999, the
Company borrowed $625,000 from stockholders. The notes were short-term in
duration (less than one year) and carried a 10% per annum interest rate. In
connection with these notes, the President of the Company issued personal stock
options to the creditors for the purchase of his common stock of the Company at
a discounted amount. The Company has recorded a charge to interest of
approximately $1,365,000 in connection with the issuance of these options.
Notes Payable - Affiliated Company - At October 31, 1999 and March 31,
1999, the Company had outstanding notes payable to a company affiliated with the
Company's President. The notes, which approximate $77,000 at both periods, bear
interest at 8% per annum and are due during the year ended October 31, 2000.
Employment Agreement - Vice President, Marketing - In March 1999, the
Company formalized a consulting agreement with a Director, for marketing
services rendered from April 1998. The terms of the agreement called for
compensation of $8,000 per month commencing March 1999 and a ten year option for
255,600 shares issued in March 1999 for services rendered as a consultant for
the period April 1998 to May 1999. Through October 31, 1999, the Company has
recorded compensation of approximately $88,000 for options issued in connection
with services rendered.
Upon completion of the merger with TSCI, this consultant became an
employee earning an annual salary of $110,000 per annum, plus a discretionary
bonus of at least 20% of the base salary per annum. The employment agreement can
be terminated by either party at any time with notice.
NOTE 6 - COMMITMENTS:
Facility Leases - The Company rents office space in San Francisco and
in New York. The office facility agreement in San Francisco is one year in
duration while the New York space is a three year lease. Total rent expense for
the Company's current and prior facilities approximated $33,000, $6,000, $7,000
and $51,000 for the seven months ended October 31, 1999, the year ended March
31, 1999 and 1998 and for the period October 3, 1996, (Date of Inception)
through October 31, 1999, ("the 1999 Cumulative Period"), respectively.
Capital Leases - The Company leases its two facilities under operating
leases expiring in April of 2000 and May of 2002. It also leases office
equipment under capital leases. At October 31, 1999, office equipment under
capital leases approximated $52,000 with accumulated depreciation of $5,000.
The following is a schedule of future minimum rental payments required
for all non-cancelable leases that have initial or remaining lease terms in
excess of one year at October 31, 1999.
F-11
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year Ending October 31, 1999 Capital Leases Included in Operating Leases
Property and Equipment
<S> <C> <C>
2000 $ 26,000 $ 60,000
2001 24,000 44,000
2002 12,000 31,000
-------- --------
62,000 $135,000
========
Less: Amount representing interest 14,000
--------
$ 48,000
Present value of minimum lease payments (Note 4)
Less: Current maturities 17,000
--------
Non-current $ 31,000
========
</TABLE>
Trademark Application - We currently have trademark applications
pending for our name "PetPlanet.com". An opposition to those applications has
been filed and stayed pending settlement negotiations with the opposer.
Management believes there is a strong possibility that settlement will be
reached which we allow the Company to continue using our existing name. There is
also a possibility that the opposition will be defeated (as a result of the
recently filed motion to dismiss or otherwise) and the trademark granted if the
registration procedure is simply allowed to run its course. Finally, there is
always the possibility that the registration may be denied altogether for
totally unforeseen reasons. Therefore, based on the unpredictable actions of the
participants and the uncertainties of the trademark litigation process and
despite any appearance of likely success, we cannot be certain of any potential
outcome.
NOTE 7 - INCOME TAXES:
Deferred income taxes reflect the net effects of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The principal temporary difference
arises from net operating loss carryforwards and the differences resulting from
reporting on the cash basis of accounting for tax reporting purposes. At October
31, 1999, federal and state net operating loss carryforwards approximated
$3,650,000. These carryforwards can be used to offset current and future taxable
income through the year 2019. A valuation allowance is provided when it is more
likely than not that some portion of the deferred tax asset will not be
realized. The Company has determined, based on the Company's prior history of
recurring losses, that a full valuation allowance is appropriate at October 31,
1999.
NOTE 8 - STOCKHOLDERS' EQUITY:
Acquisition Agreement - On May 13, 1999, the Company and the individual
holders of all of the Company's outstanding common stock consummated a reverse
acquisition (the "Reorganization"), with TSCI. Reorganization provided for an
exchange of stock whereby the holders of all of the Company's outstanding common
stock and common stock equivalents exchanged the stock in exchange for 6,754,640
shares of TSCI's common stock, $.01 par value per share and 570,360 TSCI
options, respectively. As part of the Reorganization, TSCI changed its name to
PetPlanet.Com, Inc.
In addition, as part of this agreement, TSCI made a $150,000 bridge
loan to the Company, with interest at 10% per annum, collateralized by 51% of
the Company's common stock. The loan was repaid at the closing by payment of
$100,000 in cash and $50,000 in common stock.
F-12
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Web Site Development Agreement - In April 1999, the Company entered
into an agreement with a technology company, (the "Development Company"), to
design, develop and enhance the computer software and information technology
associated with the Company's commercial web site. In accordance with the
agreement, the Company issued options to the Development Company
for the right to purchase 134,535 shares of the Company's common stock. In
addition, the Company has agreed to make payments based on a series of
milestones for the project, which are expected to approximate $200,000. In
accordance with this agreement, the Company has recorded a charge of
approximately $239,000.
1999 Stock Option Agreement - On March 1, 1999 the Board of Directors
consented to the adoption of the 1999 Stock Option Plan (the "Plan"). The Plan
has reserved 2,000,000 shares of common stock for the issuance of options
("Options") to employees, officers and, under certain circumstances, directors
of and consultants to the Company ("Eligible Participants"). Options granted
under the Plans may be either "incentive stock options" ("ISOs") as defined in
Section 422 of the Internal Revenue Code of 1986, which are eligible to
employees only as amended (the "Code"), or "nonqualified stock options"
("NQSOs") which are eligible for grant to any of the aforementioned parties. The
Plan does not provide for the issuance of stock appreciation rights, restricted
stock awards or deferred stock awards. The Board of Directors has sole
discretion and authority, consistent with the provisions of the Plans, to select
the Eligible Participants to whom Options will be granted under the Plans, the
number of shares which will be covered by each Option and the form and terms of
the agreement to be used. All employees and officers of the Company (except for
members of the Committee) are eligible to participate in the Plans. Directors
are eligible to participate only if they have been declared to be "eligible
directors" by resolution of the Board of Directors.
The Board of Directors is empowered to determine the exercise price of
Options granted under the Plan in accordance with the following:
<TABLE>
<CAPTION>
Type of Grant Exercise or Purchase Price
------------- --------------------------
<S> <C>
ISO's or NQSO's issued to 10% or At least 110% of the fair market value per
more shareholder of common stock share on the date of grant.
in the Company
ISO's issued to a less than 10% shareholder of common At least the fair market value per share on the
stock in the Company date of grant.
NQSO's issued to a less than 10% shareholder of common At least 85% of the fair market value on the
stock in the Company date of grant.
</TABLE>
F-13
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Type of Grant Exercise or Purchase Price
------------- ---------------------------
<S> <C>
Shares issued to 10% or more shareholder of common stock At least the fair market value per share on the
in the Company date of grant.
Shares issued to a less than 10% At least 85% of the fair market value
on the Shareholder of common stock in the Company date of grant.
Other awards To be determined by the Board of Directors or
other administrator
</TABLE>
The Board of Directors has the authority to determine the time or times
at which Options granted under the Plans become exercisable, but Options expire
no later than ten years from the date of grant (five years with respect to
Optionees who own at least 10% of the outstanding common stock of the Company).
Options are nontransferable, other than by will and the laws of descent, and
generally may be exercised only by an employee while employed by the Company or
within 90 days after termination of employment (one year from termination
resulting from death or disability).
No incentive stock option may be granted to an Employee if, as the
result of such grant, the aggregate fair market value (determined at the time
each option was granted) of the shares with respect to which incentive stock
options are exercisable for the first time by such Employee during any calendar
year (under all such plans of the Company and any parent and subsidiary) exceeds
$100,000. The Plan does not confer upon any Employee any right with respect to
the continuation of employment by the Company, nor do the Plans interfere in any
way with the Employee's right or the Company's right to terminate the Employee's
employment at any time.
F-14
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Information on option activity for the seven months ended October 31,
1999 and the year is as follows:
<TABLE>
<CAPTION>
October 31, 1999 March 31, 1999
---------------- --------------
Weighted Weighted
Shares Under Average Shares Under Average
Option Exercise Price Option Exercise Price
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE - BEGINNING OF PERIOD 624,300 $ .39 - $ -
Options granted:
To officers/directors(c) (c)1,693,000 4.14 (a)255,600 .31
To others(d) (d) 452,000 3.20 (b)368,700 .44
---------- ------- -------- ------
Total grants 2,145,000 3.94 624,300 .39
---------- ------- -------- ------
BALANCE - END OF PERIOD 2,769,300 $ 3.14 624,300 $ .39
========== ======== ======== ======
</TABLE>
(a) Consists of nonqualified options issued to VP of Marketing for 255,600
shares of the Company's stock at a weighted average fair value of $.43 per
option.
(b) Consists of nonqualified options having a weighted Average fair value per
option was $.25.
(c) Weighted Average fair value per option was $2.42.
(d) Weighted Average fair value per option was $2.58.
The Company utilized the value of services provided by the grantees as
a benchmark for valuing the options granted during the year end March 31, 1999.
The Company uses the intrinsic value method of accounting to measure
compensation expense for options issued to employees. If the fair value method
had been used to measure compensation expense, net loss would have increased by
approximately $4,990,000 or $.57 per share for the period ended October 31, 1999
to $11,369,000. For the seven months ended October 31, 1999, the fair value of
options granted were estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions, respectively:
risk free interest rate of 6%, dividend yield of 0.0%, volatility factors of
the expected market price of the Company's common stock of 67% and a weighted
average life of the options ranging up to four years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of trade options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require stock is not traded
publicly, the employee stock options have characteristics significantly
different from those of normal publicly traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
F-15
<PAGE>
Consulting Agreement - Financing Facilitator - In January 1999, the
Company entered into a one-year agreement with a consultant to facilitate and
evaluate potential financing opportunities for the Company. The consultant's
responsibilities included securing $600,000 to $1,000,000 bridge financing for
the Company and securing at least an additional $3,000,000 in financing through
a private placement.
The consultant shall be entitled to a 2% cash commission based on the
value of the financing obtained, 20,000 shares of common stock vesting over the
first 90 days of the agreement, the lesser of 60,000 shares or one share for
each $10 of bridge financing obtained for the Company and additional shares
based on private placement proceeds, other than bridge financing, ranging from
30,000 shares for $500,000 of private placement proceeds to 170,000 shares for
proceeds in excess of $4,000,000.
The agreement can be terminated by either party at any time with
notice.
Warrant Note - During the period ended October 31, 1999, the Company
issued 436,488 warrants to various entities for services rendered. Accordingly,
the Company has recorded a charge to operations of $497,000 in connection with
these warrants.
NOTE 9 - PROFORMA COMPARISON
The following unaudited information represents the unaudited operations
of PetPlanet.com (A California Corporation) for the seven months ended October
31, 1998 and been presented for comparative purposes:
Dollars in Thousands
Except Loss per Share
Operating Revenues $ -
Costs and Expenses 20
-------------
Net Loss 20
------------
Basic and Diluted Loss Per Share $ (.01)
------------
NOTE 10 - SUBSEQUENT EVENTS:
Funding Activities - In November, December and January, the Company
borrowed $1,635,000 under various 10% and 12% interest bearing non-negotiable
convertible notes. The due dates for these notes range from May 1, 2000 to
January 24, 2001. The holders of these notes have the right to purchase shares
of the Company's common stock from $2.00 to $5.00 of each principle amount
outstanding. Under certain circumstances, the holders of these notes could be
required to convert the notes into common shares of the Company.
In December, 1999, the Company issued 250,000 shares of its common
stock for a purchase price of $500,000 to an unrelated investor.
In November, 1999, the Company borrowed under a 10% interest bearing
note payable $125,000 due in six months. In conjunction with this note, the
Company's chief executive officer sold to the note holder, at a price
significantly discounted to the market price at that time, 50,000 shares of the
Company's common stock. The note holder gave the chief executive officer an
option to purchase 25,000 shares of the Company's common stock at $5.00 per
share.
F-16
<PAGE>
PETPLANET.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS - NEW ACCOUNTING PRONOUNCEMENTS:
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, Reporting on The Costs of Start-Up Activities. SOP 98-5 is
effective for the Company's fiscal year ending March 31, 2000. SOP 98-5 requires
costs of start-up activities and organization costs to be expensed as incurred.
In addition to the aforementioned pronouncements, SFAS 133, Accounting
for Derivative Instruments and Hedging Activities was issued in June 1998 for
years ending after June 15, 1998.
The Company does not expect that any of the aforementioned
pronouncements will have a significant effect on its financial statements.
F-17
<PAGE>
Exhibit 3.2
BY - LAWS
OF
TECHSCIENCE INDUSTRIES, INC.
(A Delaware Corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation certifying the number of shares owned by him in the corporation. Any
and all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date Of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation way issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors may require the owner of any lost, stolen,
or destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation 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 any such new certificate.
<PAGE>
2. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered or bearer form which
shall entitle the holder to receive a certificate for a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to receive
dividends thereon, and to participate in any of the assets of the corporation in
the event of liquidation. The Board of Directors may cause scrip or warrants to
be issued subject to the conditions that they shall become void : if not
exchanged for certificates representing full shares before a specified date, or
subject to the conditions that the shares for which scrip or warrants are
exchangeable may be sold by the corporation and the proceeds thereof distributed
to the holders of scrip or warrants, or subject to any other conditions which
the Board of Directors may impose.
3. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the 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 directors may fix, in advance, a record date, which
shall not be more than sixty days nor less than ten days before the date of such
-2-
<PAGE>
meeting, nor more than sixty days prior to any other action. If no record date
is fixed, 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; the record date for determining stockholders entitled to express consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is expressed; and 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 any 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.
5. MEANING OF CERTAIN TERM. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such right
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation.
6. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
-3-
<PAGE>
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OF WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall, (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. 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.
-4-
<PAGE>
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the Chairman of the meeting shall appoint a
secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
-5-
<PAGE>
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question or matter determined by him or them and execute a
certificate of any fact found by him or them.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to one
vote. In the election of directors, a plurality of the votes cast shall elect.
Any other action shall be authorized by a majority of the votes cast except
where the General Corporation Law prescribes a different percentage of votes
and/or a different exercise of voting power, and except as may be otherwise
prescribed by the provisions of the certificate of incorporation and these
By-Laws. In the election of directors, and for any other action, voting need
not be by ballot.
-6-
<PAGE>
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of not less than three persons.
Thereafter the number of directors constituting the whole board shall be at
least one. Subject to the foregoing limitation and except for the first Board of
Directors, such number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed, the number
shall be three. The number of directors may be increased or decreased by action
of the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named In the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
-7-
<PAGE>
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. In the
interim between annual meetings of stockholders or of special meetings of
stockholders called for the election of directors and/or for the removal of one
or more directors and for the filling of any vacancy in that connection, newly
created directorships and any vacancies in the Board of Directors, including
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office although less than a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meeting for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the tire stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
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 need be specified in are
written waiver of notice.
-8-
<PAGE>
- QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the director in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these By-Laws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise provided by the General
Corporation Law, 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 at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees the member or members thereof present at any meeting and no
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
-9-
<PAGE>
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine, except that no person may hold the
offices of President and Secretary simultaneously.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
-10-
<PAGE>
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BY-LAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter or repeal
these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true and correct copy of
the By-Laws of TECHSCIENCE INDUSTRIES, INC., a Delaware corporation, as in
effect on the date hereof.
WITNESS my hand and the seal of the corporation.
Dated: November 29, 1978
/s/ xxxxxxxxxx
----------------------------------
Secretary of
TECHSCIENCE INDUSTRIES, INC.
-11-
(SEAL)
<PAGE>
Exhibit 4.1
THIS NOTE HAS NOT BEEN, AND THE COMMON STOCK TO BE ISSUED UPON CONVERSION HEREOF
WILL NOT, UPON THE ISSUANCE THEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER STATE SECURITIES LAWS AND MAY NOT BE
SOLD, PLEDGED, OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT
THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER.
PETPLANET.COM, INC.
12% NON-NEGOTIABLE CONVERTIBLE NOTE
DUE NOVEMBER 17, 2000
$ San Francisco, CA
November 18, 1999
PetPlanet.com, Inc., a Delaware corporation, (herein called the
"Company") for value received, hereby promises to pay to the order of _______or
its registered successor or assign the principal sum of _____ (the "Principal
Amount"), payable on November 17, 2000 (the "Maturity Date"), in lawful currency
of the United States, and to pay interest on the unpaid balance of the Principal
Amount from the date hereof (the "Issuance Date"), at the rate of twelve percent
(12%) per annum or the maximum rate of interest permitted by law, whichever is
lower (the "Interest Rate"), payable in arrears in one installment on the
earlier to occur of (x) the Common Stock Issuance Date (as defined below) or (y)
the Maturity Date; all payments of principal of this Note and all payments of
interest on this Note to be made by mail to the address of the Holder set forth
on the Note Register (as hereinafter defined). After maturity (whether by
acceleration or otherwise) or after the occurrence of an Event of Default (as
defined below), and whether or not a judgment has been issued thereon, interest
("Default Interest") shall accrue and be payable at a rate per annum equal to
either (x) the interest rate of 12% or (y) the maximum rate permitted by law,
whichever is lower. Interest hereon for any period shall be computed on the
basis of a 360-day year and be calculated on the basis of the actual number of
days elapsed in the accrual period.
1. Certain Definitions. As used herein, the following terms shall have
the following respective meanings (certain other terms are defined elsewhere
herein):
1.1. The term "Common Stock" shall mean the common stock, $.01 par
value, of the Company, designated as "Common Stock."
1.2. The term "Company" shall mean PetPlanet.com, Inc., a Delaware
corporation, the maker of this Note, and shall also mean any successor
corporation which shall become such in the manner prescribed in Section 2
hereof.
1.3. The term "corporation" shall include an association, joint stock
company, business trust or other similar organization.
1.4. Unless the context otherwise requires, the term "Holder(s)" or
"Registered Holder(s)" is used herein to mean the person or entity named as
payee on the first page hereof (herein sometimes also called the "payee named
herein") or any other person who shall at the time be the Registered Holder of
this Note.
<PAGE>
1.5. The term "Issuance Notice" shall mean any notice delivered to the
Registered Holder of this Note stating that the Company will issue Common Stock
and setting forth the expected Common Stock Issuance Date, which notice shall be
delivered to the Registered Holder hereof at least ten (10) and no more than
thirty (30) days prior to such Common Stock Issuance Date.
1.6. The term "Market Price" shall mean, for any day, the last sale
price for the Common Stock shares on the principal securities exchange on which
the Common Stock shares are listed or admitted to trading, or, if not so listed
or admitted to trading on any securities exchange, the last sale price for the
Common Stock Shares on the New York Stock Exchange ("NYSE") or National
Association of Securities Dealers National Market System ("NASD"), or, if the
Common Stock Shares shall not be listed on such exchange or system, the closing
bid price in the over-the-counter market, in each such case, unless otherwise
provided herein, averaged over a period of five (5) consecutive business days
prior to the day as of which Market Price is being determined.
1.7. The term "Note" refers to this Note and all extensions or renewals
hereof. Such term also refers to any Note or Notes executed and delivered by the
Company in exchange or replacement of this Note pursuant to Section 4 hereof. .
1.8. The term "Note Register" shall mean the Company's register of
Notes kept at its principal executive offices indicating the Registered Holders
of the Notes and their respective mailing addresses.
1.9. The term "person" shall mean an individual, a corporation,
partnership, trust, an unincorporated organization, a governmental entity or any
department, agency or political subdivision thereof.
1.10. The term "Common Stock Conversion Rate" shall be, subject to
Section 7 hereof, one share of Common Stock for every two dollars ($2.00) of the
Principal Amount outstanding at the date of conversion ("Conversion Date")
rounded down to the nearest whole number of shares.
2. Holders. The Company may deem and treat the Registered Holder of
this Note as set forth in the Note Register as the absolute owner of this Note
for the purpose of receiving payment hereon or on account hereof and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
3. Automatic Payment. In the event that, prior to full payment of the
Note or the Holder's exercise of any conversion rights as set forth in Section 7
below the Company obtains private or public financing in excess of fifteen
million dollars ($15,000,000.00) during the term of this Note, the Company will
offer to repay the outstanding Principal Amount and interest accrued to date
within thirty (30) days after the closing date of such private or public
financing. Such payment shall be considered payment in full and constitute
termination of this Note. All unexercised conversion rights as provided in
Section 7.1 shall expire upon such termination upon such repayment in full of
the principal and interest and the Company shall be forever released from all
its obligations and liabilities under this Note.
4. Subordination. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Company's Senior
Indebtedness, as hereinafter defined.
2
<PAGE>
4.1. Senior Indebtedness. As used in this Note, the term "Senior
Indebtedness" shall mean the principal of and unpaid accrued interest on all
indebtedness of the Company to banks, insurance companies or other financial
institutions regularly engaged in the business of lending money, which is for
money borrowed by the Company (whether or not secured) or any such indebtedness
or any debentures, notes or other evidence of indebtedness issued in exchange
for such indebtedness or any indebtedness arising from the satisfaction of such
indebtedness by a guarantor.
4.2. Default on Senior Indebtedness. If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of the assets and
liabilities of the Company, or if this Note shall be declared due and payable
upon the occurrence of an Event of Default with respect to any Senior
Indebtedness, then (i) no amount shall be paid by the Company in respect of the
principal of or interest on this Note at the time outstanding, unless and until
the principal of and interest on the Senior Indebtedness then outstanding shall
be paid in full, and (ii) no claim or proof of claim shall be filed with the
Company by or on behalf of the Holder of this Note that shall assert any right
to receive any payments in respect of the principal of and interest on this
Note, except subject to the payment in full of the principal of and interest on
all of the Senior Indebtedness then outstanding. If there occurs an event of
default that has been declared in writing with respect to any Senior
Indebtedness, or in the instrument under which any Senior Indebtedness is
outstanding, permitting the Holder of such Senior Indebtedness to accelerate the
maturity thereof, then, unless and until such event of default shall have been
cured or waived or shall have ceased to exist, or all Senior Indebtedness shall
have been paid in full, no payment shall be made in respect of the principal of
or interest on this Note, unless within three (3) months after the happening of
such Event of Default, the maturity of such Senior Indebtedness shall not have
been accelerated.
4.3. Effect of Subordination. Subject to the rights, if any, of the
holders of Senior Indebtedness under this Section 4 to receive cash, securities
or other properties otherwise payable or deliverable to the Holder of this Note,
nothing contained in this Section 4 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms and conditions
hereof, to pay to the Holder the principal hereof and interest hereon as and
when the same become due and payable, or shall prevent the Holder of this Note,
upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
4.4. Subrogation. Subject to the payment in full of all Senior
Indebtedness and until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 4.2 above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Company to or on
account of this Note; and for the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness to which the Holder would be
entitled except for the provisions of this Section 4 shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and the
Holder, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
3
<PAGE>
4.5. Undertaking. By its acceptance of this Note, the Holder agrees to
execute and deliver such documents as may be reasonably requested from time to
time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 4.
5. Events of Default and Remedies.
5.1. Individual Note Defaults. The entire unpaid Principal Amount of
this Note, together with all accrued interest thereon, shall, at the option of
the Holder hereof, exercised by written notice to the Company at its principal
executive offices, forthwith become and be due and payable if any one or more of
the following events (herein individually called an "Event of Default") shall
have occurred (for any reason whatsoever and whether such happening shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing at the time of such notice:
(a) if the Company shall default in the payment of the Principal Amount
of this Note when and as the same shall become due and payable, whether at
maturity, by acceleration or otherwise;
(b) if the Company shall default in the payment of interest on this
Note when and as such interest shall become due and payable, and such default
shall have continued for a period of five (5) days;
(c) if the Company shall:
(i) admit in writing its inability to pay its debts generally as
they become due;
(ii) file a petition in bankruptcy or a petition to take advantage
of any insolvency act;
(iii) make an assignment for the benefit of creditors;
(iv) consent to the appointment of a receiver of itself or of the
whole or any substantial part of its property;
(v) on a petition in bankruptcy filed against it, be adjudicated a
bankrupt; or
(vi) file a petition or answer seeking reorganization or
arrangement under the bankruptcy laws or any other applicable
laws or statues.
(d) if a court of competent jurisdiction or any other governmental body
or agency shall enter an order, judgment, or decree appointing, without the
consent of the Company, a receiver of the Company or of the whole or any
substantial part of its property, or approving a petition filed against it
seeking reorganization or arrangement of the Company under the bankruptcy laws,
and such order, judgment or decree shall not be vacated or set aside or stayed
within sixty (60) days from the date of entry thereof;
4
<PAGE>
(e) if, under the provisions of any other law, any court of competent
jurisdiction or any other governmental body or agency shall assume custody or
control of the Company or of the whole or any substantial part of its property
and such custody or control shall not be terminated or stayed within sixty (60)
days from the date of assumption of such custody or control; or
(f) if an Event of Default shall have been declared in respect of any
other Note or Notes or Senior Indebtedness.
5.2. Within five (5) days of receipt by the Company of any notice from
any Holder of the Note stating that an Event of Default has occurred and
accelerating the maturity of such Note, as provided in subsection 5.1 above, the
Company shall deliver notice thereof, in writing, to each of the other holders
of Notes.
5.3. In case any one or more of the Events of Default specified in
Section 3.1 hereof shall have occurred and be continuing, the Holder hereof may
proceed to protect and enforce its or his rights hereunder either by suit in
equity and/or by action at law, whether for the specific performance of any
covenant or agreement contained in this Note or in aid of the exercise of any
power granted in this Note, or the Holder hereof may proceed to enforce the
payment of all sums due upon this Note or to enforce any other legal or
equitable right of the Holder of this Note.
5.4. No remedy herein conferred upon the Holder hereof is intended to
be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise.
5.5. No course of dealing between the Company and the Holder hereof or
any delay on the part of the Holder in exercising any rights hereunder shall
operate as a waiver of any rights of any Holder hereof. The Company waives and
agrees not to assert:
(a) any right to require the Holder to proceed against or exhaust any
security for the Notes, to pursue any other remedy available to the Holders or
to pursue any remedy in any particular order or manner; (b) the benefits of any
statute of limitations affecting its liability hereunder or the enforcement
hereof; (c) the benefits of any legal or equitable doctrine or principle of
marshalling; (d) any defense arising by reason of any disability or other
defense of the Company or by reason of the cessation from any cause whatsoever
(other than payment in full) of the liability of the Company for payment of this
Note and (e) the benefits of any statutory provision limiting the right of the
Holders to recover a deficiency judgment or to otherwise proceed against any
person or entity obligated for payment of the Notes, after any foreclosure or
trustee's sale of any security for the Notes.
6. Exchange or Replacement of this Note.
(a) Subject to the transfer restrictions contained in the legend on the
face of this Note, the Holder of this Note, at its option, may in person or by
duly authorized attorney surrender this Note for exchange, at the principal
executive offices of the Company, and receive in exchange therefor a new Note or
Notes in the same aggregate Principal Amount as the aggregate unpaid Principal
Amount of this Note and bearing interest at the same annual rate as this Note,
such new Note or Notes to be dated as of the Issuance Date and to be in such
Principal Amount and payable to such person or persons as such Holder may
designate in writing;
5
<PAGE>
provided, that the Holder shall be required to pay any tax or other governmental
charge which may be payable in respect of any transfer involved in the issuance
and delivery of a new Note or Notes and any other expenses of the Company
payable in connection therewith. Seven (7) days' prior written notice of the
Holder's intention to make such exchange shall be given to the Company, and
provided that in the event of any such exchange involving the issuance and
delivery of a new Note in the name other than that of the Holder of this Note,
such notice shall include the name and mailing and residence address of the
transferee and stating the desired effective date of such change of ownership.
(b) With respect to any transfer of this Note in accordance with clause
(a) of this Section 4, such transfer shall be registered upon the Company's Note
Register following the Company's receipt of all documents necessary to effect
transfer in accordance with this Section 4 (but subject to the transfer
restrictions contained in the legend on the face of this Note). The effective
date of any such transfer recorded on the Note Register shall be the date
requested in the notice of transfer. In the event the desired date is omitted
from the notice of transfer, the Company may in its discretion honor such
transfer, and, in such case, the effective date of transfer shall be the first
date at which the Company is in receipt of all of the items required by this
Section 4. All accrued interest from and after the Issuance Date payable in
respect of this Note shall be due and payable as provided herein to the
Registered Holder of this Note.
(c) Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note, and (in case of loss, theft
or destruction) of indemnity satisfactory to it, and upon surrender and
cancellation of this Note, if mutilated, the Company, upon reimbursement to it
of all reasonable expenses incidental thereto, will make and deliver a new Note,
of like tenor in lieu of this Note. Any Note made and delivered in accordance
with the provisions of this paragraph (c) shall be dated as of the Issuance
Date.
7. Conversion of Note.
7.1. Conversion Right.
(a) Voluntary Conversion. Any Holder of this Note shall have the right
at Holder's option to convert all or any portion of the Principal Amount of this
Note, subject to and upon compliance with the terms and provision of this
Section 7, into such number of whole shares of such fully paid and nonassessable
shares of Common Stock as determined in accordance with the Common Stock
Conversion Rate. The conversion right provided in this Section 7 shall expire
upon the repayment in full of this Note with interest.
(b) Automatic Conversion. The entire Principal Amount of this Note
shall be automatically converted into shares of Common Stock at the Common Stock
Conversion Rate at the time in effect immediately prior to (i) any consolidation
or merger of the Company with or into any other corporation or other entity or
person, or any other corporate reorganization in which the Company shall not be
the continuing or surviving entity of such consolidation, merger or
reorganization or any transaction or series of related transactions by the
Company in which in excess of fifty percent (50%) of the Company's voting power
is transferred, or there is a sale of all or substantially all of the assets of
the Company; (ii) the consummation of a firmly underwritten public offering
pursuant to a registration statement filed by the Company under the Securities
Act of 1933, as amended (the "Securities Act"), with aggregate gross proceeds in
excess of fifteen million dollars ($15,000,000); or (iii) the business day upon
which the average Market Price of Common Stock over any given consecutive twenty
(20) day business period exceeds $8.00.
<PAGE>
7.2. Conversion Procedure.
(a) Notice of Conversion Pursuant to Section 7.1(a). Before the Holder
shall be entitled to convert this Note into shares of Common Stock, it shall
surrender this Note at the office of the Company and shall give written notice
by mail, postage prepaid, to the Company at its principal corporate office, of
the election to convert the same, if the Holder is electing to convert pursuant
to Section 7.1(a), and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Company shall, as soon as practicable thereafter, issue and deliver at such
office to the Holder of this Note a certificate or certificates for the number
of shares of Common Stock to which the Holder of this Note 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 this Note, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date.
(b) Notice of Conversion Pursuant to Section 7. If this Note is
automatically converted, written notice shall be delivered to the Holder of this
Note at the address last shown on the records of the Company for the Holder or
given by the Holder to the Company for the purpose of notice or, if no such
address appears or is given, at the place where the principal executive office
of the Company is located, notifying the Holder of the conversion to be
effected, specifying the Common Stock Conversion Rate, the Principal Amount of
the Note to be converted, the amount of accrued interest to be converted, the
date on which such conversion will occur and calling upon such Holder to
surrender to the Company, in the manner and at the place designated, the Note.
7.3. Delivery of Stock Certificates. As promptly as practicable after
the conversion of this Note, the Company at its expense will issue and deliver
to the Holder of this Note a certificate or certificates for the number of full
shares of Common Stock issuable upon such conversion.
7.4. Mechanics and Effect of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of this Note. In lieu of the Company
issuing any fractional shares to the Holder upon the conversion of this Note,
the Company shall pay to the Holder the amount of outstanding principal that is
not so converted, such payment to be in the form as provided below. Upon the
conversion of this Note pursuant to Section 7.1(a) above, the Holder shall
surrender this Note, duly endorsed, at the principal office of the Company. At
its expense, the Company shall, as soon as practicable thereafter, issue and
deliver to such Holder at such principal office a certificate or certificates
for the number of shares of such Common Stock to which the Holder shall be
entitled upon such conversion (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to the
Company), together with any other securities and property to which the Holder is
entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described above. Upon
conversion of this Note, the Company shall be forever released from all its
obligations and liabilities under this Note, except that the Company shall be
obligated to pay the Holder, within ten (10) days after the date of such
conversion, any interest accrued and unpaid or unconverted to and including the
date of such conversion, and no more.
7
<PAGE>
7.5. Conversion Price Adjustments.
(a) Adjustments for Stock Splits and Subdivisions. In the event the
Company should at any time or from time to time after the date of issuance
hereof 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 Common Stock Conversion Rate of this Note shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of this Note shall be increased in proportion to such increase
of outstanding shares.
7.6. Fractional Shares. No certificates for fractional shares of Common
Stock shall be issued upon conversion of this Note. If the conversion of this
Note, or any portion hereof, results in a fraction of a share of Common Stock,
the Company shall pay, out of funds legally available therefor, a cash
adjustment in respect of such fractional share of Common Stock in an amount
equal to the fair market value thereof.
7.7. Shares. The Company agrees that its issuance of this Note shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note in accordance with
Section 7.1. The Company agrees that all shares of Common Stock which shall be
issued upon conversion of this Note shall, when so issued, be duly and validly
issued and fully paid and nonassessable.
7.8. Anti-Dilution. The Common Stock Conversion Rate per share shall be
subject to adjustment from time to time as hereafter provided. Upon each
adjustment of the Common Stock Conversion Rate, the Holder shall thereafter be
entitled to convert shares at the Common Stock Conversion Rate resulting from
such adjustment, the number of shares obtained per share by dividing the Common
Stock Conversion Rate in effect immediately prior to such adjustment by the
Common Stock Conversion Rate resulting from such adjustment.
(a) Stock Splits and Reverse Splits. In the event the Company
subdivides its outstanding shares of Common Stock into a greater number of
shares, the Common Stock Conversion Rate in effect immediately prior to the
subdivision shall be proportionately reduced and the number of shares of Common
Stock convertible pursuant to the conversion terms evidenced hereby immediately
prior to the subdivision shall be proportionately increased, and conversely, in
the event the outstanding shares of Common Stock of the Company are combined
into a smaller number of shares, the Common Stock Conversion Rate in effect
immediately prior to the combination shall be proportionately increased and the
number of shares of Common Stock convertible under the terms of this Section 7.8
shall be proportionately reduced. Except as provided herein, no adjustments in
the Common Stock Conversion Rate and no change in the number of shares of Common
Stock convertible shall be made under this Section 7 as a result, or by reason,
of any subdivision or combination.
(b) Reorganization and Asset Sales. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation or
merger of the
8
<PAGE>
Company with another corporation, or the sale of all or substantially all its
assets to another corporation, shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets with
respect to, or in exchange for, Common Stock then the following provisions shall
apply:
(i) As a condition of the reorganization, reclassification,
consolidation, merger or sale (except as otherwise provided in this Section
7.8), lawful and adequate provisions shall be made whereby the Holder shall
thereafter have the right to purchase and receive upon the terms and conditions
specified in this Note and in lieu of the shares of Common Stock immediately
theretofore receivable upon the exercise of the rights represented hereby, the
shares of stock, securities or assets as may be issued to payable with respect
to, or in exchange for, a number of outstanding shares of Common Stock equal to
the number of shares of Common Stock immediately receivable had the
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provision shall be made with respect to the
rights and interest of such Holder to the end that the provisions hereof
(including, without limitation, provisions or adjustments of the Common Stock
Conversion Rate and of the number of shares of Common Stock receivable upon
exercise) shall thereafter be applicable, as nearly as may be practicable, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the conversion of this Note.
(ii) In the event of a merger or consolidation of the Company with or
into another corporation as a result of which a number of shares of Common Stock
of the surviving corporation are greater or lesser than the number of shares of
Common Stock of the Company outstanding immediately prior to the merger or
consolidation are issuable to holders of Common Stock of the Company, then the
Common Stock Conversion Rate in effect immediately prior to the merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company.
7.9. Transfer Taxes. The issue of any stock or other certificate upon
conversion of this Note shall be made without charge to the Holder of this Note
for any transfer or issuance tax in respect of the issue thereof. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any certificate in a name
other than that of the Holder of this Note, and, the Company shall not be
required to issue or deliver any such certificate unless and until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid, and in all cases any such transfer shall be subject
to the transfer restrictions herein contained.
8. Registration Rights.
(a) Demand Registration Rights. After the earlier to occur of (A) six
months from the date of execution of this Note or (B) the closing date of a
secondary public offering of the Company's securities registered pursuant to the
Securities Act in which the Company receives gross proceeds of $5,000,000 or
such lesser amount as may be determined by the board of directors of the Company
(the "Registration Period"), upon written request of the Majority Holders (as
defined below) delivered to the Company, the Company shall promptly prepare and
file, and use its best efforts to cause to become effective, a registration
statement under the Securities Act (in each case, a "Demand Registration")
covering such shares of Common Stock issuable upon the exercise of the
conversion rights of this Note as set forth in Section 7 above, all in
accordance with the following provisions of this Section 8. "Majority Holders"
as used herein shall mean the holder or holders of a majority of the outstanding
shares which (x) are not
9
<PAGE>
registered under the Securities Act or (y) which are not eligible for sale under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provision then in effect) under the Securities Act are met or (z) may
not be sold pursuant to Rule 144(k), and the Company has not delivered a new
certificate or other evidence of ownership for such shares not bearing a
restrictive legend ("Registrable Stock"). The Majority Holders requesting a
registration under this Section 8 may, at any time prior to the filing date of
the registration statement relating to such registration, revoke such request,
without liability to any of the other holders of Registrable Stock, by providing
a written notice to the Company revoking such request, in which case such
request, so revoked, shall not be considered a Demand Registration.
Notwithstanding anything contained herein to the contrary, nothing herein shall
be construed as requiring the Company to register any of its securities other
than Common Stock.
(b) Piggy-back Registration Rights. In the event of a public offering
of the Company's securities registered pursuant to the Securities Act in which
the Company receives gross proceeds of $5,000,000 or such lesser amount as may
be determined by the board of directors of the Company (other than a
registration on Form S-8 or S-4 or any successor so similar forms, (B) relating
to Common Stock issuance upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company or (C) in
connection with a direct or indirect acquisition by the Company of another
Company), whether or not for the sale of its own account, the Company will give
at least thirty (30) days' prior written notice of the filing thereof to the
Holder or Holders of this Note.
(i) The Company's notice shall afford the Holder or Holder an
opportunity to elect within thirty (30) days after receipt thereof to include in
such filing their Registrable Stock.
(c) Registration Requirements.
(i) The inclusion of Registrable Stock in any such registration
involving a written public offering shall be upon the condition that the
holder(s) thereof complete and execute all questionnaires, powers of attorney,
indemnities, underwriting arrangements and the provisions hereof in respect of
registration rights.
(ii) For so long as any Registrable Stock remains outstanding, the
Company shall be obligated under this Section 8(a) and (b) and to afford the
holder(s) thereof the right to participate in each and every such registration
of Common Stock of the Company. If, at any time after giving written notice of
its intention to register any Common Stock pursuant to this Section 8(a) and (b)
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any reason
not to register such stock, the Company shall give written notice to all such
holders of Registrable Stock and, thereupon, shall be relieved of its obligation
to register any Registrable Stock in connection with such registration (without
prejudice, however, to rights of any such Holder or Holders under Section 8(a)
and (b) above).
(iii) If a registration pursuant to this Section 8(a) or (b)
involves an underwritten public offering and the managing underwriter shall
advise the Company that, in its view, the number of shares of Common Stock which
the Company and holders of Registrable Stock intend to include in such
registration exceeds the maximum offering size, the number of shares to be
included in such registration shall be limited by excluding the shares to be
registered in such offering, to the extent required by such limitation, in the
following order: (A) first, any
10
<PAGE>
securities or shares (other than Registrable Stock) subject to other contractual
registration rights, (b) next, the number of shares that may be included in the
registration and underwriting by the holders of Registrable Stock would
otherwise be entitled to include in such registration, and (C) last, the shares
being registered by the Company.
(d) Expenses of Registration. The costs and expenses (other than
underwriting discount or commission) of the registrations effected pursuant to
Section 8(a) or (b) above and of all other actions which the Company is required
to take or effect pursuant to this Section 8 shall be paid by the Company
(including, without limitation, all federal, state, NYSE or NASD registration
and filing fees, printing expenses, costs of special audits incidental to or
required by any such registration, and fees and disbursements of counsel for the
Company and for the holders of Registrable Stock (including allocated costs of
internal counsel)), except that all such expenses in connection with any
amendment or supplement to the registration statement or the prospectus used in
connection therewith required to be filed more than nine (9) months after the
date on which such registration statement becomes effective under the Securities
Act because any holder has not effected the disposition of Registrable Stock
covered by such registration statement shall be borne by such holders, in such
proportions as they may agree.
(e) Registration Procedures. Whenever the holder or holders of
Registrable Stock request that any Registrable Stock be registered pursuant to
Section 8(a) or (b) above, the Company will, subject to the provisions of this
Section 8, use reasonable efforts to effect the registration of such Registrable
Stock in accordance with the intended method of disposition thereof as quickly
as practicable, and in connection with any such request:
(i) The Company will as expeditiously as possible prepare and file
with the Securities and Exchange Commission (the "Commission") a registration
statement on any form for which the Company then qualifies and which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of the Registrable Stock to be registered thereunder in accordance with the
intended method of distribution thereof, and use reasonable efforts to cause
such filed registration statement to become and remain effective for a period of
not less than nine (9) months (or such shorter period in which all of the
Registrable Stock of the holder(s) thereof included in such registration
statement shall have actually been sold thereunder).
(ii) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
holder of Registrable Stock and each underwriter, if any, of the Registrable
Stock covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Company will furnish to
such holder and underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such holder or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Stock owned by any such holder.
(iii) After the filing of the registration statement, the Company
will promptly notify each holder holding Registrable Stock covered by such
registration statement of any stop order issued or threatened by the Commission
and take all reasonable actions required to prevent the entry of such stop order
or to remove it if entered.
11
<PAGE>
(iv) The Company will use reasonable efforts to (A) register or
qualify the Registrable Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions in the United States as
any holder holding such Registrable Stock reasonably (in light of such holder's
intended plan of distribution) requests and (B) cause such Registrable Stock to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company and do any and all other acts and things that may be reasonably
necessary or advisable to enable such holder to consummate the disposition of
the Registrable Stock owned by such holder; provided, that the Company will not
be required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection (iv), or (B)
subject itself to taxation in any such jurisdiction, or (C) consent to general
service of process in any such jurisdiction.
(v) The Company will immediately notify each holder holding such
Registrable Stock, at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the occurrence of an event requiring
the preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Stock, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and promptly prepare and make available to each such holder
any such supplement or amendment.
(vi) The Company will otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering a period of twelve (12) months, beginning within three (3) months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(vii) The Company may require each such holder to promptly furnish
in writing to the Company such information regarding the distribution of the
Registrable Stock as the Company may from time to time reasonably request and
such other information as may be legally required in connection with such
registration.
(viii) Each such holder of Registrable Stock agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 8(d)(iii) or 8(d)(v) above (a "Stop-sale Notice"), such
holder will forthwith discontinue disposition of Registrable Stock pursuant to
the registration statement covering such Registrable Stock until such holder's
receipt of a second notice from the Company that such stop-order has been
removed and/or the copies of the supplemented or amended prospectus contemplated
by Section 8(d)(v) above have been filed, and, if so directed by the Company,
such holder will deliver to the Company all copies, other than any permanent
file copies then in such holder's possession, of the most recent prospectus
covering such Registrable Stock at the time of receipt of such Stop-sale Notice.
In the event that the Company shall give such Stop-sale Notice, the Company
shall extend the period during which such registration statement shall be
maintained effective (including the period referred to in Section 8(d)(i) above)
by the number of days during the period from and including the date of the
giving of notice pursuant to Section 8(d)(iii) or 8(d)(v) above, as applicable,
to the date when the Company shall give the holders of Registrable Stock notice
that the Stop-sale Notice has been removed and/or make available to such holders
a prospectus supplemented or amended to conform with the requirements of Section
8(d)(v) above.
12
<PAGE>
(e) Restriction on Sale. In the event the Company registers its
securities under the Securities Act pursuant to a firm commitment underwriting,
each holder of Registrable Stock will not, for such period of time specified by
the managing underwriter, but not in excess of twelve (12) months following the
effective date of such registration statement, sell or otherwise transfer any of
the shares of Registrable Stock without the prior written consent of such
underwriter, provided that each of the Company's executive officers and
directors agree to the same restriction for the same period of time.
9. Modifications. Modifications and alterations of the Note may be made
by the Company with the consent of the Holders of this Note.
10. Expenses; Preferential Payments.
(a) In the event of any Event of Default hereunder, the Company agrees
to pay to the Holder hereof all expenses including, without limitation,
reasonable fees and disbursements of counsel, incurred by the Holder in the
enforcement and collection of this Note.
(b) All payments on this Note shall be applied first to the payment of
any costs, fees or other charges incurred in connection with the collection of
the indebtedness evidenced hereby, next to the payment of accrued interest,
including Default Interest, if any, and then to the reduction of the Principal
Amount.
(c) The Company agrees that to the extent the Company makes any payment
to the Holder in connection with the indebtedness evidenced by this Note, and
all or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by the Holder or
paid over to a trustee, receiver or any other entity, whether under any
bankruptcy act or otherwise (any such payment is hereinafter referred to as a
"Preferential Payment"), then the indebtedness of the Company under this Note
shall continue or shall be reinstated, as the case may be, and, to the extent of
such payment or repayment by the Holder, the indebtedness evidenced by this Note
or part thereof intended to be satisfied by such Preferential Payment shall be
revived and continued in full force and effect as if said Preferential Payment
had not been made.
11. Offset.
(a) The Holder of this Note is hereby irrevocably authorized at any
time and from time to time without notice to the Company, any such notice being
expressly waived by the Company, to offset and appropriate and apply any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect or contingent or matured or unmatured at
any time held or owing by such Holder to or for the credit or the account of the
Company, or any part thereof in such amounts as such Holder may elect, against
and on account of the obligations and liabilities of the Company to such Holder
hereunder and claims of every nature and description of such Holders against the
Company, in any currency, whether arising hereunder or otherwise, as such Holder
may elect, whether or not such Holder has made any demand for payment, although
such obligations, liabilities and claims may be contingent or unmatured and
without regard to whether an Event of Default has occurred. Any Holder
exercising its rights under this Section 11 agrees to notify the Company
promptly of any such offset and the application made by such Holder, provided
that the failure to give such notice shall not affect the validity of such
offset and application. The rights of the Holder under this Section 11 are in
13
<PAGE>
addition to any other rights and remedies (including, without limitation, other
rights of offset) which such Holder may have.
(b) The payment of the Principal Amount of this Note and the interest
due hereon, or any other amounts due in respect hereof, shall not be subject to
any offset, counterclaim or other reduction by the Company.
12. Section Headings. The Section headings contained herein are for the
purpose of convenience of reference only and are not intended to define or limit
the contents of any such Section.
13. Severability. In the event that one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State.
15. Notices. Any notice to be given hereunder shall be in writing and
delivered personally or by overnight courier or sent by certified mail, postage
prepaid, return receipt requested, addressed to the Company at 21 Stillman
Street, Suite 600, San Francisco, California 94107 and to the Holder at such
address as is set forth in the Subscription Agreement, if any, between the
Company and the initial Holder hereof, or such other address as either party may
subsequently designate by like notice.
IN WITNESS WHEREOF, this Note has been executed by the Company as of the day,
month and year first above written.
PETPLANET.COM, INC.
By:___________________________
Name: Steven E. Marder
Title: Chief Executive Officer
14
<PAGE>
THIS WARRANT CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY HAVE NOT BEEN AND THE
COMMON STOCK TO BE ISSUED UPON EXERCISE OF SUCH WARRANTS HAS NOT BEEN OR WILL
NOT, UPON THE ISSUANCE THEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR QUALIFIED UNDER STATE SECURITIES LAWS
BUT HAVE BEEN, OR WILL BE, AS THE CASE MAY BE, ISSUED PURSUANT TO AN EXEMPTION
FROM SUCH REGISTRATION AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF UNLESS (i) THE ISSUER THEREOF SHALL HAVE RECEIVED AN
OPINION OF COUNSEL TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION THEREOF
IS LEGALLY REQUIRED FOR SUCH TRANSFER OR (ii) COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFIED UNDER APPLICABLE
STATE SECURITIES LAWS.
THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE WARRANTS
PROVIDED FOR IN THIS WARRANT CERTIFICATE IS SUBJECT TO FOREFEITURE
No. W-000__ _______ Warrants to Purchase One(1)
Share of Common Stock
BRIDGE WARRANT CERTIFICATE
To subscribe for and purchase shares of Common Stock, par value $.01 (the
"Common Stock"), of
PETPLANET.COM, INC.
THIS CERTIFIES that, for value received, _____ or its registered
successors and assigns, is/are the owner of ______ Bridge Warrants (the
"Warrants"), each of which entitles the owner thereof to purchase from
PetPlanet.com, Inc., a Delaware corporation (herein called the "Company"), one
(1) share of Common Stock of the Company (individually a "Common Share" and
collectively the "Common Shares"), subject to adjustment as provided in Sections
2 hereof, commencing on the date hereof, at the initial exercise price of $3.00
per share of Common Stock (the "Exercise Price"). To the extent any Warrants
remain unexercised, such Warrants shall automatically and without further action
by the Company or the holder hereof, terminate on November 17, 2002 (the
"Termination Date"). The number of shares of Common Stock to be received upon
the exercise of each Warrant and the Exercise Price to be paid for a share of
Common Stock are subject to adjustment from time to time as hereinafter set
forth.
<PAGE>
1. Exercise of Warrants. The Warrants evidenced hereby may be exercised
by the registered holder hereof, in whole or in part, by the surrender of this
Warrant Certificate, duly endorsed (unless endorsement is waived by the
Company), at the principal office of the Company (or at such other office or
agency of the Company as it may designate by notice in writing to the registered
holder hereof at such holder's last address appearing on the books of the
Company) and upon payment to the Company of the purchase price of the Common
Shares purchased. Payment of the purchase price shall be made by certified or
official bank check or checks payable to the order of the Company. The Company
agrees that the Common Shares so purchased shall be deemed to be issued to the
registered holder hereof on the date on which this Warrant Certificate shall
have been surrendered and payment made for such Common Shares as aforesaid;
provided, however, that no such surrender and payment on any date when the stock
transfer books of the Company shall be closed shall be effective to constitute
the person entitled to receive such Common Shares as the record holder thereof
on such date, but such surrender and payment shall be effective to constitute
the person entitled to receive such Common Shares as the record holder thereof
for all purposes immediately after the opening of business on the next
succeeding day on which such stock transfer books are open. The certificate(s)
for such Common Shares shall be delivered to the registered holder hereof within
a reasonable time, not exceeding five (5) days, after the Warrants evidenced
hereby shall have been so exercised and a new Warrant Certificate evidencing the
number of Common Shares remaining to be issued, if any, upon exercise of the
Warrants shall also be issued to the registered holder within such time unless
such Warrants shall have expired. No fractional Common Shares of the Company, or
scrips for any such fractional shares, shall be issued upon the exercise of any
Warrant.
2. Call Option. In the event that the Moving Average of the Market
Price of the Common Stock, averaged over a twenty-five (25) consecutive business
day period during the term of this Warrant Certificate, exceeds $10 per share,
the holder shall be required to exercise this Warrant Certificate, pursuant to
the terms and conditions as set forth in Section 1 above, upon thirty (30) days
of notice from the Company of such price averaging. Failure of the holder to
exercise this Warrant Certificate under these conditions will render this
Warrant Certificate and the Warrants evidenced hereby, and all rights and
obligations hereunder and thereunder, of no further force and effect. The term
"Market Price" shall mean, for any day, the last sale price for the Common
Shares on the principal securities exchange on which the Common Shares are
listed or admitted to trading, or, if not so listed or admitted to trading on
any securities exchange, the last sale price for the Common Shares on the New
York Stock Exchange ("NYSE") or National Association of Securities Dealers
National Market System ("NASD"), or, if the Common Shares shall not be listed on
such exchange or system, the closing bid price in the over-the-counter market.
3. Anti-Dilution Provisions. The Exercise Price per share shall be
subject to adjustment from time to time as hereafter provided. Upon each
adjustment of the Exercise Price, the holder of the Warrants evidenced hereby
shall thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of shares obtained per warrant by dividing the
Exercise Price in effect immediately prior to such adjustment by the Exercise
Price resulting from such adjustment.
<PAGE>
(a) Stock Splits and Reverse Splits. In the event the Company
subdivides its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price in effect immediately prior to the subdivision shall
be proportionately reduced and the number of Common Shares purchasable pursuant
to the Warrants evidenced hereby immediately prior to the subdivision shall be
proportionately increased, and conversely, in the event the outstanding shares
of Common Stock of the Company are combined into a smaller number of shares, the
Exercise Price in effect immediately prior to the combination shall be
proportionately increased and the number of Common Shares purchasable upon the
exercise of the Warrants evidenced hereby immediately prior to the combination
shall be proportionately reduced. Except as provided in this Section 3(c), no
adjustment in the Exercise Price and no change in the number of Common Shares
purchasable shall be made under this Section 3 as a result, or by reason, of any
subdivision or combination.
(b) Reorganizations and Asset Sales. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all its assets to another corporation, shall be effected in such a
way that holders of Common Stock shall be entitled to receive stock, securities
or assets with respect to, or in exchange for, Common Stock (and which shall not
constitute a dividend subject to Section 3(c)), then the following provisions
shall apply:
(i) As a condition of the reorganization, reclassification,
consolidation, merger or sale (except as otherwise provided below in this
Section 3(b)), lawful and adequate provisions shall be made whereby each holder
of Warrants shall thereafter have the right to purchase and receive upon the
terms and conditions specified in this Warrant Certificate and in lieu of the
Common Shares immediately theretofore receivable upon the exercise of the rights
represented hereby, the shares of stock, securities or assets as may be issued
or payable with respect to, or in exchange for, a number of outstanding shares
of Common Stock equal to the number of Common Shares immediately theretofore
receivable had the reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate provision shall be made
with respect to the rights and interests of such holder to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Price and of the number of shares receivable upon the exercise)
shall thereafter be applicable, as nearly as may be practicable, in relation to
any shares of stock, securities or assets thereafter deliverable upon the
exercise of Warrants (including an immediate adjustment, by reason of the
consolidation or merger, of the Exercise Price to the value for the Common Stock
reflected by the terms of the consolidation or merger if the value so reflected
is less than the Exercise Price in effect immediately prior to the consolidation
or merger).
(ii) In the event of a merger or consolidation of the Company with or
into another corporation as a result of which a number of shares of Common Stock
of the surviving corporation are greater or lesser than the number of shares of
Common Stock of the Company outstanding immediately prior to the merger or
consolidation are issuable to holders of Common Stock of the Company, then the
Exercise Price in effect immediately prior to the merger or consolidation shall
be adjusted in the same manner as though there were a subdivision or combination
of the outstanding shares of Common Stock of the Company.
4. Other Notices. If at any time prior to the expiration of the Warrant
evidenced hereby:
(a) The Company shall declare any dividend on the Common Stock
payable in shares of capital stock of the Company, cash or other
property; or
<PAGE>
(b) The Company shall authorize the issue of any options, warrants
or rights pro rata to all holders of Common Stock entitling them to
subscribe for or purchase any shares of stock of the Company or to
receive any other rights; or
(c) The Company shall authorize the distribution pro rata to all
holders of Common Stock of evidences of its indebtedness or assets
(excluding cash dividends or cash distributions paid out of retained
earnings or retained surplus); or
(d) There shall occur any reclassification of the Common Stock, or
any consolidation or merger of the Company with or into another
corporation or other entity (other than a consolidation or merger in
which the Company is the continuing corporation and which does not
result in any reclassification of the Common Stock) or a sale or
transfer to another corporation or other entity of all or substantially
all of the properties of the Company; or
(e) There shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company;
then, and in each of such cases, the Company shall deliver to the registered
holder hereof at its last address appearing on the books of the Company, as
promptly as practicable but in any event at least 15 days prior to the
applicable record date (or determination date) mentioned below, a notice
stating, to the extent such information is available, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution or rights are to
be determined, or (ii) the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding up is expected to
become effective and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution or winding up.
5. Termination of Warrant. Notwithstanding any provision herein to the
contrary, this Warrant Certificate and the Warrants evidenced hereby, and all
rights and obligations hereunder and thereunder shall be of no further force and
effect on the Termination Date.
6. Registration Rights.
(a) Demand Registration Rights. After the earlier to occur of (A) six
months from the date of execution of this Warrant or (B) the closing date of a
secondary public offering of the Company's securities registered pursuant to the
Securities Act in which the Company receives gross proceeds of $5,000,000 or
such lesser amount as may be determined by the board of directors of the
Company, upon written request of the Majority Holders (as defined below)
delivered to the Company, the Company shall promptly prepare and file, and use
its best efforts to cause to become effective, a registration statement under
the Securities Act (in each case, a "Demand Registration") covering such shares
of Common Stock issuable upon the exercise of this Warrant as set forth herein,
all in accordance with the following provisions of this Section 6. "Majority
Holders" as used herein shall mean the holder or holders of a majority of the
outstanding shares which (x) are not registered under the Securities Act or (y)
which are not eligible for sale under circumstances in which all of the
applicable conditions of Rule 144 (or any similar provision then in effect)
under the Securities Act are met or (z) may not be sold
<PAGE>
pursuant to Rule 144(k), and the Company has not delivered a new certificate or
other evidence of ownership for such shares not bearing a restrictive legend
("Registrable Stock"). The Majority Holders requesting a registration under this
Section 6 may, at any time prior to the filing date of the registration
statement relating to such registration, revoke such request, without liability
to any of the other holders of Registrable Stock, by providing a written notice
to the Company revoking such request, in which case such request, so revoked,
shall not be considered a Demand Registration. Notwithstanding anything
contained herein to the contrary, nothing herein shall be construed as requiring
the Company to register any of its securities other than Common Stock.
(b) Piggy-back Registration Rights. In the event of a public offering
of the Company's securities registered pursuant to the Securities Act of 1933,
as amended, in which the Company receives gross proceeds of $5,000,000 or such
lesser amount as may be determined by the board of directors of the Company
(other than a registration (A) on Form S-8 or S-4 or any successor or similar
forms, (B) relating to Common Stock issuable upon exercise of employee stock
options or in connection with any employee benefit or similar plan of the
Company or (C) in connection with a direct or indirect acquisition by the
Company of another company), whether or not for the sale of its own account, the
Company will give at least thirty (30) days' prior written notice of the filing
thereof to all holders of Warrants (referred to as the "Registrable Warrants")
covering shares of Common Stock issuable upon the exercise of Warrants (the
"Warrant Shares") and Registrable Stock, as defined above.
(c) Registration Requirements.
(i) The Company's notice shall afford the holders of all Registrable
Warrants and of Registrable Stock an opportunity to elect within thirty (30)
days after receipt thereof to include in such filing their Registrable Stock
(ii) The inclusion of Registrable Stock in any such registration
involving an underwritten public offering shall be upon the condition that the
holders thereof complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and the provisions hereof in
respect of registration rights.
(iii) For so long as any Registrable Stock or Registrable Stock or
Registrable Warrant remains outstanding, the Company shall be obligated under
this Section 6(c) to afford the holders thereof the right to participate in each
and every such registration of Common Stock of the Company. If, at any time
after giving written notice of its intention to register any Common Stock
pursuant to this Section 6(c) and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such stock, the Company shall
give written notice to all such holders of Registrable Stock and, thereupon,
shall be relieved of its obligation to register any Registrable Stock in
connection with such registration (without prejudice, however, to rights of any
such holder under Section 6(a) and (b) above).
(iv) If a registration pursuant to this Section 6(c) involves an
underwritten public offering and the managing underwriter shall advise the
Company that, in its view, the number of shares of Common Stock which the
Company and such holders of Registrable Stock intend to include in such
registration exceeds the maximum offering size, the number of shares to be
included in such registration shall be limited by excluding the shares to be
registered in such offering, to the extent required by such limitation, in the
following order: (A) first, any securities or shares (other than Registrable
Stock) subject to other contractual registration rights, (B) next, the number of
shares that may be included in the registration and underwriting by holders of
<PAGE>
Registrable Stock shall be allocated among all holders thereof, in proportion,
as nearly as practicable, to the respective amounts of securities which such
holders of Registrable Stock would otherwise be entitled to include in such
registration, and (C) last, the shares being registered by the Company.
(d) Expenses of Registration. The costs and expenses (other than
underwriting discount or commission) of the registrations effected pursuant to
Section 6(a) and (b) above and of all other actions which the Company is
required to take or effect pursuant to this Section 6 shall be paid by the
Company (including, without limitation, all federal, state, NYSE or NASD
registration and filing fees, printing expenses, costs of special audits
incidental to or required by any such registration, and fees and disbursements
of counsel for the Company and for the holders of Registrable Stock (including
allocated costs of internal counsel)), except that all such expenses in
connection with any amendment or supplement to the registration statement or the
prospectus used in connection therewith required to be filed more than nine (9)
months after the date on which such registration statement becomes effective
under the Securities Act because any holder has not effected the disposition of
Registrable Stock covered by such registration statement shall be borne by such
holder or holders, in such proportions as they may agree.
(e) Registration Procedures. Whenever holders of Registrable Stock
request that any Registrable Stock be registered pursuant to Section 6(a) or (b)
above, the Company will, subject to the provisions of this Section 6, use
reasonable efforts to effect the registration of such Registrable Stock in
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(i) The Company will as expeditiously as possible prepare and file
with the Commission a registration statement on any form for which the Company
then qualifies and which counsel for the Company shall deem appropriate and
which form shall be available for the sale of the Registrable Stock to be
registered thereunder in accordance with the intended method of distribution
thereof, and use reasonable efforts to cause such filed registration statement
to become and remain effective for a period of not less than nine (9) months (or
such shorter period in which all of the Registrable Stock of the holders thereof
included in such registration statement shall have actually been sold
thereunder).
(ii) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
holder of Registrable Stock and each underwriter, if any, of the Registrable
Stock covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Company will furnish to
such holder and underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such holder or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Stock owned by such holder.
(iii) After the filing of the registration statement, the Company
will promptly notify each holder holding Registrable Stock covered by such
registration statement of any stop order issued or threatened by the Commission
and take all reasonable actions required to prevent the entry of such stop order
or to remove it if entered.
<PAGE>
(iv) The Company will use reasonable efforts to (A) register or
qualify the Registrable Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions in the United States as
any holder holding such Registrable Stock reasonably (in light of such holder's
intended plan of distribution) requests and (B) cause such Registrable Stock to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company and do any and all other acts and things that may be reasonably
necessary or advisable to enable such holder to consummate the disposition of
the Registrable Stock owned by such holder; provided, that the Company will not
be required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection (iv), or (B)
subject itself to taxation in any such jurisdiction, or (C) consent to general
service of process in any such jurisdiction.
(v) The Company will immediately notify each holder holding such
Registrable Stock, at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the occurrence of an event requiring
the preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Stock, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and promptly prepare and make available to each such holder
any such supplement or amendment.
(vi) The Company will otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering a period of twelve (12) months, beginning within three (3) months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(vii) The Company may require each such holder to promptly furnish
in writing to the Company such information regarding the distribution of the
Registrable Stock as the Company may from time to time reasonably request and
such other information as may be legally required in connection with such
registration.
(viii) Each such holder of Registrable Stock agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 6(d)(iii) or 6(d)(v) above (a "Stop-sale Notice"), such
holder will forthwith discontinue disposition of Registrable Stock pursuant to
the registration statement covering such Registrable Stock until such holder's
receipt of a second notice from the Company that such stop-order has been
removed and/or the copies of the supplemented or amended prospectus contemplated
by Section 6(d)(v) above have been filed, and, if so directed by the Company,
such holder will deliver to the Company all copies, other than any permanent
file copies then in such holder's possession, of the most recent prospectus
covering such Registrable Stock at the time of receipt of such Stop-sale Notice.
In the event that the Company shall give such Stop-sale Notice, the Company
shall extend the period during which such registration statement shall be
maintained effective (including the period referred to in Section 6(e)(i) above)
by the number of days during the period from and including the date of the
giving of notice pursuant to Section 6(e)(iii) or 6(e)(v) above, as applicable,
to the date when the Company shall give the holders of Registrable Stock notice
that the Stop-sale Notice has been removed and/or make available to such holders
a prospectus supplemented or amended to conform with the requirements of Section
6(e)(v) above.
<PAGE>
(f) Restriction on Sale. In the event the Company registers
its securities under the Securities Act pursuant to a firm commitment
underwriting, each holder of Registrable Stock will not, for such period of time
specified by the managing underwriter, but not in excess of eighteen (18) months
following the effective date of such registration statement, sell or otherwise
transfer any of the Warrants or any shares of Registrable Stock without the
prior written consent of such underwriter, provided that each of the Company's
executive officers and directors agree to the same restriction for the same
period of time.
(g) Survival of Provisions. The provisions of this Section with respect
to Warrant Shares, shall survive the exercise of any Registrable Warrants.
7. Registered Holder. The registered holder of this Warrant Certificate
shall be deemed the owner hereof and of the Warrants evidenced hereby for all
purposes. The registered holder of this Warrant Certificate shall not be
entitled by virtue of ownership of this Warrant Certificate to any rights
whatsoever as a shareholder of the Company.
8. Transfer. This Warrant Certificate and any unexercised warrants
evidenced hereby may not be transferred unless transferred together with the
Note held by the holder hereof until such time as either (i) the full principal
amount of the Note has been paid to the holder (ii) the holder has exercised the
conversion right provided or (iii) the Company shall otherwise consent to the
transfer hereof and the Warrants evidenced hereby, which consent shall not be
unreasonably withheld, and otherwise is accordance with this Section 9. This
Warrant Certificate and the Warrants evidenced hereby may not be sold, pledged,
hypothecated or transferred at any time unless the Company shall have received
an opinion of counsel to the effect that such transfer would not result in a
violation of the provisions of the Securities Act. Any transfer of this Warrant
Certificate and the Warrants evidenced hereby to a transferee, in whole or in
part, shall be effected upon surrender of this Warrant Certificate, duly
endorsed (unless endorsement is waived by the Company), at the principal office
or agency of the Company. If the Warrants evidenced hereby is being sold,
pledged, hypothecated or otherwise transferred, the Company shall issue a new
Warrant Certificate registered in the name of the appropriate transferee(s). If
less than all of the Common Stock issuable upon exercise hereof are being sold,
pledged, hypothecated or otherwise transferred, the Company shall issue new
Warrant Certificates, in each case for the number of Warrants exercisable for
the appropriate number of shares of Common Stock, registered in the name of the
registered holder hereof and the transferee(s), as applicable.
9. Each taker and holder of this Warrant Certificate, the Warrants
evidenced hereby and any shares of capital stock of the Company issued upon
exercise of such Warrants, by taking or holding the same, (x) consents to and
agrees to be bound by the terms hereof and (y) acknowledges and agrees that this
Warrant Certificate and the unexercised Warrants evidenced hereby may be subject
to a right of repurchase by the Company, at the option of the Company, in whole
or in part, in accordance with the terms and conditions of that certain
Subscription Agreement dated on or about the date hereof entered into between
the Company and the initial holder hereof (a copy of which agreement will be
provided to any holder hereof upon written request to the Company therefor), the
provisions of which agreement, to the extent they relate to such right of
repurchase, shall be deemed a part of the terms and conditions of this Warrant
Certificate and the unexercised Warrants evidenced hereby as if the same were
specifically set forth herein.
* * *
<PAGE>
IN WITNESS WHEREOF, PetPlanet.com, Inc. has caused this Warrant Certificate to
be signed by a duly authorized officer and this Warrant Certificate is dated as
of _____________________.
PETPLANET.COM, INC.
By__________________________________
Name: Steven E. Marder
Title: Chief Executive Officer
<PAGE>
FORM OF EXERCISE
(to be executed by the registered holder hereof)
The undersigned hereby exercises ______ Warrants for the purchase of
one share each of common stock, par value $.01 ("Common Stock"), of
PetPlanet.com, Inc. evidenced by the within Warrant Certificate and herewith
makes payment of the purchase price in full. Kindly issue certificates for the
Common Stock in accordance with the instructions given below. The certificate
for the unexercised balance of the Warrants evidenced by the within Warrant
Certificate, if any, will be registered in the name of the undersigned.
Dated: ___________________
Instructions for registration of shares:
__________________________
Name (please print)
Social Security or Other Identifying
Number:_____________________________
Address:
____________________________________
Street
____________________________________
City, State and Zip Code
<PAGE>
EXHIBIT 4.2
THIS NOTE HAS NOT BEEN, AND THE COMMON STOCK TO BE ISSUED UPON CONVERSION HEREOF
WILL NOT, UPON THE ISSUANCE THEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER STATE SECURITIES LAWS AND MAY NOT BE
SOLD, PLEDGED, OR OTHERWISE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT
THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY REQUIRED FOR SUCH TRANSFER.
PETPLANET.COM, INC.
10% NON-NEGOTIABLE CONVERTIBLE NOTE
DUE MAY 1, 2000
$ San Francisco, CA
--------------------
October 5, 1999
PetPlanet.com, Inc., a Delaware corporation, (herein called
the "Company") for value received, hereby promises to pay to the order
of_________________________________________ or his registered successor or
assign ("Holder") the principal sum of ______________________________________
(the "Principal Amount"), payable on May 1, 2000 (the "Maturity Date"), in
lawful currency of the United States, and to pay interest on the unpaid balance
of the Principal Amount from the date hereof (the "Issuance Date"), at the rate
of ten percent (10%) per annum or the maximum rate of interest permitted by law,
whichever is lower (the "Interest Rate"), payable in arrears in one installment
on the earlier to occur of (x) the Common Stock Issuance Date (as defined below)
or (y) the Maturity Date; all payments of principal of this Note and all
payments of interest on this Note to be made by mail to the address of the
Holder set forth on the Note Register (as hereinafter defined). After maturity
(whether by acceleration or otherwise) or after the occurrence of an Event of
Default (as defined below), and whether or not a judgment has been issued
thereon, interest ("Default Interest") shall accrue and be payable at a rate per
annum equal to either (x) the interest rate of 10% or (y) the maximum rate
permitted by law, whichever is lower. Interest hereon for any period shall be
computed on the basis of a 360-day year and be calculated on the basis of the
actual number of days elapsed in the accrual period.
1. Certain Definitions. As used herein, the following terms
shall have the following respective meanings (certain other terms are defined
elsewhere herein):
1.1. The term "Common Stock" shall mean the common stock, $.01
par value, of the Company, designated as "Common Stock."
1.2. The term "Company" shall mean PetPlanet.com, Inc., a
Delaware corporation, the maker of this Note, and shall also mean any successor
corporation which shall become such in the manner prescribed in Section 2
hereof.
1.3. The term "corporation" shall include an association,
joint stock company, business trust or other similar organization.
1.4. Unless the context otherwise requires, the term
"Holder(s)" or "Registered Holder(s)" is used herein to mean the person or
<PAGE>
entity named as payee on the first page hereof (herein sometimes also called the
"payee named herein") or any other person who shall at the time be the
Registered Holder of this Note.
1.5. The term "Issuance Notice" shall mean any notice
delivered to the Registered Holder of this Note stating that the Company will
issue Common Stock and setting forth the expected Common Stock Issuance Date,
which notice shall be delivered to the Registered Holder hereof at least ten
(10) and no more than thirty (30) days prior to such Common Stock Issuance Date.
1.6. The term "Market Price" shall mean, for any day, the last
sale price for the Common Stock shares on the principal securities exchange on
which the Common Stock shares are listed or admitted to trading, or, if not so
listed or admitted to trading on any securities exchange, the last sale price
for the Common Stock Shares on the New York Stock Exchange ("NYSE") or National
Association of Securities Dealers National Market System ("NASD"), or, if the
Common Stock Shares shall not be listed on such exchange or system, the closing
bid price in the over-the-counter market, in each such case, unless otherwise
provided herein, averaged over a period of five (5) consecutive business days
prior to the day as of which Market Price is being determined.
1.7. The term "Note" refers to this Note and all extensions or
renewals hereof. Such term also refers to any Note or Notes executed and
delivered by the Company in exchange or replacement of this Note pursuant to
Section 4 hereof. .
1.8. The term "Note Register" shall mean the Company's
register of Notes kept at its principal executive offices indicating the
Registered Holders of the Notes and their respective mailing addresses.
1.9. The term "person" shall mean an individual, a
corporation, partnership, trust, an unincorporated organization, a governmental
entity or any department, agency or political subdivision thereof.
1.10. The term "Common Stock Conversion Rate" shall be,
subject to Section 7 hereof, one share of Common Stock for every five dollars
($5.00) of the Principal Amount outstanding at the date of conversion
("Conversion Date") rounded down to the nearest whole number of shares.
2. Holders. The Company may deem and treat the Registered
Holder of this Note as set forth in the Note Register as the absolute owner of
this Note for the purpose of receiving payment hereon or on account hereof and
for all other purposes, and the Company shall not be affected by any notice to
the contrary.
3. Automatic Payment. In the event that, prior to full payment
of the Note or the Holder's exercise of any conversion rights as set forth in
Section 7 below the Company obtains private or public financing in excess of two
million dollars ($2,000,000.00) during the term of this Note, the Company will
repay, and the Holder will accept as payment in full, the outstanding Principal
Amount and interest accrued to date within thirty (30) days after the closing
date of such private or public financing. Such payment shall be considered
payment in full and constitute termination of this Note. All unexercised
conversion rights as provided in Section 7.1 shall expire upon such repayment
and the Company shall be forever released from all its obligations and
liabilities under this Note.
2
<PAGE>
4. Subordination. The indebtedness evidenced by this Note is
hereby expressly subordinated, to the extent and in the manner hereinafter set
forth, in right of payment to the prior payment in full of all the Company's
Senior Indebtedness, as hereinafter defined.
4.1. Senior Indebtedness. As used in this Note, the term
"Senior Indebtedness" shall mean the principal of and unpaid accrued interest on
all indebtedness of the Company to banks, insurance companies or other financial
institutions regularly engaged in the business of lending money, which is for
money borrowed by the Company (whether or not secured) or any such indebtedness
or any debentures, notes or other evidence of indebtedness issued in exchange
for such indebtedness or any indebtedness arising from the satisfaction of such
indebtedness by a guarantor.
4.2. Default on Senior Indebtedness. If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of the assets and
liabilities of the Company, or if this Note shall be declared due and payable
upon the occurrence of an Event of Default with respect to any Senior
Indebtedness, then (i) no amount shall be paid by the Company in respect of the
principal of or interest on this Note at the time outstanding, unless and until
the principal of and interest on the Senior Indebtedness then outstanding shall
be paid in full, and (ii) no claim or proof of claim shall be filed with the
Company by or on behalf of the Holder of this Note that shall assert any right
to receive any payments in respect of the principal of and interest on this
Note, except subject to the payment in full of the principal of and interest on
all of the Senior Indebtedness then outstanding. If there occurs an event of
default that has been declared in writing with respect to any Senior
Indebtedness, or in the instrument under which any Senior Indebtedness is
outstanding, permitting the Holder of such Senior Indebtedness to accelerate the
maturity thereof, then, unless and until such event of default shall have been
cured or waived or shall have ceased to exist, or all Senior Indebtedness shall
have been paid in full, no payment shall be made in respect of the principal of
or interest on this Note, unless within three (3) months after the happening of
such Event of Default, the maturity of such Senior Indebtedness shall not have
been accelerated.
4.3. Effect of Subordination. Subject to the rights, if any,
of the holders of Senior Indebtedness under this Section 4 to receive cash,
securities or other properties otherwise payable or deliverable to the Holder of
this Note, nothing contained in this Section 4 shall impair, as between the
Company and the Holder, the obligation of the Company, subject to the terms and
conditions hereof, to pay to the Holder the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent the Holder of this
Note, upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
4.4. Subrogation. Subject to the payment in full of all Senior
Indebtedness and until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 4.2 above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as
between the Company and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Company to or on
account of this Note; and for the purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness to which the Holder would be
entitled except for the provisions of this Section 4 shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and the
Holder, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
3
<PAGE>
4.5. Undertaking. By its acceptance of this Note, the Holder
agrees to execute and deliver such documents as may be reasonably requested from
time to time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 4.
5. Events of Default and Remedies.
5.1. Events of Default. The entire unpaid Principal Amount of
this Note, together with all accrued interest thereon, shall, at the option of
the Holder hereof, exercised by written notice to the Company at its principal
executive offices, forthwith become and be due and payable if any one or more of
the following events (herein individually called an "Event of Default") shall
have occurred (for any reason whatsoever and whether such happening shall be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body) and be
continuing at the time of such notice:
(a) if the Company shall default in the payment of the
Principal Amount of this Note when and as the same shall become due and payable,
whether at maturity, by acceleration or otherwise;
(b) if the Company shall default in the payment of interest on
this Note when and as such interest shall become due and payable, and such
default shall have continued for a period of five (5) days;
(c) if the Company shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property;
(v) on a petition in bankruptcy filed against it, be
adjudicated a bankrupt; or
(vi) file a petition or answer seeking reorganization
or arrangement under the bankruptcy laws or any other applicable laws or
statues.
(d) if a court of competent jurisdiction or any other
governmental body or agency shall enter an order, judgment, or decree
appointing, without the consent of the Company, a receiver of the Company or of
the whole or any substantial part of its property, or approving a petition filed
against it seeking reorganization or arrangement of the Company under the
bankruptcy laws, and such order, judgment or decree shall not be vacated or set
aside or stayed within sixty (60) days from the date of entry thereof;
4
<PAGE>
(e) if, under the provisions of any other law, any court of
competent jurisdiction or any other governmental body or agency shall assume
custody or control of the Company or of the whole or any substantial part of its
property and such custody or control shall not be terminated or stayed within
sixty (60) days from the date of assumption of such custody or control; or
(f) if an Event of Default shall have been declared in respect
of any other Note or Notes or Senior Indebtedness.
5.2. Within five (5) days of receipt by the Company of any
notice from any Holder of the Note stating that an Event of Default has occurred
and accelerating the maturity of such Note, as provided in subsection 5.1 above,
the Company shall deliver notice thereof, in writing, to each of the other
holders of Notes.
5.3. In case any one or more of the Events of Default
specified in Section 5.1 hereof shall have occurred and be continuing, the
Holder hereof may proceed to protect and enforce its or his rights hereunder
either by suit in equity and/or by action at law, whether for the specific
performance of any covenant or agreement contained in this Note or in aid of the
exercise of any power granted in this Note, or the Holder hereof may proceed to
enforce the payment of all sums due upon this Note or to enforce any other legal
or equitable right of the Holder of this Note.
5.4. No remedy herein conferred upon the Holder hereof is
intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
5.5. No course of dealing between the Company and the Holder
hereof or any delay on the part of the Holder in exercising any rights hereunder
shall operate as a waiver of any rights of any Holder hereof. The Company waives
and agrees not to assert:
(a) any right to require the Holder to proceed against or
exhaust any security for the Notes, to pursue any other remedy available to the
Holders or to pursue any remedy in any particular order or manner; (b) the
benefits of any statute of limitations affecting its liability hereunder or the
enforcement hereof; (c) the benefits of any legal or equitable doctrine or
principle of marshalling; (d) any defense arising by reason of any disability or
other defense of the Company or by reason of the cessation from any cause
whatsoever (other than payment in full) of the liability of the Company for
payment of this Note and (e) the benefits of any statutory provision limiting
the right of the Holders to recover a deficiency judgment or to otherwise
proceed against any person or entity obligated for payment of the Notes, after
any foreclosure or trustee's sale of any security for the Notes.
6. Exchange or Replacement of this Note.
(a) Subject to the transfer restrictions contained in the
legend on the face of this Note, the Holder of this Note, at its option, may in
person or by duly authorized attorney surrender this Note for exchange, at the
principal executive offices of the Company, and receive in exchange therefor a
new Note or Notes in the same aggregate Principal Amount as the aggregate unpaid
Principal Amount of this Note and bearing interest at the same annual rate as
this Note, such new Note or Notes to be dated as of the Issuance Date and to be
in such Principal Amount and payable to such person or persons as such Holder
may designate in writing; provided, that the Holder shall be required to pay any
5
<PAGE>
tax or other governmental charge which may be payable in respect of any transfer
involved in the issuance and delivery of a new Note or Notes and any other
expenses of the Company payable in connection therewith. Seven (7) days' prior
written notice of the Holder's intention to make such exchange shall be given to
the Company, and provided that in the event of any such exchange involving the
issuance and delivery of a new Note in the name other than that of the Holder of
this Note, such notice shall include the name and mailing and residence address
of the transferee and stating the desired effective date of such change of
ownership.
(b) With respect to any transfer of this Note in accordance
with clause (a) of this Section 6, such transfer shall be registered upon the
Company's Note Register following the Company's receipt of all documents
necessary to effect transfer in accordance with this Section 6 (but subject to
the transfer restrictions contained in the legend on the face of this Note). The
effective date of any such transfer recorded on the Note Register shall be the
date requested in the notice of transfer. In the event the desired date is
omitted from the notice of transfer, the Company may in its discretion honor
such transfer, and, in such case, the effective date of transfer shall be the
first date at which the Company is in receipt of all of the items required by
this Section 6. All accrued interest from and after the Issuance Date payable in
respect of this Note shall be due and payable as provided herein to the
Registered Holder of this Note.
(c) Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Note, and (in case of
loss, theft or destruction) of indemnity satisfactory to it, and upon surrender
and cancellation of this Note, if mutilated, the Company, upon reimbursement to
it of all reasonable expenses incidental thereto, will make and deliver a new
Note, of like tenor in lieu of this Note. Any Note made and delivered in
accordance with the provisions of this paragraph (c) shall be dated as of the
Issuance Date.
7. Conversion of Note.
7.1. Conversion Right.
(a) Voluntary Conversion. Any Holder of this Note shall have
the right at Holder's option to convert all or any portion of the Principal
Amount of this Note, subject to and upon compliance with the terms and provision
of this Section 7, into such number of whole shares of such fully paid and
nonassessable shares of Common Stock as determined in accordance with the Common
Stock Conversion Rate. The conversion right provided in this Section 7 shall
expire upon the repayment in full of this Note with interest.
7.2. Conversion Procedure.
(a) Notice of Conversion Pursuant to Section 7.1(a). Before
the Holder shall be entitled to convert this Note into shares of Common Stock,
it shall surrender this Note at the office of the Company and shall give written
notice by mail, postage prepaid, to the Company at its principal corporate
office, of the election to convert the same, if the Holder is electing to
convert pursuant to Section 7.1(a), and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Company shall, as soon as practicable thereafter, issue and deliver
at such office to the Holder of this Note a certificate or certificates for the
number of shares of Common Stock to which the Holder of this Note 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 this
Note, and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date.
6
<PAGE>
(b) Notice of Conversion Pursuant to Section 7. If this Note
is automatically converted, written notice shall be delivered to the Holder of
this Note at the address last shown on the records of the Company for the Holder
or given by the Holder to the Company for the purpose of notice or, if no such
address appears or is given, at the place where the principal executive office
of the Company is located, notifying the Holder of the conversion to be
effected, specifying the Common Stock Conversion Rate, the Principal Amount of
the Note to be converted, the amount of accrued interest to be converted, the
date on which such conversion will occur and calling upon such Holder to
surrender to the Company, in the manner and at the place designated, the Note.
7.3. Delivery of Stock Certificates. As promptly as
practicable after the conversion of this Note, the Company at its expense will
issue and deliver to the Holder of this Note a certificate or certificates for
the number of full shares of Common Stock issuable upon such conversion.
7.4. Mechanics and Effect of Conversion. No fractional shares
of Common Stock shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to the Holder upon the conversion of this
Note, the Company shall pay to the Holder the amount of outstanding principal
that is not so converted, such payment to be in the form as provided below. Upon
the conversion of this Note pursuant to Section 7.1(a) above, the Holder shall
surrender this Note, duly endorsed, at the principal office of the Company. At
its expense, the Company shall, as soon as practicable thereafter, issue and
deliver to such Holder at such principal office a certificate or certificates
for the number of shares of such Common Stock to which the Holder shall be
entitled upon such conversion (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to the
Company), together with any other securities and property to which the Holder is
entitled upon such conversion under the terms of this Note, including a check
payable to the Holder for any cash amounts payable as described above. Upon
conversion of this Note, the Company shall be forever released from all its
obligations and liabilities under this Note, except that the Company shall be
obligated to pay the Holder, within ten (10) days after the date of such
conversion, any interest accrued and unpaid or unconverted to and including the
date of such conversion, and no more.
7.5. Conversion Price Adjustments.
(a) Adjustments for Stock Splits and Subdivisions. In the
event the Company should at any time or from time to time after the date of
issuance hereof 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 Common Stock Conversion Rate of
this Note shall be appropriately decreased so that the number of shares of
Common Stock issuable upon conversion of this Note shall be increased in
proportion to such increase of outstanding shares.
7.6. Fractional Shares. No certificates for fractional shares
of Common Stock shall be issued upon conversion of this Note. If the conversion
of this Note, or any portion hereof, results in a fraction of a share of Common
Stock, the Company shall pay, out of funds legally available therefor, a cash
7
<PAGE>
adjustment in respect of such fractional share of Common Stock in an amount
equal to the fair market value thereof.
7.7. Shares. The Company agrees that its issuance of this Note
shall constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note in accordance with
Section 7.1. The Company agrees that all shares of Common Stock which shall be
issued upon conversion of this Note shall, when so issued, be duly and validly
issued and fully paid and nonassessable.
7.8. Anti-Dilution. The Common Stock Conversion Rate per share
shall be subject to adjustment from time to time as hereafter provided. Upon
each adjustment of the Common Stock Conversion Rate, the Holder shall thereafter
be entitled to convert shares at the Common Stock Conversion Rate resulting from
such adjustment, the number of shares obtained per share by dividing the Common
Stock Conversion Rate in effect immediately prior to such adjustment by the
Common Stock Conversion Rate resulting from such adjustment.
(a) Stock Splits and Reverse Splits. In the event the Company
subdivides its outstanding shares of Common Stock into a greater number of
shares, the Common Stock Conversion Rate in effect immediately prior to the
subdivision shall be proportionately reduced and the number of shares of Common
Stock convertible pursuant to the conversion terms evidenced hereby immediately
prior to the subdivision shall be proportionately increased, and conversely, in
the event the outstanding shares of Common Stock of the Company are combined
into a smaller number of shares, the Common Stock Conversion Rate in effect
immediately prior to the combination shall be proportionately increased and the
number of shares of Common Stock convertible under the terms of this Section 7.8
shall be proportionately reduced. Except as provided herein, no adjustments in
the Common Stock Conversion Rate and no change in the number of shares of Common
Stock convertible shall be made under this Section 7 as a result, or by reason,
of any subdivision or combination.
(b) Reorganization and Asset Sales. If any capital
reorganization or reclassification of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all its assets to another corporation, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to, or in exchange for, Common Stock then the
following provisions shall apply:
(i) As a condition of the reorganization, reclassification,
consolidation, merger or sale (except as otherwise provided in this Section
7.8), lawful and adequate provisions shall be made whereby the Holder shall
thereafter have the right to purchase and receive upon the terms and conditions
specified in this Note and in lieu of the shares of Common Stock immediately
theretofore receivable upon the exercise of the rights represented hereby, the
shares of stock, securities or assets as may be issued with respect to, or in
exchange for, a number of outstanding shares of Common Stock equal to the number
of shares of Common Stock immediately receivable had the reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and interest
of such Holder to the end that the provisions hereof (including, without
limitation, provisions or adjustments of the Common Stock Conversion Rate and of
the number of shares of Common Stock receivable upon exercise) shall thereafter
be applicable, as nearly as may be practicable, in relation to any shares of
stock, securities or assets thereafter deliverable upon the conversion of this
Note.
8
<PAGE>
(ii) In the event of a merger or consolidation of the Company
with or into another corporation as a result of which a number of shares of
Common Stock of the surviving corporation are greater or lesser than the number
of shares of Common Stock of the Company outstanding immediately prior to the
merger or consolidation are issuable to holders of Common Stock of the Company,
then the Common Stock Conversion Rate in effect immediately prior to the merger
or consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company.
7.9. Transfer Taxes. The issue of any stock or other
certificate upon conversion of this Note shall be made without charge to the
Holder of this Note for any transfer or issuance tax in respect of the issue
thereof. The Company shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder of this Note, and, the
Company shall not be required to issue or deliver any such certificate unless
and until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid, and in all cases any
such transfer shall be subject to the transfer restrictions herein contained.
8. Modifications. Modifications and alterations of the Note
may be made by the Company with the consent of the Holders of this Note.
9. Expenses; Preferential Payments.
(a) In the event of any Event of Default hereunder, the
Company agrees to pay to the Holder hereof all expenses including, without
limitation, reasonable fees and disbursements of counsel, incurred by the Holder
in the enforcement and collection of this Note.
(b) All payments on this Note shall be applied first to the
payment of any costs, fees or other charges incurred in connection with the
collection of the indebtedness evidenced hereby, next to the payment of accrued
interest, including Default Interest, if any, and then to the reduction of the
Principal Amount.
(c) The Company agrees that to the extent the Company makes
any payment to the Holder in connection with the indebtedness evidenced by this
Note, and all or any part of such payment is subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid by the
Holder or paid over to a trustee, receiver or any other entity, whether under
any bankruptcy act or otherwise (any such payment is hereinafter referred to as
a "Preferential Payment"), then the indebtedness of the Company under this Note
shall continue or shall be reinstated, as the case may be, and, to the extent of
such payment or repayment by the Holder, the indebtedness evidenced by this Note
or part thereof intended to be satisfied by such Preferential Payment shall be
revived and continued in full force and effect as if said Preferential Payment
had not been made.
10. Offset.
(a) The Holder of this Note is hereby irrevocably authorized
at any time and from time to time without notice to the Company, any such notice
being expressly waived by the Company, to offset and appropriate and apply any
and all deposits (general or special, time or demand, provisional or final), in
any currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect or contingent or matured or unmatured at
any time held or owing by such Holder to or for the credit or the account of the
Company, or any part thereof in such amounts as such Holder may elect, against
9
<PAGE>
and on account of the obligations and liabilities of the Company to such Holder
hereunder and claims of every nature and description of such Holders against the
Company, in any currency, whether arising hereunder or otherwise, as such Holder
may elect, whether or not such Holder has made any demand for payment, although
such obligations, liabilities and claims may be contingent or unmatured and
without regard to whether an Event of Default has occurred. Any Holder
exercising its rights under this Section 10 agrees to notify the Company
promptly of any such offset and the application made by such Holder, provided
that the failure to give such notice shall not affect the validity of such
offset and application. The rights of the Holder under this Section 10 are in
addition to any other rights and remedies (including, without limitation, other
rights of offset) which such Holder may have.
(b) The payment of the Principal Amount of this Note and the
interest due hereon, or any other amounts due in respect hereof, shall not be
subject to any offset, counterclaim or other reduction by the Company.
11. Section Headings. The Section headings contained herein
are for the purpose of convenience of reference only and are not intended to
define or limit the contents of any such Section.
12. Severability. In the event that one or more of the
provisions of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, but this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
13. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of California applicable to
agreements made and to be performed entirely within such State.
14. Notices. Any notice to be given hereunder shall be in
writing and delivered personally or by overnight courier or sent by certified
mail, postage prepaid, return receipt requested, addressed to the Company at 21
Stillman Street, Suite 600, San Francisco, California 94107 and to the Holder at
such address as is set forth in the Subscription Agreement between the Company
and the initial Holder hereof, or such other address as either party may
subsequently designate by like notice.
IN WITNESS WHEREOF, this Note has been executed by the parties as of the day,
month and year first above written.
HOLDER
By:___________________________
PETPLANET.COM, INC.
By:___________________________
Name: Steven E. Marder
Title: Chief Executive Officer
10
<PAGE>
WARRANT
THIS WARRANT CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY HAVE NOT BEEN AND THE
COMMON STOCK TO BE ISSUED UPON EXERCISE OF SUCH WARRANTS HAS NOT BEEN OR WILL
NOT, UPON THE ISSUANCE THEREOF, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR QUALIFIED UNDER STATE SECURITIES LAWS
BUT HAVE BEEN, OR WILL BE, AS THE CASE MAY BE, ISSUED PURSUANT TO AN EXEMPTION
FROM SUCH REGISTRATION AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF UNLESS (i) THE ISSUER THEREOF SHALL HAVE RECEIVED AN
OPINION OF COUNSEL TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION THEREOF
IS LEGALLY REQUIRED FOR SUCH TRANSFER OR (ii) COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFIED UNDER APPLICABLE
STATE SECURITIES LAWS.
No. Warrant to Purchase 33,333 Shares of
------------------ Common Stock (subject
to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
PETPLANET.COM, INC.
Void after November 1, 2002 or as otherwise provided herein.
This certifies that, for value received, ____________________________
or his registered assigns ("Holder") is entitled, subject to the terms set forth
below, to purchase from PETPLANET.COM, INC. (the "Company"), a Delaware
corporation, ______________________ shares of the Common Stock of the Company
(the "Shares"), as constituted on the date hereof (the "Warrant Issue Date"),
upon surrender hereof, at the principal office of the Company referred to below,
with the subscription form attached hereto duly executed, and simultaneous
payment therefor in lawful money of the United States or otherwise as
hereinafter provided, at the exercise price (the "Exercise Price") as set forth
in Section 2 below. The number, character and Exercise Price of such Shares are
subject to adjustment as provided below. The term "Warrant" as used herein shall
include this Warrant, which is one of a series of warrants issued for the Shares
of the Company, and any warrants delivered in substitution or exchange therefor
as provided herein.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending on November 1, 2002 at 5:00
P.M., Pacific standard time, and shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be five dollars ($5.00).
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are exercisable by
the Holder in whole during the term hereof as described in Section 1 above, by
1
<PAGE>
the surrender of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company), upon payment (i) in cash or by check acceptable to the Company, (ii)
by cancellation by the Holder of indebtedness of the Company to the Holder, or
(iii) by a combination of (i) and (ii), of the purchase price of the Shares to
be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the Shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such Shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of Shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of Shares for which this
Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional Shares or scrip
representing fractional Shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. Registration Rights.
(a) Piggy-back Registration Rights. In the event of a public offering
of the Company's securities registered pursuant to the Securities Act in which
the Company receives gross proceeds of $5,000,000 or such lesser amount as may
be determined by the board of directors of the Company (other than a
registration (A) on Form S-8 or S-4 or any successor or similar forms, (B)
relating to Common Stock issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company or (C) in
connection with a direct or indirect acquisition by the Company of another
company), whether or not for the sale of its own account, the Company will give
at least thirty (30) days' prior written notice of the filing thereof to all
holders of Warrants (referred to as the "Registrable Warrants") covering shares
of Common Stock issuable upon the exercise of Warrants (the "Warrant Shares")
and Registrable Stock, as defined below.
(i) The Company's notice shall afford the holders of all
Registrable Warrants and of Registrable Stock an opportunity to elect within
thirty (30) days after receipt thereof to include in such filing their
Registrable Stock "Registrable Stock" covers the Warrant Shares then outstanding
which (x) are not registered under the Securities Act or (y) are not eligible
for sale under circumstances in which all of the applicable conditions of Rule
144 (or any similar provisions then in effect) under the Securities Act are met
or (z) may
2
<PAGE>
not be sold pursuant to Rule 144(k), and the Company has not delivered a new
certificate or other evidence of ownership for such share not bearing a
restrictive legend.
(ii) The inclusion of Registrable Stock in any such registration
involving an underwritten public offering shall be upon the condition that the
holders thereof complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and the provisions hereof in
respect of registration rights.
(iii) For so long as any Registrable Stock or Registrable Stock or
Registrable Warrant remains outstanding, the Company shall be obligated under
this Section 6(a) to afford the holders thereof the right to participate in each
and every such registration of Common Stock of the Company. If, at any time
after giving written notice of its intention to register any Common Stock
pursuant to this Section 6(a) and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such stock, the Company shall
give written notice to all such holders of Registrable Stock and, thereupon,
shall be relieved of its obligation to register any Registrable Stock in
connection with such registration (without prejudice, however, to rights of any
such holder under Section 6(a) above).
(iv) If a registration pursuant to this Section 6(a) involves an
underwritten public offering and the managing underwriter shall advise the
Company that, in its view, the number of shares of Common Stock which the
Company and such holders of Registrable Stock intend to include in such
registration exceeds the maximum offering size, the number of shares to be
included in such registration shall be limited by excluding the shares to be
registered in such offering, to the extent required by such limitation, in the
following order: (A) first, any securities or shares (other than Registrable
Stock) subject to other contractual registration rights, (B) next, the number of
shares that may be included in the registration and underwriting by holders of
Registrable Stock shall be allocated among all holders thereof, in proportion,
as nearly as practicable, to the respective amounts of securities which such
holders of Registrable Stock would otherwise be entitled to include in such
registration, and (C) last, the shares being registered by the Company.
(b) Expenses of Registration. The costs and expenses (other than
underwriting discount or commission) of the registrations effected pursuant to
Section 6(a) above and of all other actions which the Company is required to
take or effect pursuant to this Section 6 shall be paid by the Company
(including, without limitation, all federal, state, NYSE or NASD registration
and filing fees, printing expenses, costs of special audits incidental to or
required by any such registration, and fees and disbursements of counsel for the
Company and for the holders of Registrable Stock (including allocated costs of
internal counsel)), except that all such expenses in connection with any
amendment or supplement to the registration statement or the prospectus used in
connection therewith required to be filed more than nine (9) months after the
date on which such registration statement becomes effective under the Securities
Act because any holder has not effected the disposition of Registrable Stock
covered by such registration statement shall be borne by such holder or holders,
in such proportions as they may agree.
(c) Registration Procedures. Whenever holders of Registrable Stock
request that any Registrable Stock be registered pursuant to Section 6(a) above,
the Company will, subject to the provisions of this Section 6, use reasonable
efforts to effect the registration of such Registrable Stock in accordance with
the intended method of disposition thereof as quickly as practicable, and in
connection with any such request:
3
<PAGE>
(i) The Company will as expeditiously as possible prepare and file
with the Commission a registration statement on any form for which the Company
then qualifies and which counsel for the Company shall deem appropriate and
which form shall be available for the sale of the Registrable Stock to be
registered thereunder in accordance with the intended method of distribution
thereof, and use reasonable efforts to cause such filed registration statement
to become and remain effective for a period of not less than nine (9) months (or
such shorter period in which all of the Registrable Stock of the holders thereof
included in such registration statement shall have actually been sold
thereunder).
(ii) The Company will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to each
holder of Registrable Stock and each underwriter, if any, of the Registrable
Stock covered by such registration statement copies of such registration
statement as proposed to be filed, and thereafter the Company will furnish to
such holder and underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such holder or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Stock owned by such holder.
(iii) After the filing of the registration statement, the Company
will promptly notify each holder holding Registrable Stock covered by such
registration statement of any stop order issued or threatened by the Commission
and take all reasonable actions required to prevent the entry of such stop order
or to remove it if entered.
(iv) The Company will use reasonable efforts to (A) register or
qualify the Registrable Stock covered by such registration statement under such
other securities or blue sky laws of such jurisdictions in the United States as
any holder holding such Registrable Stock reasonably (in light of such holder's
intended plan of distribution) requests and (B) cause such Registrable Stock to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company and do any and all other acts and things that may be reasonably
necessary or advisable to enable such holder to consummate the disposition of
the Registrable Stock owned by such holder; provided, that the Company will not
be required to (A) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subsection (iv), or (B)
subject itself to taxation in any such jurisdiction, or (C) consent to general
service of process in any such jurisdiction.
(v) The Company will immediately notify each holder holding such
Registrable Stock, at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the occurrence of an event requiring
the preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Stock, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and promptly prepare and make available to each such holder
any such supplement or amendment.
4
<PAGE>
(vi) The Company will otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering a period of twelve (12) months, beginning within three (3) months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(vii) The Company may require each such holder to promptly furnish
in writing to the Company such information regarding the distribution of the
Registrable Stock as the Company may from time to time reasonably request and
such other information as may be legally required in connection with such
registration.
(viii) Each such holder of Registrable Stock agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 6(c)(iii) or 6(c)(v) above (a "Stop-sale Notice"), such
holder will forthwith discontinue disposition of Registrable Stock pursuant to
the registration statement covering such Registrable Stock until such holder's
receipt of a second notice from the Company that such stop-order has been
removed and/or the copies of the supplemented or amended prospectus contemplated
by Section 6(c)(v) above have been filed, and, if so directed by the Company,
such holder will deliver to the Company all copies, other than any permanent
file copies then in such holder's possession, of the most recent prospectus
covering such Registrable Stock at the time of receipt of such Stop-sale Notice.
In the event that the Company shall give such Stop-sale Notice, the Company
shall extend the period during which such registration statement shall be
maintained effective (including the period referred to in Section 6(e)(i) above)
by the number of days during the period from and including the date of the
giving of notice pursuant to Section 6(e)(iii) or 6(e)(v) above, as applicable,
to the date when the Company shall give the holders of Registrable Stock notice
that the Stop-sale Notice has been removed and/or make available to such holders
a prospectus supplemented or amended to conform with the requirements of Section
6(e)(v) above.
(d) Restriction on Sale. In the event the Company registers its
securities under the Securities Act pursuant to a firm commitment underwriting,
each holder of Registrable Stock will not, for such period of time specified by
the managing underwriter, but not in excess of eighteen (18) months following
the effective date of such registration statement, sell or otherwise transfer
any of the Warrants or any shares of Registrable Stock without the prior written
consent of such underwriter, provided that each of the Company's executive
officers and directors agree to the same restriction for the same period of
time.
(e) Survival of Provisions. The provisions of this Section with respect
to Warrant Shares, shall survive the exercise of any Registrable Warrants.
7. Rights of Stockholders. Nothing contained in this Warrant shall be
determined as conferring upon or entitle the Holder to any rights of a
stockholder of the Company
8. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change his address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given to
the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
5
<PAGE>
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 8(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at the
office of such agent.
(c) Transferability and Nonnegotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Subject to the provisions of this Warrant with respect to
compliance with the Securities Act, title to this Warrant may be transferred by
endorsement (by the Holder executing the Assignment Form annexed hereto) and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Securities Act
and with the limitations on assignments and transfers and contained in this
Section 8, the Company at its expense shall issue to or on the order of the
Holder a new warrant or warrants of like tenor, in the name of the Holder or as
the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, for the number of Shares issuable upon exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the Shares of Common Stock to be issued upon exercise
hereof or conversion thereof are being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder will not offer, sell or otherwise dispose of this Warrant or any
Shares of Common Stock to be issued upon exercise hereof or conversion thereof
except under circumstances that will not result in a violation of the Securities
Act or any state securities laws. Upon exercise of this Warrant, the Holder
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the Shares of Common Stock so purchased are being acquired
solely for the Holder's own account and not as a nominee for any other party,
for investment, and not with a view toward distribution or resale.
(ii) This Warrant and all Shares of Common Stock issued upon
exercise hereof or conversion thereof shall be stamped or imprinted with a
legend in substantially the following form (in addition to any legend required
by state securities laws):
THIS WARRANT CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY HAVE NOT
BEEN AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF SUCH WARRANTS
HAS NOT BEEN OR WILL NOT, UPON THE ISSUANCE THEREOF, HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR QUALIFIED UNDER STATE SECURITIES LAWS BUT HAVE
BEEN, OR WILL BE, AS THE CASE MAY BE, ISSUED PURSUANT TO AN EXEMPTION
FROM SUCH REGISTRATION AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
6
<PAGE>
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) THE ISSUER THEREOF
SHALL HAVE RECEIVED AN OPINION OF COUNSEL TO THE EFFECT THAT NO
REGISTRATION OR QUALIFICATION THEREOF IS LEGALLY REQUIRED FOR SUCH
TRANSFER OR (ii) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND QUALIFIED UNDER APPLICABLE STATE SECURITIES
LAWS.
9. Reservation of Stock. The Company covenants that during the term
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of Shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Certificate of Incorporation (the
"Certificate") to provide sufficient reserves of Shares of Common Stock issuable
upon exercise of the Warrant. The Company further covenants that all Shares that
may be issued upon the exercise of rights represented by this Warrant and
payment of the Exercise Price, all as set forth herein, will be free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously or otherwise specified
herein). The Company agrees that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for Shares of
Common Stock upon the exercise of this Warrant.
10. Notices.
(a) Whenever the Exercise price or number of Shares purchasable
hereunder shall be adjusted pursuant to Section 12 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of Shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Warrant.
(b) In case, and subject to the provisions set forth in Section 12
hereto:
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any Shares of stock of
any class or any other securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company, then, and in each such case, the Company will mail or cause to be
mailed to the Holder or Holders a notice specifying, as the case may be, (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
7
<PAGE>
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock shall be entitled to exchange their Shares
of Common Stock (or such other stock or securities) for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 15 days prior to the date therein specified.
(c) All such notices, advises and communications shall be deemed to
have been received (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the third business day following
the date of such mailing.
11. Amendments.
This Warrant and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
12. Adjustments. The Exercise Price and the number of Shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) Merger, Sale of Assets, etc. If at any time while this Warrant, or
any portion thereof, is outstanding and unexpired there shall be a Corporate
Transaction as defined below, then, as a part of such Corporate Transaction,
lawful provision shall be made so that the Holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in effect,
the number of Shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation, sale or
transfer that a Holder of the Shares deliverable upon exercise of this Warrant
would have been entitled to receive in such Corporate Transaction if this
Warrant had been exercised immediately before such Corporate Transaction, all
subject to further adjustment as provided in this Section 12. The foregoing
provisions of this Section 12(a) shall similarly apply to successive Corporate
Transactions and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
(b) Corporate Transaction. A corporate transaction ("Corporate
Transaction") shall be one or more of the following events:
(i) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein);
(ii) a merger, acquisition or consolidation of the Company with or
into another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity, but the
Shares of the Company's capital stock outstanding immediately prior to the
8
<PAGE>
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise;
(iii) a sale, transfer or other disposition of all or substantially
all of the properties and assets of the Company; or
(iv) the closing of the initial underwritten public offering or
secondary offering by the Company of its equity securities pursuant to an
effective registration statement filed under the Securities Act.
(c) Reclassification, etc. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 12.
(d) Split, Subdivision or Combination of Shares. If the Company at any
time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 12, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of Shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
(f) No Impairment. The Company will not, by any voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 12 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holders of this Warrant against impairment.
13. Miscellaneous.
(a) Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Holder with respect to this Warrant.
9
<PAGE>
(b) Binding Effects; Benefits. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Holder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Holder, or their
respective successors, any rights, remedies, obligations or liabilities under or
by reason of this Warrant.
(c) Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Holder. Either the Company or the Holder may, by an instrument in writing, waive
compliance by the other party with any term or provision of this Warrant on the
part of such other party hereto to be performed or complied with. The waiver by
any such party of a breach of any term or provision of this Warrant shall not be
construed as a waiver of any subsequent breach.
(d) Section and Other Headings. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
(e) Further Assurances. Each of the Company and the Holder shall do and
perform all such further acts and things and execute and deliver all such other
certificates, instruments and documents as the Company or the Holder may, at any
time and from time to time, reasonably request in connection with the
performance of any of the provisions of this Agreement.
(f) Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
If to the Company, addressed to:
PETPLANET.COM, INC.
21 Stillman Street, Suite 600
San Francisco, CA 94107
Attention: Chief Executive Officer
Telecopier: (415) 243-3399
Phone: (415) 243-9000
If to the Holder, addressed to:
Telecopier:
Phone:
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
10
<PAGE>
(g) Severability. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
(h) Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of California as entered into in California between
residents of California.
(i) Market Standoff. By accepting this Warrant, if the Holder is an
officer, director or other person covered by the Company's trading policies, the
Holder agrees not to exercise this Warrant or sell any Warrant Shares acquired
upon exercise of this Warrant at a time when applicable laws, regulations or
Company trading policies prohibit exercise or sale, including, without
limitation, during any periods (typically during the period preceding the
announcement of quarterly earnings or other material events) in which the
Company closes the "trading window" for sales thereby prohibiting sales during
such periods by Company officers, directors and others.
In addition, whether Holder of this Warrant is an employee of the
Company or not, if requested by the Company and an underwriter of the Common
Stock (or other securities) of the Company, the Holder shall not pledge, sell,
offer to sell, contract to sell, grant any option to purchase, make any short
sale or otherwise dispose of any Warrant of the Company, or any options or
warrants to purchase any Shares of the Warrant of the Company or any securities
convertible into or exchangeable for Shares of Common Stock of the Company,
whether now owned or hereinafter acquired, owned directly by the Holder or with
respect to which the Holder has beneficial ownership within the rules and
regulations of the Securities and Exchange Commission (the "Commission");
otherwise than (x) as a bona fide gift or gifts, provided that the donee or
donees thereof agree to be bound by the restrictions set forth herein, (y) a
transfer to any trust for the direct or indirect benefit of the Holder or his
immediate family provided that the trustee of the trust agrees to be bound by
the restrictions set forth herein, held by the Holder during the one hundred
eighty (180) day period following the effective date of a registration statement
of the Company filed under the Securities Act, provided that:
(1) such one hundred eighty (180) day "market stand-off" agreement
shall only apply to the first such registration statement of the Company filed
after the Warrant Issue Date, including securities to be sold on its behalf to
the public in an underwritten offering, and provided further that, for
subsequent filings of registration statements under the Securities Act the
period during which the Holder shall not sell or otherwise transfer or dispose
of any Warrant Shares (other than those included in the registration) shall be
ninety (90) days. The market stand-off agreement with respect to subsequent
filings of registration statements under the Securities Act shall no longer
apply to the Holder at such time as the Holder own less than five percent (5%)
of the outstanding Common Stock of the Company and the Holder ceases to be
deemed an affiliate of the Company for purposes of the Securities Act.
(2) In the event of any stock dividend, stock split,
recapitalization, or other change affecting the Company's outstanding Common
Stock effected without receipt of consideration, then any new, substituted, or
additional securities distributed with respect to the Warrant Shares shall be
immediately subject to the provisions of this Section, to the same extent the
Warrant Shares are at such time covered by such provisions.
11
<PAGE>
For purposes of this section, "immediate family" shall mean any relationship by
blood, marriage or adoption, not more remote than first cousin. The Holder also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of the Holder's
Warrant Shares except in compliance with the foregoing restrictions.
IN WITNESS WHEREOF, PETPLANET.COM, INC. has caused this Warrant to be
executed by its officers thereunto duly authorized on the following Warrant
Issue Date.
Dated: ___________________.
HOLDER: PETPLANET.COM, INC.
----------------------------
By: By:
--------------------------------- ----------------------------------
SSN: Its:
-------------------------------- ---------------------------------
12
<PAGE>
NOTICE OF EXERCISE
To: PETPLANET.COM, INC.
(1) The undersigned hereby elects to purchase __________ Shares of
Common Stock of PETPLANET.COM, INC., pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price for such Shares in
full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Shares of the Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, or for investment, and that the undersigned will
not offer, sell or otherwise dispose of any such Shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said Shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
------------------------------
(Name)
------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
------------------------------
(Name)
- ------------------------- ------------------------------
(Date) (Signature)
13
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of Shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint Attorney
______________________ to make such transfer on the books of PETPLANET.COM,
INC., maintained for the purpose, with full power of substitution in the
premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the Shares of stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant or
any Shares of stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act or any federal or state securities laws. Further, the Assignee
has acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale.
Dated: _______________, 19__.
------------------------------
Signature of Holder
14
<PAGE>
STOCK SUBSCRIPTION AGREEMENT
THIS STOCK SUBSCRIPTION AGREEMENT (the "Agreement") dated December __,
1999 is made between PetPlanet.com, Inc., a Delaware Corporation, (the
"Corporation") and ______________ (the "Investor').
1. Subscription. Subject to the terms and conditions hereof, Investor
hereby tenders a subscription for _____( ) units, each unit consisting of fifty
thousand shares of common stock of the Corporation ($.01 par value per share),
at a purchase price of one hundred thousand dollars ($100,000) or two dollars
($2.00) per share, subject to the terms and conditions as set forth herein
below. (Collectively, each 50,000 share block shall be a "Unit" or the "Units").
Full payment of the purchase price is included herewith.
2. Acceptance of Subscription. It is understood and agreed that the
Corporation shall have the right to accept or reject this Agreement, in whole or
in part, and that the same shall be deemed to be accepted on behalf of the
Corporation only when it is signed by the Corporation.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Corporation, and to its respective agents and
employees, as follows:
a. Accredited Investor. The Investor is an accredited investor
("Accredited Investor") as defined in Securities and Exchange
Commission ("SEC") Rule 501(a) and as indicated on such Investor's
counterpart signature page attached hereto.
b. Adequate Disclosure. The Investor or its agents or
representatives have received, read and understand all relevant
financial statements and related material of the Corporation as
requested by the Investor.
c. No Assurances. It has been called to the attention of the
Investor in the relevant financial statements reviewed by the Investor
and by those individuals with whom the Investor has dealt, that
investment in the Corporation involves a high degree of risk and that
no assurances are or have been made regarding the profits which may or
may not inure to the benefit of the Investor.
d. Requisite Authority. The Investor, if a corporation,
partnership or trust, has the requisite authority and is otherwise duly
qualified to purchase and hold the Units.
e. Requisite Age of Investor. The Investor, if an individual,
is at least twenty-one (21) years of age.
-1-
<PAGE>
f. Restricted Securities.
(i) The Investor hereby confirms that the Investor has been
informed that the Units are restricted securities under
the Act and may not be resold or transferred unless the
Units are first registered under federal and state
securities laws or unless an exemption from such
registration is available. Accordingly, the Investor
hereby acknowledges that the Investor is prepared to
hold the Units for an indefinite period of time and that
the Investor is aware that Rule 144 of the Securities
and Exchange Commission (the "Commission") issued under
the Act is not presently available to exempt the sale of
the Units from the registration requirements of the Act.
(ii) The Investor is aware of the adoption of Rule 144 by the
Commission, promulgated under the Act, which permits
limited public resales of securities acquired in a
nonpublic offering, subject to the satisfaction of
certain conditions. The Investor understands that under
Rule 144, the conditions include, among other things:
the availability of certain current public information
about the issuer, the resale occurring not fewer than
one (1) year after the party has purchased and paid for
the securities to be sold, the sale being through a
broker in an unsolicited "broker's transaction" and the
amount of securities being sold during any three (3)
month period not exceeding specified limitations. The
Investor acknowledges and understands that the
Corporation may or may not be satisfying the current
public information requirement of Rule 144 at the time
the Investor wishes to sell the Units or meet other
conditions under Rule 144 which are required of the
Corporation. If so, the Investor understands that he
will be precluded from selling the securities under Rule
144 even if the one-(1) year holding period of said Rule
has been satisfied. Investor agrees not to make, without
the prior written consent of the Corporation, any public
offering or sale of the Units although permitted to do
so pursuant to Rule 144(k) promulgated under the Act,
until the date on which the Corporation effects its
secondary registered public offering pursuant to the
Act.
(iii) Prior to acquisition of the Units, the Investor acquired
sufficient information about the Corporation to reach an
informed knowledgeable decision to acquire the Units.
The Investor has such knowledge and experience in
financial and business matters as to make him capable of
evaluating the risks of the prospective investment and
to make an informed investment decision. The Investor is
able to bear the economic risk of complete and total
loss of his investment in the Units.
g. No Outside Representations or Warranties. Investor has
received no representations or warranties from the Corporation or its
officers, directors, employees, or agents other than those otherwise
set forth herein.
4. Representations and Warranties of the Corporation. The Corporation
hereby represents and warrants to the Investor as follows:
-2-
<PAGE>
a. This Agreement has been duly and validly authorized,
executed and delivered by or on behalf of the Corporation and
constitutes the valid, binding and enforceable agreement of the
Corporation.
b. The Corporation was duly and validly organized and is
validly existing under the laws of the State of Delaware and has full
power and authority to conduct the business in which it is engaged and
intends to engage.
c. The Units purchased pursuant to this Agreement are validly
issued and, subject to the payment of the purchase price, will be fully
paid and non-assessable.
5. Notices. The address for all parties for all purposes shall be the
address set forth on the signature pages to this Agreement or such other address
of which the other parties have received notice. Any notice to be given under
this Agreement shall be made in writing, and shall be deemed to be given when
delivered to the party at its address or when sent by first class, certified or
registered mail, return receipt requested, to such party at such address as it
shall designate.
6. Piggy-back Registration Rights.
(a) In the event of a secondary public offering of the Corporation's
securities registered pursuant to the Act (other than a registration (A) on Form
S-8 or S-4 or any successor or similar forms, (B) relating to Common Stock
issuable upon exercise of employee stock options or in connection with any
employee benefit or similar plan of the Corporation or (C) in connection with a
direct or indirect acquisition by the Corporation of another company), whether
or not for the sale of its own account, the Corporation will give at least
thirty (30) days' prior written notice of the filing thereof to all holders of
Common Stock then outstanding that (x) is not registered under the Securities
Act or (y) is not eligible for sale under circumstances in which all of the
applicable conditions of Rule 144 (or any similar provisions then in effect)
under the Securities Act are met or (z) may not be sold pursuant to Rule 144(k),
and the Corporation has not delivered a new certificate or other evidence of
ownership for such shares not bearing a restrictive legend ("Registrable
Stock").
(i) The Corporation's notice shall afford the holders
of all Registrable Stock an opportunity to elect within thirty (30) days after
receipt thereof to include in such filing their Registrable Stock.
(ii) The inclusion of Registrable Stock in any such
registration involving an underwritten public offering shall be upon the
condition that the holders thereof complete and execute all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and the
provisions hereof in respect of registration rights.
(iii) For so long as any Registrable Stock remain
outstanding, the Corporation shall be obligated under this Section 6(a) to
afford the holders thereof the right to participate in each and every such
registration of Common Stock of the Corporation. If, at any time after giving
written notice of its intention to register any Common Stock pursuant to this
Section 6(a) and prior to the effective date of the registration statement filed
in connection with such registration, the Corporation shall determine for any
reason not to register such stock, the Corporation shall give written notice to
all such holders of Registrable Stock and, thereupon, shall be relieved of its
obligation to register any Registrable Stock in connection with such
registration (without prejudice, however, to rights of any such holder under
Section 6(a) above).
-3-
<PAGE>
(iv) If a registration pursuant to this Section 6(a)
involves an underwritten public offering and the managing underwriter shall
advise the Corporation that, in its view, the number of shares of Common Stock
which the Corporation and such holders of Registrable Stock intend to include in
such registration exceeds the maximum offering size, the number of shares to be
included in such registration shall be limited by excluding the shares to be
registered in such offering, to the extent required by such limitation, in the
following order: (A) first, any securities or shares (other than Registrable
Stock) subject to other contractual registration rights, (B) next, the number of
shares that may be included in the registration and underwriting by holders of
Registrable Stock shall be allocated among all holders thereof, in proportion,
as nearly as practicable, to the respective amounts of securities which such
holders of Registrable Stock would otherwise be entitled to include in such
registration, and (C) last, the shares being registered by the Corporation.
(b) Expenses of Registration. The costs and expenses (other
than underwriting discount or commission) of the registrations effected pursuant
to Section 6(a) above and of all other actions which the Corporation is required
to take or effect pursuant to this Section 6 shall be paid by the Corporation
(including, without limitation, all federal, state, NYSE or NASD registration
and filing fees, printing expenses, costs of special audits incidental to or
required by any such registration, and fees and disbursements of counsel for the
Corporation and for the holders of Registrable Stock (including allocated costs
of internal counsel)), except that all such expenses in connection with any
amendment or supplement to the registration statement or the prospectus used in
connection therewith required to be filed more than nine (9) months after the
date on which such registration statement becomes effective under the Securities
Act because any holder has not effected the disposition of Registrable Stock
covered by such registration statement shall be borne by such holder or holders,
in such proportions as they may agree.
(c) Registration Procedures. Whenever holders of Registrable
Stock request that any Registrable Stock be registered pursuant to Section 6(a)
above, the Corporation will, subject to the provisions of this Section 6, use
reasonable efforts to effect the registration of such Registrable Stock in
accordance with the intended method of disposition thereof as quickly as
practicable, and in connection with any such request:
(i) The Corporation will as expeditiously as possible
prepare and file with the Commission a registration statement on any form for
which the Corporation then qualifies and which counsel for the Corporation shall
deem appropriate and which form shall be available for the sale of the
Registrable Stock to be registered thereunder in accordance with the intended
method of distribution thereof, and use reasonable efforts to cause such filed
registration statement to become and remain effective for a period of not less
than nine (9) months (or such shorter period in which all of the Registrable
Stock of the holders thereof included in such registration statement shall have
actually been sold thereunder).
(ii) The Corporation will, if requested, prior to
filing a registration statement or prospectus or any amendment or supplement
thereto, furnish to each holder of Registrable Stock and each underwriter, if
any, of the Registrable Stock covered by such registration statement copies of
such registration statement as proposed to be filed, and thereafter the
Corporation will furnish to such holder and underwriter, if any, such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto and documents incorporated by reference
therein), the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such holder or underwriter
may reasonably request in order to facilitate the disposition of the Registrable
Stock owned by such holder.
-4-
<PAGE>
(iii) After the filing of the registration statement,
the Corporation will promptly notify each holder holding Registrable Stock
covered by such registration statement of any stop order issued or threatened by
the Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.
(iv) The Corporation will use reasonable efforts to
(A) register or qualify the Registrable Stock covered by such registration
statement under such other securities or blue sky laws of such jurisdictions in
the United States as any holder holding such Registrable Stock reasonably (in
light of such holder's intended plan of distribution) requests and (B) cause
such Registrable Stock to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Corporation and do any and all other acts and
things that may be reasonably necessary or advisable to enable such holder to
consummate the disposition of the Registrable Stock owned by such holder;
provided, that the Corporation will not be required to (A) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subsection (iv), or (B) subject itself to taxation in any
such jurisdiction, or (C) consent to general service of process in any such
jurisdiction.
(v) The Corporation will immediately notify each
holder holding such Registrable Stock, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the occurrence
of an event requiring the preparation of a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Stock, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading and promptly prepare and make
available to each such holder any such supplement or amendment.
(vi) The Corporation will otherwise use its best
efforts to comply with all applicable rules and regulations of the Commission,
and make available to its security holders, as soon as reasonably practicable,
an earnings statement covering a period of 12 months, beginning within three
months after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act.
(vii) The Corporation may require each such holder to
promptly furnish in writing to the Corporation such information regarding the
distribution of the Registrable Stock as the Corporation may from time to time
reasonably request and such other information as may be legally required in
connection with such registration.
(viii) Each such holder of Registrable Stock agrees
that, upon receipt of any notice from the Corporation of the happening of any
event of the kind described in Section 6(c)(iii) or 6(c)(v) above (a "Stop-sale
Notice"), such holder will forthwith discontinue disposition of Registrable
Stock pursuant to the registration statement covering such Registrable Stock
until such holder's receipt of a second notice from the Corporation that such
stop-order has been removed and/or the copies of the supplemented or amended
prospectus contemplated by Section 6(c)(v) above have been filed, and, if so
directed by the Corporation, such holder will deliver to the Corporation all
copies, other than any permanent file copies then in such holder's possession,
of the most recent prospectus covering such Registrable Stock at the time of
receipt of such Stop-sale Notice. In the event that the Corporation shall give
-5-
<PAGE>
such Stop-sale Notice, the Corporation shall extend the period during which such
registration statement shall be maintained effective (including the period
referred to in Section 6(e)(i) above) by the number of days during the period
from and including the date of the giving of notice pursuant to Section
6(e)(iii) or 6(e)(v) above, as applicable, to the date when the Corporation
shall give the holders of Registrable Stock notice that the Stop-sale Notice has
been removed and/or make available to such holders a prospectus supplemented or
amended to conform with the requirements of Section 6(e)(v) above.
(d) Restriction on Sale. In the event the Corporation
registers its securities under the Securities Act pursuant to a firm commitment
underwriting, each holder of Registrable Stock will not, for such period of time
specified by the managing underwriter, but not in excess of nine (9) months
following the effective date of such registration statement, sell or otherwise
transfer any of shares of Registrable Stock without the prior written consent of
such underwriter, provided that each of the Corporation's executive officers and
directors agree to the same restriction for the same period of time.
7. Accredited Investor Definition. The term "Accredited Investor" as
used herein refers to:
a. A person or entity who is a director or executive officer
of the Corporation;
b. Any bank as defined in section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined in section
3(a)(5)(A) of the Act whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; insurance company as defined in
section 2(13) of the Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in section 2(a)(48) of that Act; any Small Business Investment
Company licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; any employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as
defined in section 3(21) of such Act, which is either a bank, savings
and loan association, insurance company or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
c. Any private business development company as defined in
section 202(a)(22) of the Investment Advisers Act of 1940;
d. Any organization described in section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of $5,000,000;
e. Any natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of his purchase exceeds
$1,000,000;
-6-
<PAGE>
f. Any natural person who had an individual income in excess
of $200,000 in each of the two (2) most recent years or joint income
with that person's spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income level in
the current year;
g. Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the securities offered,
whose purchase is directed by a person who has such knowledge and
experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment; or
h. Any entity in which all of the equity owners are accredited
investors.
As used in this Section 3.6(a), the term "net worth" means the excess
of total assets over total liabilities. For the purpose of determining a
person's net worth, the principal residence owned by an individual should be
valued at fair market value, including the cost of improvements, net of current
encumbrances. As used in this Section 3.6(a), "income" means actual economic
income, which may differ from adjusted gross income for income tax purposes.
Accordingly, the undersigned should consider whether it should add any or all of
the following items to its adjusted gross income for income tax purposes in
order to reflect more accurately its actual economic income: any amounts
attributable to tax-exempt income received, losses claimed as a limited partner
in any limited partnership, deductions claimed for depletion, contributions to
an IRA or Keogh retirement plan, and alimony payments.
8. Blue Sky Statements. The Subscriber agrees that the Unit or Units
being purchased are for its own account for investment, and not for distribution
or resale to others. The Subscriber represents that the Subscriber has adequate
means of providing for the Subscriber's current needs and possible personal
contingencies, and that the Subscriber has no need for liquidity of this
investment.
It is understood that all documents, records and books pertaining to
this investment have been made available for inspection by the Subscriber and/or
any representative thereof, and that the books and records of the Company will
be available upon reasonable notice, for inspection by Subscriber during
reasonable business hours at the Company's principal place of business. The
Attorney General of the State of New York does not pass upon or endorse the
merits of this or any private offering. Any representations to the contrary are
unlawful.
9. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
10. Parties. Except as otherwise provided herein, this Agreement shall
be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns.
11. Integration. This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter contained in the Agreement and
supersedes any prior understandings of the parties.
12. Offer Only. Until execution of this Agreement by the Investor and
delivery of a fully executed copy to the Corporation, this Agreement shall
constitute an offer by the Investor to purchase the number of Units indicated,
which may be accepted or rejected, in whole or in part, by the Corporation, in
its sole discretion.
-7-
<PAGE>
13. Form of Ownership. Please indicate the form of ownership you desire
for the Units:
_______________ Individual (One signature required)
_______________ Joint Tenants with right of survivorship (All
parties must sign)
_______________ Tenants-in-Common (All parties must sign)
_______________ Corporation (signature of authorized party or
parties)
_______________ Partnership (Signature of general partner and
additional signatures if required by partnership agreement)
_______________ Trust (Trustee must sign as follows: "[trustee
name] as trustee for [trust name] dated
_______________________")
_______________ Other entities (As required by applicable
papers)
Please PRINT the exact name Investor desires for registration of the Units. If
purchasing Jointly with a spouse or children, the registration will
automatically be recorded as "joint tenants with right of survivorship' unless
you designate otherwise.
-8-
<PAGE>
TO BE EXECUTED BY INDIVIDUAL INVESTORS
IN WITNESS WHEREOF, the undersigned has executed this Stock
Subscription Agreement on this _____ day of _______________.
------------------------------ --------------------------------
Signature of Investor Signature of Joint Investor
------------------------------ --------------------------------
Print Name of Investor Print Name of Joint Investor
------------------------------ --------------------------------
Soc. Sec. No. of Investor Soc. Sec. No. of Joint Investor
SUBSCRIPTION ACCEPTED ON ______________________
By:
------------------------------
Steven E. Marder
Its: Chief Executive Officer
Mailing Address of Investor:
(Do not use P.O. Box)
------------------------------
------------------------------
------------------------------
------------------------------
-9-
<PAGE>
TO BE EXECUTED BY PARTNERSHIPS, CORPORATIONS, TRUSTS AND OTHER ENTITIES
IN WITNESS WHEREOF, the undersigned has executed this Stock
Subscription Agreement on this _____ day of ________________.
- --------------------------------
Print Name of Partnership,
Corporation, Trust or Other Entity
By: ----------------------------------------
Signature of Authorized
Representative
----------------------------------------
Print name of Authorized Representative
----------------------------------------
Title of Authorized Representative
----------------------------------------
Tax Identification Number of
Partnership, Corporation, Trust or
Other Entity
----------------------------------------
Location of Principal Place of
Business of Partnership,
Corporation, Trust, or Other Entity
SUBSCRIPTION ACCEPTED ON ______________________
Mailing Address of Investor:
(Do not use P.O. Box)
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
State of Organization or Incorporation
-10-
<PAGE>
RISK FACTORS
Limited Operating History
The Corporation is in the early stages of operation. The operations of the
Corporation are subject to all the risks inherent in an immature business
enterprise, including the absence of an extensive operating history. There can
be no assurance that the Corporation's business activities will result in any
profits in the future. Investors should be aware that their investment is at
risk of a total loss.
Dilution
Investors participating in this Offering will incur immediate, substantial
dilution. To the extent that outstanding options and other arrangements calling
for the purchase or other acquisition of the Corporation's Common Stock are
exercised or triggered, there will be further dilution. In addition, the
Corporation will be required to sell additional equity or convertible debt
securities in order to raise the significant amounts of additional financing
which are required in order to enable the Corporation to pursue its business
plan. The sale of additional equity or convertible debt securities could result
in additional dilution to the Corporation's stockholders, as could the payment
of equity based compensation to persons assisting the Corporation in its finance
raising efforts.
Dependence on Key Personnel
In the conduct of the Corporation's business, the Corporation will be
substantially depended upon its present management personnel. The death or
continuing disability of any of these persons may have a material adverse effect
upon the Corporation's ability to conduct its business.
Financing Difficulties
There can be assurance that the proceeds of this offering (even if the maximum
number of shares are sold) will be adequate to provide sufficient funds for
working capital and other expenses associated with developing and running the
business. Such funds shall, in all likelihood, prove to be inadequate and the
Corporation will be required to seek additional capital or borrow additional
funds. However, the Corporation has made no arrangements to obtain additional
funds at this time, and there can be no assurance that additional funds will be
available.
Competition
The competitive environment has been assessed and evaluated by the management
team of the Corporation as it presently exists. This research reflects that
there is significant competition that is well funded and staffed. Due to the
receipt of significant funding and the execution of key strategic partnerships
by direct competitors, there is no assurance that the Corporation can
effectively compete. In addition, no assurances can be given that competition
from a new source or entity could not choose to enter this industry. Such entry
could have substantial impact on the future success and viability of the
Corporation.
-11-
<PAGE>
High Risk
The securities being offered hereby represent a speculative investment and a
high degree of risk. Therefore, prospective investors should thoroughly consider
all of the risk factors discussed herein and should understand that the
prospects are substantial that they may incur a total loss of their investment.
No person should consider investing who is in any way dependent upon the funds
being invested.
No Dividends
The Corporation has not paid any dividends since its inception and does not
anticipate paying any dividends on its common stock in the foreseeable future.
It is anticipated that earnings, if any, which may be generated from operations
will be used to finance the continued operations of the Corporation. Investors
who anticipate the immediate need of dividends from their investment should
refrain from purchasing any of the securities hereby.
Shares Eligible for Future Sale
The shares of common stock owned by present shareholders, Officers and Directors
upon completion of this offering will be deemed "restricted securities" as that
term is defined under the Act. Under Rule 144 (17 C.F.R. ss.230.144), a person
holding restricted securities for a period of one (1) year may sell every three
(3) months, in brokerage transactions and/or market maker transactions, an
amount equal to the greater of (a) one percent (1%) of the Corporation's issued
and outstanding common stock or (b) the average weekly trading volume of the
common stock during the four calendar weeks prior to such sale. Rule 144 also
permits, under certain circumstances, the sale of shares without any quantity
limitations by a person who is not an affiliate of the Corporation and who has
satisfied a two (2) year holding period. As any such sale would likely have a
depressive effect on the market place of the Corporation's common stock, the
Investor herein waives any and all rights to resell the securities under Rule
144 and/or Rule 144k and agrees to hold the shares until such time as the shares
become registered with the Securities and Exchange Commission under terms of the
Act.
-12-
<PAGE>
Exhibit 4.4
WARRANT
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR QUALIFIED UNDER STATE
SECURITIES LAWS BUT HAVE BEEN, OR WILL BE, AS THE CASE MAY BE, ISSUED PURSUANT
TO AN EXEMPTION FROM SUCH REGISTRATION AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHEREWISE DISPOSED OF UNLESS (I) THE ISSUER THEREOF
SHALL HAVE RECEIVED AN OPINION OF COUNSEL TO THE EFFECT THAT NO REGISTRATION OR
QUALIFICATION THEREOF IS LEGALLY REQUIRED FOR SUCH TRANSFER OR (II) COVERED BY
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS.
No. W-CS-000__ Warrant to Purchase ____ Shares of
Common Stock (subject
to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
PETPLANET.COM, INC.
Void after ___________________or as otherwise provided herein.
This certifies that, for value received, ____________________________,
or its registered assigns ("Holder") is entitled, subject to the terms set forth
below, to purchase from PETPLANET.COM, INC. (the "Company"), a Delaware
corporation, ___________________ shares of the Common Stock of the Company (the
"Shares"), as constituted on __________________ (the "Warrant Issue Date"), upon
surrender hereof, at the principal office of the Company referred to below, with
the subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the exercise price (the "Exercise Price") as set forth in Section 2
below. The number, character and Exercise Price of such Shares are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, which is one of a series of warrants issued for the Shares of the
Company, and any warrants delivered in substitution or exchange therefor as
provided herein.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending on at 5:00 P.M., Pacific
standard time and shall be void thereafter.
<PAGE>
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be per Share.
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are exercisable by
the Holder in whole during the term hereof as described in Section 1 above, by
the surrender of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the Holder at the address of the Holder appearing on the books of the
Company), upon payment (i) in cash or by check acceptable to the Company, (ii)
by cancellation by the Holder of indebtedness of the Company to the Holder, or
(iii) by a combination of (i) and (ii), of the Exercise Price of the Shares to
be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the Shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such Shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of Shares issuable upon such exercise.
4. No Fractional Shares or Scrip. No fractional Shares or scrip
representing fractional Shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. Rights of Stockholders. Nothing contained in this Warrant shall be
determined as conferring upon or entitle the Holder to any rights of a
stockholder of the Company.
7. Repurchase Right
(a) Grant of Repurchase Right. The Company is hereby granted the right
(the "Repurchase Right"), exercisable at any time (i) during the ninety (90) day
period following completion of services under the initial term of the service
agreement between Holder and the Company (the "Termination Date"), (ii) during
the sixty (60) day period following an exercise of the Warrant that occurs after
the Termination Date, or (iii) during the sixty (60) day period immediately
prior to a Corporate Transaction as defined below, to repurchase all or (at the
discretion of the Company) any portion of the exercised or unexercised Shares
held by Holder and represented by this Warrant.
<PAGE>
(b) Corporate Transaction. A corporate transaction ("Corporate
Transaction") shall be defined as (1) a reorganization (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or (2) a merger, acquisition or consolidation of the
Company with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is the
surviving entity but the Shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise, or (3) a sale,
transfer, or other disposition of all or substantially all of the properties and
assets of the Company, or (4) the closing of a secondary public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act.
(c) Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to each the Holder prior to the
expiration of the time periods specified above. The notice shall indicate the
number of Shares to be repurchased and the date on which the repurchase is to be
effected, such date to be not more than thirty (30) days after the date of
notice ("Repurchase Date"). On the Repurchase Date, the Company and/or its
assigns shall pay to the Holder in cash or cash equivalents (including the
cancellation of any purchase-money indebtedness) an amount equal to the greater
of either (1) the estimated Fair Market Value of the Shares business day
immediately preceding the Repurchase Date, or (2) the Exercise Price previously
paid for the Shares which are to be repurchased from the Holder. Upon such
payment or into escrow for the benefit of the Holder, the Company and/or its
assigns shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest thereon or related thereto, and the
Company shall have the right to transfer to its own name or its assigns the
number of Shares being repurchased, without further action by the Holder.
(d) Assignment. Whenever the Company shall have the right to purchase
Shares under this Repurchase Right, the Company may designate and assign one or
more employees, officers, directors or shareholders of the Company or other
persons or organizations, to exercise all or a part of the Company's Repurchase
Right.
(e) Termination of the Repurchase Right. The Repurchase Right shall
terminate with respect to any Shares for which it is not timely exercised. In
addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to all Shares upon the Registration Date.
<PAGE>
(f) Additional Shares or Substituted Securities. In the event of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
effected without the Company's receipt of consideration, any new, substituted or
additional securities or other property (including money paid other than as a
regular cash dividend) which is by reason of any such transaction distributed
with respect to the Shares shall be immediately subject to the Repurchase Right,
but only to the extent the Shares are at the time covered by such right.
Appropriate adjustments to reflect the distribution of such securities or
property shall be made to the price per share to be paid upon the exercise of
the Repurchase Right in order to reflect the effect of any such transaction upon
the Company's capital structure.
(g) Corporate Transaction. Immediately prior to the consummation of a
Corporate Transaction, the Repurchase Right shall automatically lapse in its
entirety, except to the extent the Repurchase Right is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction, the right shall apply to the new capital stock or other property
(including cash paid other than as a regular cash dividend) received in exchange
for the Shares in consummation of the Corporate Transaction, but only to the
extent the Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Company's
capital structure.
8. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change his address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given to
the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 8(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at the
office of such agent.
(c) Transferability and Nonnegotiability of Warrant. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company) and the written consent of the Company. Subject to the provisions
of this Warrant with respect to compliance with the Securities Act, title to
this Warrant may be transferred by endorsement (by the Holder executing the
Assignment Form annexed hereto) and delivery in the same manner as a negotiable
instrument transferable by endorsement and delivery.
<PAGE>
(d) Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with the Securities Act
and with the limitations on assignments and transfers and contained in this
Section 8, the Company at its expense shall issue to or on the order of the
Holder a new warrant or warrants of like tenor, in the name of the Holder or as
the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, for the number of Shares issuable upon exercise hereof.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the Shares to be issued upon exercise hereof
or conversion thereof are being acquired solely for the Holder's own account and
not as a nominee for any other party, and for investment, and that the Holder
will not offer, sell or otherwise dispose of this Warrant or any Shares to be
issued upon exercise hereof or conversion thereof except under circumstances
that will not result in a violation of the Securities Act or any state
securities laws. Upon exercise of this Warrant, the Holder shall, if requested
by the Company, confirm in writing, in a form satisfactory to the Company, that
the Shares of Common Stock so purchased are being acquired solely for the
Holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale.
(ii) This Warrant and all Shares issued upon exercise hereof
or conversion thereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by state
securities laws):
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR
QUALIFIED UNDER STATE SECURITIES LAWS BUT HAVE BEEN, OR WILL BE, AS THE
CASE MAY BE, ISSUED PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHEREWISE
DISPOSED OF UNLESS (I) THE ISSUER THEREOF SHALL HAVE RECEIVED AN
OPINION OF COUNSEL TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION
THEREOF IS LEGALLY REQUIRED FOR SUCH TRANSFER OR (II) COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFED
UNDER APPLICABLE STATE SECURITIES LAWS.
<PAGE>
9. Reservation of Stock. The Company covenants that during the term
this Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of Shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Certificate of Incorporation (the
"Certificate") to provide sufficient reserves of Shares issuable upon exercise
of the Warrant. The Company further covenants that all Shares that may be issued
upon the exercise of rights represented by this Warrant and payment of the
Exercise Price, all as set forth herein, will be free from all taxes, liens and
charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for Shares upon the exercise of
this Warrant.
10. Notices.
(a) Whenever the Exercise price or number of Shares purchasable
hereunder shall be adjusted pursuant to Section 12 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of Shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Warrant.
(b) If:
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon
the exercise of this Warrant) for the purpose of entitling them to
receive any dividend or other distribution, or any right to subscribe
for or purchase any Shares of stock of any class or any other
securities, or to receive any other right, or
(ii) in the event of any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(iii) in the event of any voluntary dissolution, liquidation
or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their Shares of Common Stock (or such other
stock or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
<PAGE>
(c) All such notices, advises and communications shall be deemed to
have been received (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the third business day following
the date of such mailing.
11. Amendments. Except as otherwise provided herein, this Warrant and
any term hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought.
12. Adjustments. The Exercise Price and the number of Shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) Merger, Sale of Assets, etc. If at any time while this Warrant is
outstanding and unexpired there shall be a Corporate Transaction, as defined in
Section 7(b), and if the Company declines in writing to exercise those
Repurchase Rights as set forth in Section 7, lawful provision shall be made so
that the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified herein and upon payment of
the Exercise Price then in effect, the number of Shares or other securities or
property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a Holder of the Shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
Corporate Transaction if this Warrant had been exercised immediately before such
Corporate Transaction, all subject to further adjustment as provided in this
Section 12. The foregoing provisions of this Section 12(a) shall similarly apply
to successive Corporate Transactions and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Warrant.
If the per-share consideration payable to the Holder hereof for shares in
connection with any such transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be determined in good
faith by the Company's Board of Directors. In all events, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant with respect to the rights
and interests of the Holder after the transaction, to the end that the
provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
<PAGE>
(b) Reclassification, etc. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 12.
(c) Split, Subdivision or Combination of Shares. If the Company at any
time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
(d) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 12, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of Shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
(e) No Impairment. The Company will not, by any voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 12 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holders of this Warrant against impairment.
13. Miscellaneous.
(a) Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Holder with respect to this Warrant.
(b) Binding Effects; Benefits. This Warrant shall inure to the benefit
of and shall be binding upon the Company and the Holder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Holder, or their
respective successors, any rights, remedies, obligations or liabilities under or
by reason of this Warrant.
<PAGE>
(c) Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Holder. Either the Company or the Holder may, by an instrument in writing, waive
compliance by the other party with any term or provision of this Warrant on the
part of such other party hereto to be performed or complied with. The waiver by
any such party of a breach of any term or provision of this Warrant shall not be
construed as a waiver of any subsequent breach.
(d) Section and Other Headings. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
(e) Further Assurances. Each of the Company and the Holder shall do and
perform all such further acts and things and execute and deliver all such other
certificates, instruments and documents as the Company or the Holder may, at any
time and from time to time, reasonably request in connection with the
performance of any of the provisions of this Agreement.
(f) Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
If to the Company, addressed to:
PETPLANET.COM, INC.
21 Stillman Street, Suite 600
San Francisco, CA 94107
Attention: Chief Executive Officer
Telecopier: (415) 243-3399
Phone: (415) 243-9000
If to the Holder, addressed to:
Telecopier:
Phone:
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
<PAGE>
(g) Severability. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
(h) Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of California as entered into in California between
residents of California.
(i) Market Standoff. By accepting this Warrant, if the Holder is an
officer, director or other person covered by the Company's trading policies, the
Holder agrees not to exercise this Warrant or sell any Warrant Shares acquired
upon exercise of this Warrant at a time when applicable laws, regulations or
Company trading policies prohibit exercise or sale, including, without
limitation, during any periods (typically during the period preceding the
announcement of quarterly earnings or other material events) in which the
Company closes the "trading window" for sales thereby prohibiting sales during
such periods by Company officers, directors and others.
In addition, whether Holder of this Warrant is an employee of the
Company or not, if requested by the Company and an underwriter of the Common
Stock (or other securities) of the Company, the Holder shall not pledge, sell,
offer to sell, contract to sell, grant any option to purchase, make any short
sale or otherwise dispose of any Warrant of the Company, or any options or
warrants to purchase any Shares of the Warrant of the Company or any securities
convertible into or exchangeable for Shares of Common Stock of the Company,
whether now owned or hereinafter acquired, owned directly by the Holder or with
respect to which the Holder has beneficial ownership within the rules and
regulations of the Securities and Exchange Commission (the "Commission");
otherwise than (i) as a bona fide gift or gifts, provided that the donee or
donees thereof agree to be bound by the restrictions set forth herein, (ii) a
transfer to any trust for the direct or indirect benefit of the Holder or his
immediate family provided that the trustee of the trust agrees to be bound by
the restrictions set forth herein, held by the Holder during the one hundred
eighty (180) day period following the effective date of a registration statement
of the Company filed under the Securities Act provided that:
(i) such one hundred eighty (180) day "market stand-off"
agreement shall only apply to any secondary registration statement of
the Company filed after the Warrant Issue Date, including securities to
be sold on its behalf to the public in an underwritten offering, and
provided further that, for subsequent filings of registration
statements under the Securities Act the period during which the Holder
shall not sell or otherwise transfer or dispose of any Warrant Shares
(other than those included in the registration) shall be ninety (90)
days. The market stand-off agreement with respect to subsequent filings
of registration statements under the Securities Act shall no longer
apply to the Holder at such time as the Holder own less than five
percent (5%) of the outstanding Common Stock of the Company and the
Holder ceases to be deemed an affiliate of the Company for purposes of
the Securities Act.
<PAGE>
(ii) In the event of any stock dividend, stock split,
recapitalization, or other change affecting the Company's outstanding
Common Stock effected without receipt of consideration, then any new,
substituted, or additional securities distributed with respect to the
Warrant Shares shall be immediately subject to the provisions of this
Section, to the same extent the Warrant Shares are at such time covered
by such provisions.
For purposes of this section, "immediate family" shall mean any relationship by
blood, marriage or adoption, not more remote than first cousin. The Holder also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of the Holder's
Warrant Shares except in compliance with the foregoing restrictions.
IN WITNESS WHEREOF, PETPLANET.COM, INC. has caused this Warrant to be
executed by its officers thereunto duly authorized on the following Warrant
Issue Date.
Dated: June 24, 1999.
HOLDER: PETPLANET.COM, INC.
----------------------------
- ----------------------------------- -------------------------------------
By: By:
-------------------------------- ----------------------------------
Its: Its:
------------------------------- ---------------------------------
<PAGE>
NOTICE OF EXERCISE
To: PETPLANET.COM, INC.
(1) The undersigned hereby elects to purchase __________ Shares of
Common Stock of PETPLANET.COM, INC., pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price for such Shares in
full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Shares of the Common Stock to be issued upon conversion
thereof are being acquired solely for the account of the undersigned and not as
a nominee for any other party, or for investment, and that the undersigned will
not offer, sell or otherwise dispose of any such Shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act or
any state securities laws.
(3) Please issue a certificate or certificates representing said Shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------------
(Name)
-------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
--------------------------------------
(Name)
- ------------------------------ --------------------------------------
(Date) (Signature)
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of Shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint Attorney ____________________
to make such transfer on the books of PETPLANET.COM, INC., maintained for the
purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the Shares of stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant or
any Shares of stock to be issued upon exercise hereof or conversion thereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws. Further, the
Assignee has acknowledged that upon exercise of this Warrant, the Assignee
shall, if requested by the Company, confirm in writing, in a form satisfactory
to the Company, that the Shares of stock so purchased are being acquired for
investment and not with a view toward distribution or resale.
Dated:
-------------------,----------------.
------------------------------
Signature of Holder
<PAGE>
Exhibit 10.1
PetPlanet.com, Inc.
- --------------------------------------------------------------------------------
PERSONAL & CONFIDENTIAL
- -----------------------
February 10, 2000
[NAME]
<Address>
<City, State ZIP>
Dear [NAME]
On behalf of PetPlanet.com, Inc. (the "Company"), I am pleased to extend an
offer of employment to you as <POSITION TITLE>.
The terms of your position with the Company are set forth below:
1. Position
a) Upon your hire as an employee, you will hold the position of <POSITION
TITLE>, at which time you will become a member of the <DIVISION> Group,
working out of the Company's office in <OFFICE LOCATION>. In this role, you
will report to the <SUPERVISOR TITLE>, or such other executive as the Board
may designate.
b) You agree that you will devote all of your business time and attention to the
business of the Company; that the Company will be entitled to all of the
benefits and profits arising from or incident to all such work services and
advice; and that you will not directly or indirectly engage or participate in
any business that is competitive in any manner with the business of the
Company.
2. Start Date. You will commence working for the company on a full-time basis no
later than [DATE] unless otherwise mutually agreed.
3. Proof of Right to Work: For purposes of federal immigration law, you will be
required to provide 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 employment commencement
date, or our employment relationship with you may be terminated.
1
www.petplanet.com
<PAGE>
4. Compensation.
a) Cash. Upon your commencement as a full-time employee, you will be paid in
cash biweekly pursuant to the Company's regular payroll policy which is
equivalent to <$SALARY> on an annualized basis ("Base Salary").
b) Employee Options.
Employment Options. In addition to your Base Salary compensation, upon your
commencement of full-time employment, you will receive stock options pursuant to
the 1999 Company Stock Option Plan for <#> shares of the Common Stock which,
assuming your continued employment by the Company, shall vest as follows: <#>
shares shall fully vest on the one year anniversary of your initial date of hire
as an employee; an additional <#> options of the Stock shall fully vest
quarterly thereafter, such that your option for <#> shares shall have fully
vested within four years after the date of him. The option grant is also
contingent on your conversion to full-time employment by <START DATE> or other
mutually agreed upon date. The exercise price shall be the fair market value for
the stock at the date of grant pending Board approval.
5. Review. Your performance and compensation will be reviewed from time to time
as the Company deems appropriate, but in no event less than once a year.
6. Vacation and Benefits. Upon your commencement as a full-time employee, the
Company shall provide to you the usual benefits package provided by the Company
to its salaried employees generally, including medical and dental insurance. You
shall receive two weeks of paid vacation time in your first two years of
employment and three weeks per year thereafter; which shall accrue according to
the Company's standard policies.
7. Proprietary Information Agreement. Your acceptance of this offer and
commencement of employment with the Company is contingent upon the execution and
delivery of the Company's Proprietary Information Agreement prior to your
employment 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 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, without further obligation or liability.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of California.
This letter agreement and the Proprietary Information Agreement sets forth the
general terms of your consultancy and subsequent potential employment with the
Company and supersedes any and all prior representations or agreements, whether
written or oral. This letter agreement may not be modified or amended except by
a written agreement, signed by the Company and you.
We are delighted to be able to extend you this offer and look forward to working
with you.
2
<PAGE>
As a growing company, PetPlanet.com, Inc. offers many opportunities for
advancement. We encourage initiative and entrepreneurial spirit and reward those
who help us achieve our goals. We look forward to having you as a member of our
team.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to my attention no later than
[DATE]. If you have any questions regarding this letter, please feel free to
contact me via e-mail or voice at 415.243.9000.
Very truly yours,
PETPLANET.COM, INC.
___________________
<EXECUTIVE NAME>
<EXECUTIVE TITLE>
AGREED & ACCEPTED:
<CANDIDATE NAME>
___________________
Signature
DATE_______________
SS#________________
3
<PAGE>
EXHIBIT 10.2
LOGO
AMERICA ONLINE, INC.
NETWORK SHOPPING - WEB LINK ORDER FORM
MERCHANT TO FILL IN ALL INFORMATION (please print)
Legal Name of Merchant: PetPlanet.com, Inc._____________________________________
Trade Name of Merchant (if different):__________________________________________
Merchant Business Contact: Steve Marder_________________________________________
Address: 21 Stillman St., #600__________________________________________________
San Francisco, CA 94107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Phone: 415-243-9000___________________________________________________________
Fax: 415-243-3399
----------------------------------------------------------------------------
Email: [email protected]
--------------------------------------------------------------------------
Name of Technical Contact: Lou Manousos
------------------------------------------------------
Phone: 415-243-9000
--------------------------------------------------------------------------
Email: [email protected]
--------------------------------------------------------------------------
Customer Service Contact (AOL use): Jeff Harris
---------------------------------------------
Customer Service Phone (customer use): 1-877-265-PETS
------------------------------------------
Customer Service email (customer use): [email protected]
----------------------------------------
Customer Service address (customer use): 21 Stillman Street, Suite 600,
San Francisco, CA 94107
----------------------------------------
Is your web site built? yes
----------
Web Site URL: http://spartacus.petplanet.com
------------------------------------------------------------------
This is the main URL that is ufonesed by the merchant site.
Silver Tenant Store Name:_______________________________________________________
Applicable to SILVER MERCHANTS ONLY. This is name for the store listing in the
Silver Tenant spot. Text should be the registered company trade/brandname. The
text must be 21 characters or less.
Customer Service URL: petplanet.com\help
-----------------------------------------------------------
A site where customers can contact merchant with ordering questions etc.
Keywords: petplanet, petplanet.com
-----------------------------------------------------------------------
A keyword on AOL will bring any user directly to your website. The keyword
should be the registered company trade/brand name. The keyword must be 16
characters or less.
Search terms for AOL Shopping Channel Product Search Tool:
________________________________________________________________________________
Up to a maximum of five, subject to AOL's approval, and only available to
Anchor or Gold Tenant Merchants
<PAGE>
CONFIDENTIAL
SHOPPING CHANNEL PROMOTIONAL AGREEMENT
--------------------------------------
This Agreement, (the "Agreement") dated as of June 28, 1999 (the
"Effective Date"), is made and entered into by and between America Online, Inc.
("AOL"), a Delaware corporation, with its principal offices at 22000 AOL Way,
Dulles, Virginia 20166 and PetPlanet.com ("MERCHANT"), a California corporation,
with its principal offices at 21 Stillman St., #600, San Francisco, California
94107 (each a "Party" and collectively the "Parties").
INTRODUCTION
------------
AOL owns, operates and distributes the AOL Service, AOL.com, the CompuServe
Service and the Netscape Netcenter. MERCHANT wishes to secure a promotional
placement within the shopping channel of the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter (as specified in Exhibit A) (each
channel, a "Shopping Channel") which, when activated, will provide access to
MERCHANT's site on the World Wide Web or its area on the AOL Service or
CompuServe Service (as the case may be) (the "Merchant Site") where MERCHANT
offers content, products and/or services for sale. Terms not defined herein
shall be defined on the attached Exhibit B.
TERMS
-----
1. MERCHANT PROGRAMMING. MERCHANT will make available through the Merchant Site
the certain products, content and/or services specified in Exhibit A (the
"Products") in accordance with the Standard Shopping Channel Terms and
Conditions set forth on Exhibit C.
2. PROMOTIONAL OBLIGATIONS.
2.1 AOL Promotion of MERCHANT. Commencing on a date set forth on Exhibit A
hereto, AOL will provide the promotion(s) set forth in Exhibit A (the
"Promotion"). Except to the extent expressly described in Exhibit A,
the specific form, placement, positioning, duration and nature of the
Promotion(s) will be as determined by AOL in its reasonable discretion
(consistent with the editorial composition of the applicable screens)
and the nature of the Promotion being purchased by MERCHANT, as
reflected in Exhibit A. The specific content to be contained within the
Promotions (including, without limitation, within any advertising
banners or contextual promotions) will be determined by MERCHANT,
subject to AOL's technical limitations, the terms of this Agreement and
AOL's then-applicable policies relating to advertising and promotions.
Each Promotion will link only to the Merchant Site and will promote
only Products listed on Exhibit A. MERCHANT acknowledges that the sole
obligation of AOL is to display the Promotion(s) in the Shopping
Channel(s) in accordance with the terms and conditions hereto.
2.2 MERCHANT Cross-Promotion.
A. Within each Merchant Site, MERCHANT shall include a prominent
promotional banner ("AOL Promo") appearing "above the fold" on the
first screen of the Merchant Site, to promote such AOL products or
services as AOL may reasonably designate (for example, the America
Online(R) brand service, the CompuServe(R) brand service, the
AOL.com(R) site, the Netscape Netcenter(TM) site, ICQ, the Digital
City(R) services or the AOL Instant Messenger(TM) service); AOL
will provide the creative content to be used in the AOL Promo
(including designation of links from such content to other content
pages). MERCHANT shall post (or update, as the case may be) the
creative content supplied by AOL (within the spaces for the AOL
Promo) within a commercially reasonable period of time from its
receipt of such content from AOL. Without limiting any other
reporting obligations of the Parties contained herein, MERCHANT
shall provide AOL with monthly written reports specifying the
number of impressions to the pages containing the AOL Promo during
the prior month.
B. In MERCHANT's television, radio, print and "out of home" (e.g.,
buses and billboards) advertisements and in any publications,
programs, features or other forms of media over which MERCHANT
exercises at least partial editorial control, MERCHANT will use
reasonable efforts to include specific references or mentions
(orally where possible) of the availability of the Merchant's Site
through the America Online(R) brand service, which are at least as
prominent as any references that MERCHANT makes to any other
MERCHANT online or internet site (by way of site name, related
company name, URL or otherwise). Without limiting the generality of
the foregoing, MERCHANT's listing of the "URL" for any Merchant
online site will be accompanied by an equally prominent listing of
the "keyword" term on the AOL Service for Merchant's Site.
1
<PAGE>
3. PAYMENTS; REPORTS.
3.1 Placement Fees. MERCHANT will pay AOL $158,472.00 for displaying the
Promotion within the Shopping Channel on the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter. The total amount of
$158,472.00 will be payable in three equal installments, with the
first such payment to be made upon the Effective Date, the second such
payment to be made ninety (90) days from the earliest launch date of
the AOL Shopping Commerce Center(s) specified on Exhibit A attached
hereto and the last payment to be made ninety (90) days from the
second installment. MERCHANT will be provided a credit against any
amounts already paid to AOL by MERCHANT for promotional carriage under
MERCHANT's existing agreement with AOL which overlap promotional
carriage provided for hereunder, if any, as established by the launch
date of the applicable AOL Shopping Commerce Center(s) specified on
Exhibit A attached hereto. MERCHANT agrees that, except as specified
herein, once the Promotion is installed, there will be no refunds or
proration of rates if MERCHANT elects to discontinue display of the
Promotion prior to expiration of the Term. Should AOL fail to display
the Promotion in accordance with the terms of this Agreement due to
MERCHANT's failure to comply with any requirement of this Agreement,
MERCHANT will remain liable for the full amount indicated above.
3.2 Reports. AOL will provide MERCHANT with monthly usage information
related to the Promotion in substance and form reasonably determined
by AOL. MERCHANT may not distribute or disclose usage information to
any third party without AOL's prior written consent. MERCHANT will
provide AOL with monthly reports, in a form reasonably satisfactory to
AOL, which detail the number of daily items, orders and gross sales
through the Merchant Site on the AOL Service, AOL.com, the
CompuService Service and the Netscape Netcenter (as applicable).
4. TERM. Unless otherwise rightfully terminated pursuant to the terms and
conditions in the Exhibits attached hereto, this Agreement will terminate
ten (10) months from the latest launch date of the AOL Shopping Channel
Commerce Center(s) specified on Exhibit A attached hereto (the "Term").
5. EXISTING AGREEMENTS. To the extent that MERCHANT has any existing shopping
channel agreement(s) with AOL in effect as of the Effective Date such
agreements shall terminate on the date that the last promotion described in
the existing agreement is replaced with Promotion(s) described in this
Agreement.
6. PRESS RELEASES. Each Party will submit to the other Party, for its prior
written approval, which will not be unreasonably withheld or delayed, any
press release or any other public statement ("Press Release") regarding the
transactions contemplated hereunder. Notwithstanding the foregoing, either
Party may issue Press Releases and other disclosures as required by law or
as reasonably advised by legal counsel without the consent of the other
Party and in such event, the disclosing Party will provide at least five
(5) business days prior written notice of such disclosure. The failure to
obtain the prior written approval of the other Party will be deemed a
material breach of this Agreement. Because it would be difficult to
precisely ascertain the extent of the injury caused to the non-breaching
Party, in the event of such material breach, the non-breaching party may
elect to either (i) terminate this Agreement immediately upon notice to the
other Party, and the cure provision of Section 12 on Exhibit D of this
Agreement shall not apply, or (ii) as liquidated damages, elect to modify
the impression commitment hereunder by fifteen percent (15%) (either an
increase in impressions if AOL has materially breached the Agreement or a
decrease in impressions if MERCHANT has materially breached the
Agreement).
7. GENERAL TERMS. The general legal terms and conditions set forth on Exhibit D
attached hereto are hereby made a part of this Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the Effective Date.
AMERICA ONLINE, INC. PetPlanet.com, Inc.
By: /s/ Eric L. Keller By: /s/ Steven E. Marder
----------------------------- -----------------------------
Print Name: Eric L. Keller Print Name: Steven E. Marder
--------------------- ---------------------
Title: VP, Business Affairs Title: CEO
--------------------------- ---------------------------
Date: July 30, 1999 Date: July 23, 1999
--------------------------- ---------------------------
Tax ID/EIN#: 94-3252843
---------------
<PAGE>
EXHIBIT D
Standard Legal Terms & Conditions
---------------------------------
1. Production and Technical Services. Unless expressly provided for elsewhere in
the Shopping Channel Promotional Agreement which has been executed by AOL and
MERCHANT (the "Promotional Agreement" and, collectively with these Standard
Legal Terms and Conditions, the "Agreement") Agreement, (i) AOL will have no
obligation to provide any creative, design, technical or production services to
MERCHANT and (ii) the nature and extent of any such services which AOL may
provide to MERCHANT will be as determined by AOL in its sole discretion. The
terms regarding any creative, design, technical or productions services provided
by AOL to MERCHANT will be as mutually agreed upon by the parties in a separate
written work order. With respect to any routine production, maintenance or
related services which AOL reasonably determines are necessary for AOL to
perform in order to support the proper functioning and integration of the
Merchant Site ("Routine Services"), MERCHANT will pay the then-standard fees
charged by AOL for such Routine Services.
2. AOL Accounts. To the extent MERCHANT has been granted any AOL, CompuServe or
Netscape accounts, MERCHANT will be responsible for the actions taken under or
through its accounts, which actions are subject to AOL's applicable Terms of
Service and for any surcharges, including, without limitation, all premium
charges, transaction charges, and any applicable communication surcharges
incurred by any account issued to MERCHANT. Upon the termination of this
Agreement, all such accounts, related screen names and any associated usage
credits or similar rights, will automatically terminate. AOL will have no
liability for loss of any data or content related to the proper termination of
any such account.
3. Taxes. MERCHANT will collect and pay and indemnify and hold AOL harmless
from, any sales, use, exercise, import or export value added or similar tax or
duty not based on AOL's net income, including any penalties and interest as
well as any costs associated with the collection or withholding thereof,
including attorney's fees.
4. Promotional Materials. Each Party will submit to the other Party, for its
prior written approval, which shall not be unreasonably withheld or delayed, any
Promotional Materials; provided, however, that after the initial public
announcement of the business relationship between the Parties in accordance with
the approval and other requirements contained herein, either Party's subsequent
factual reference to the existence of a business relationship between AOL and
MERCHANT in Promotional Materials, including, without limitation, the
availability of the Merchant Site through the AOL Network, or use of screen
shots relating to the distribution under this Agreement (so long as the AOL
Network is clearly identified as the source of such screen shots) for
promotional purposes shall not require the approval of the other Party. Once
approved, the Promotional Materials may be used by a Party and its affiliates
for the purpose of promoting the distribution of the Merchant Site through the
AOL Network and reused for such purpose until such approval is withdrawn with
reasonable prior notice. MERCHANT will not (i) issue any press releases,
promotions or public statements concerning the existence or terms of the
Agreement of (ii) use, display or modify AOL's trademarks, tradenames or
servicemarks in any manner, absent AOL's express prior written approval.
Notwithstanding the foregoing, either Party may issue press releases and other
disclosures as required by law or as reasonably advised by legal counsel without
the consent of the other Party and in such event, prompt notice thereof will be
provided to the other Party.
5. Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into the Agreement and to perform the acts required of it
hereunder; (ii) the execution of the 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; (iii) when executed and delivered by such Party, the Agreement
will constitute the legal, valid and binding obligation of such Party,
<PAGE>
enforceable against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in the Agreement.
6. License. MERCHANT hereby grants AOL a non-exclusive worldwide license to
market, license, distribute, reproduce, display, perform, transmit and promote
the Merchant Site and all content, products and services offered therein or
otherwise provided by MERCHANT in connection herewith (e.g., offline or online
promotional content, Promotions, etc.) through the AOL Network and through any
other product or service owned, operated, distributed or authorized to be
distributed by or through AOL or its affiliates worldwide through which such
Party elects to offer the Merchant Site (which may include, without imitation,
Internet sites promoting AOL products and services and any "offline" information
browsing products of AOL or its affiliates). AOL Users will have the right to
access and use the Merchant Site. Subject to such license, MERCHANT retains all
right, title to and interest in the Merchant Site. During the Term, AOL will
have the right to use MERCHANT's trademarks, trade names and service marks in
connection with performance of this Agreement, subject to any written guidelines
provided in writing to AOL.
7. Confidentially. Each Party acknowledges that Confidential Information may be
disclosed to the other Party during the course of this Agreement. Each Party
agrees that it will take reasonable steps, at least substantially equivalent to
the steps it takes to protect its own proprietary information, during the term
of this Agreement, and for a period of three years following expiration or
termination of this Agreement, to prevent the duplication or disclosure of
Confidential Information of the other Party, other than by or to its employees
or agents who must have access to such Confidential Information to perform such
Party's obligations hereunder, who will each agree to comply with this
provision. "Confidential Information" means any information relating to or
disclosed in the course of the Agreement, which is or should be reasonably
understood to be confidential or proprietary to the disclosing Party, including,
but not limited to, the material terms of this Agreement, information about AOL
Users, technical processes and formulas, source codes, product designs, sales,
cost and other unpublished financial information, product and business plans,
projections, and marketing data. "Confidential Information" will not include
information (a) already lawfully known to or independently developed by the
receiving Party, (b) disclosed in published materials, (c) generally known to
the public, (d) lawfully obtained from any third party, or (e) required or
reasonably advised to be disclosed by law. MERCHANT shall not make, publish, or
otherwise communicate through the AOL Network any deleterious remarks concerning
AOL or it Affiliates, directors, officers, employees, or agents (including,
without limitation, AOL's business projects, business capabilities, performance
of duties and services, or financial position) which remarks are based on the
relationship established by this Agreement or information exchanged hereunder.
This section is not intended to limit good faith editorial statements made by
MERCHANT based upon publicly available information, or information developed by
MERCHANT independent of its relationship with AOL and its employees and agents.
8. Limitation of Liability; Disclaimer; Indemnification.
(a) Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES
(EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY
TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE, THE
NETSCAPE NETCENTER OR THE MERCHANT SITE, OR ARISING FROM ANY OTHER PROVISION OF
THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED
PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT
EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED
DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT
TO PARAGRAPH (C) BELOW. EXCEPT AS PROVIDED TO PARAGRAPH (C) BELOW, (I) LIABILITY
ARISING UNDER THIS AGREEMENT WILL BE
<PAGE>
LIMITED TO DIRECT, OBJECTIVELY MEASURABLE DAMAGES, AND (II), AOL WILL NOT BE
LIABLE TO MERCHANT UNDER THE AGREEMENT FOR MORE THAN THE AMOUNTS THEN PAID TO
AOL BY MERCHANT HEREUNDER.
(b) No additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING AOL.COM, THE AOL
SERVICE OR NETWORK, THE COMPUSERVE SERVICE, THE NETSCAPE NETCENTER OR THE
MERCHANT SITE, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL
SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING (I) THE PROFITABILITY OF THE
MERCHANT SITE, (II) THE NUMBER OF PERSONS WHO WILL ACCESS OR "CLICK-THROUGH" THE
PROMOTION, (III) ANY BENEFIT MERCHANT MIGHT OBTAIN FROM INCLUDING THE PROMOTION
WITHIN THE AOL SERVICE OR NETWORK, AOL.COM, THE NETSCAPE NETCENTER, OR THE
COMPUSERVE SERVICE OR (IV) THE FUNCTIONALITY, PERFORMANCE OR OPERATION OF THE
AOL, COMPUSERVE OR NETSCAPE SERVICES WITH RESPECT TO THE PROMOTION. (c)
Indemnity. Either Party will defend, indemnify, save and hold harmless the other
Party and the officers, directors, agents, affiliates, distributors, franchisees
and employees of the other Party from any and all third party claims, demands,
liabilities, costs or expenses, including reasonable attorneys' fees
("Liabilities"), resulting from the indemnifying Party's material breach of any
duty, representation, or warranty of the Agreement, except where Liabilities
result from the gross negligence or knowing and willful misconduct of the other
Party.
(d) Claims. If a Party entitled to indemnification hereunder (the "Indemnified
Party") becomes aware of any matter it believes is Indemnifiable hereunder
involving any claim, action, suit, investigation, arbitration or other
proceeding against the Indemnified Party by any third party (each an "Action"),
the Indemnified Party will give the other Party (the "Indemnifying Party")
prompt written notice of such Action. Such notice will (i) provide the basis on
which indemnification is being asserted and (ii) be accompanied by copies of all
relevant pleadings, demands, and other papers related to the Action and in the
possession of the Indemnified Party. The Indemnifying Party will have a period
of ten (10) days after delivery of such notice to respond. If the Indemnifying
Party elects to defend the Action or does not respond within the requisite ten
(10) day period, the Indemnifying Party will be obligated to defend the Action,
at its own expense, and by counsel reasonably satisfactory to the Indemnified
Party. The Indemnified Party will cooperate, at the expense of the Indemnifying
Party, with the Indemnifying Party and its counsel in the defense and the
Indemnified Party will have the right to participate fully, at its own expense,
in the defense of such Action. If the Indemnifying Party responds within the
required ten (10) day period and elects not to defend such Action, the
Indemnified Party will be free, without prejudice to any of the Indemnified
Party's rights hereunder, to compromise or defend (and control the defense of)
such Action. In such case, the Indemnifying Party will cooperate, at its own
expense, with the Indemnified Party and its counsel in the defense against such
Action and the Indemnifying Party will have the right to participate fully, at
its own expense, in the defense of such Action. Any compromise or settlement of
an Action will require the prior written consent of both Parties hereunder, such
consent not to be unreasonably withheld or delayed.
(e) Acknowledgment. AOL and MERCHANT each acknowledges that the provisions of
this Agreement were negotiated to reflect an informed, voluntary allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated hereunder. The limitations and disclaimers related to
warranties and liability contained in the Agreement are intended to limit the
circumstances and extent of liability. The provisions in paragraphs (a)
<PAGE>
through (d) above and this paragraph (e) will be enforceable independent of and
severable from any other enforceable or unenforceable provision of this
Agreement.
9. Solicitation of subscribers.
(a) During the term of the Agreement and for a two year period thereafter,
MERCHANT will not use the AOL Network (including, without limitation, the e-mail
network contained therein) to solicit AOL Members or AOL Users on behalf of
another Interactive Service. MERCHANT will not send unsolicited, commercial
e-mail through or into AOL's products or services, absent a Prior Business
Relationship. For purposes of this Agreement, a "Prior Business Relationship"
will mean that the AOL User to whom commercial e-mail is being sent has
voluntarily either (i) engaged in a transaction with MERCHANT or (ii) provided
information to MERCHANT through a contest, registration, or other communication,
which included notice to the AOL User that the information provided could result
in commercial e-mail being sent to that AOL User by MERCHANT or its agents. More
generally, any commercial e-mail to be sent through or into AOL's products or
services shall be subject to AOL's then-standard restrictions on distribution of
bulk e-mail (e.g., related to the time and manner in which such e-mail can be
distributed through the AOL service in question) and the limitations set forth
in Exhibit C.
(b) MERCHANT shall ensure that its collection, use and disclosure of information
obtained from AOL Users under this Agreement ("User Information") complies with
(i) all applicable laws and regulations (ii) AOL's standard privacy policies,
available on the AOL service at the keyword term "Privacy", and (iii) AOL's
applicable Terms of Service.
(c) MERCHANT will not disclose User Information to any third party in a manner
that identifies AOL User as end users of an AOL product or service or use User
Information collected under this Agreement to market an Interactive Service
competitive with AOL; provided that the restrictions in this subsection (c)
shall not restrict MERCHANT's use of any information collected independently of
this Agreement.
10. AOL User Communications. To the extent MERCHANT is otherwise permitted to
send communications to AOL Users (in accordance with the other requirements
contained herein):, (i) any solicitations in such communications to purchase
products or services shall promote the Merchant Site available through the AOL
Network as the principal means through which to purchase any such products or
services; (ii) any direct links to specific offers within such communications
shall link to the Merchant Site; (iii) MERCHANT shall limit the subject matter
of such communications to those categories of products, services and/or content
which are specifically contemplated by this Agreement; and (iv) MERCHANT will
provide the recipient with a prominent and easy means to "opt-out" of receiving
any future commercial e-mail communications from Merchant. In addition, in any
communication to AOL Users or on the Merchant Site, MERCHANT will not encourage
AOL Users to take any action inconsistent with the scope and purpose of this
Agreement, including without limitation, the following actions: (a) using
interactive sites other than the Merchant Site; (b) bookmarking of other
interactive sites; (c) changing the default home page on the AOL browser; or (d)
using any interactive service other than the AOL, Netscape and CompuServe
Services.
11. Keyword(TM) Search Terms. Any Keyword Search Terms to be directed to
Merchant's Site shall be (i) subject to availability and (ii) limited to the
combination of the Keyword(TM) search modifier combined with a registered
trademark of MERCHANT. AOL reserves the right at any time to revoke MERCHANT's
use of any Keywords that are not registered trademarks of MERCHANT, MERCHANT
acknowledges that its utilization of a Keyword Search Term will not create in
it, nor will it represent it has, any right, title or interest in or to such
Keyword Search Term, other than the right, title and interest MERCHANT holds in
MERCHANT's registered trademark independent of the Keyword Search Term. Without
limiting the generality of the foregoing, MERCHANT will not: (a) attempt to
register or otherwise obtain trademark or copyright protection in the Keyword
Search Term; or (b) use the Keyword Search Term, except for the purposes
expressly required or permitted under this Agreement. To the extent AOL allows
AOL Users to "bookmark" the URL or other locator for the Merchant Site, such
bookmarks will be subject to AOL's control at all times. Upon the termination of
this Agreement, MERCHANT's rights to any Keywords and bookmarking will
terminate.
<PAGE>
12. Miscellaneous. Neither Party will be liable for, or be considered in breach
of or default under the Agreement on account of, any delay or failure to
perform as required by the Agreement (except with respect to payment
obligations) as a result of any causes or conditions which are beyond such
Party's reasonable control and which such Party is unable to overcome by the
exercise of reasonable diligence. MERCHANT's rights, duties, and obligations
under the Agreement are not transferable. The Parties to the Agreement are
independent contractors. Neither Party is an agent, representative or partner of
the other Party. Neither Party will have any right, power or authority to enter
into any agreement for or on behalf of, or incur any obligation or liability of,
or to otherwise bind, the other Party. The failure of either Party to insist
upon or enforce strict performance by the other Party of any provision of the
Agreement or to exercise any right under the Agreement will 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
will be and remain in full force and effect. Sections 3, 4, 7, 8, 9, 10, 11, 12
and 13 of these Standard Legal Terms and Conditions, will survive the
completion, expiration, termination or cancellation of the Promotional
Agreement. Either Party may terminate the Agreement at any time with written
notice to the other Party in the event of a material breach of the Agreement by
the other Party, which remains uncured after thirty days written notice thereof.
Any notice, approval, request, authorization, direction or other communication
under this Agreement will be given in writing and will be deemed to have been
delivered and given for all purposes (i) on the delivery date if delivered by
electronic mail on AOL's network or systems (to screenname "[email protected]"
in the case of AOL) or by confirmed facsimile; (ii) on the delivery date if
delivered personally to the Party to whom the same is directed; (iii) one
business day after deposit with a commercial overnight carrier, with written
verification of receipt; or (iv) five business days after the mailing date,
whether or not actually received, if sent by U.S. mail, return receipt
requested, postage and charges prepaid, or any other means of rapid mail
delivery for which a receipt is available. In the case of AOL, such notice will
be provided to both the Senior Vice President for Business Affairs (fax no.
703-265-1206) and the Deputy General Counsel (fax no. 703-265-1105), each at the
address of AOL set forth in the first paragraph of this Agreement. In the case
of MERCHANT, except as otherwise specified herein, the notice address will be
the address for MERCHANT set forth in the first paragraph of this Agreement,
with the other relevant notice information, including the recipient for notice
and, as applicable, such recipient's fax number or AOL email address, to be as
reasonably identified by AOL. Except as otherwise specified herein, the
Agreement sets forth the entire agreement between MERCHANT and AOL, and
supersedes any and all prior agreements of AOL or MERCHANT with respect to the
transactions set forth herein. No change, amendment or modification of any
provision of the Agreement will be valid unless set forth in a written
instrument signed by the Party subject to enforcement of such amendment.
MERCHANT will promptly inform AOL of any information related to the Merchant
Site which could reasonably lead to a claim, demand, or liability of or against
AOL and/or its affiliates by any third party. MERCHANT will not assign this
Agreement or any right, interest or benefit under this Agreement without the
prior written consent of AOL. Assumption of the Agreement by any successor to
MERCHANT (including, without limitation, by way of merger, consolidation or sale
of all or substantially all of MERCHANT's stock or assets) will be subject to
AOL's prior written approval, not to be unreasonable withheld. Subject to the
foregoing, this Agreement will be fully binding upon, inure to the benefit of
and be enforceable by the Parties hereto and their respective successors and
assigns. Except where otherwise specified herein, the rights and remedies
granted to a Party under the Agreement are cumulative and in addition to, and
not in lieu of, any other rights or remedies which the Party may possess at law
or in equity. In the event that any provision of the Agreement is held invalid
by a court with jurisdiction over the Parties to the Agreement, (i) such
provision will be deemed to be restated to reflect as nearly as possible the
original intentions of the Parties in accordance with applicable law and (ii)
the remaining terms, provisions, covenants and restrictions of this Agreement
will remain in full force and effect. The Agreement may be executed in
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same document. The Agreement will be interpreted,
construed and enforced in all respects in accordance with the laws of the
Commonwealth of Virginia, except for its conflicts of laws principles. MERCHANT
hereby irrevocably consents to the exclusive jurisdiction of the courts of the
Commonwealth of Virginia and the federal courts therein in connection with any
action arising under this Agreement.
<PAGE>
EXHIBIT E
Operations
----------
1. MERCHANT Site Infrastructure. MERCHANT will be responsible for all
communications, hosting and connectivity costs and expenses associated with
the MERCHANT Site. MERCHANT will provide all hardware, software,
telecommunications lines and other infrastructure necessary to meet traffic
demands on the MERCHANT Site from the AOL Network. MERCHANT will design and
implement the network between the AOL Service and MERCHANT Site such that
(i) no single component failure will have a materially adverse impact on
AOL Members seeking to reach the MERCHANT Site from the AOL Network and
(ii) no single line under material control by the Merchant will run at more
than 70% average utilization for a 5-minute peak in a daily period. In this
regard, MERCHANT will provide AOL, upon request, with a detailed network
diagram regarding the architecture and network infrastructure supporting
the MERCHANT Site. In the event that MERCHANT elects to create a custom
version of the MERCHANT Site in order to comply with the terms of this
Agreement, MERCHANT will bear responsibility for all aspects of the
implementation, management and cost of such customized site.
2. Optimization; Speed. MERCHANT will use commercially reasonable efforts to
ensure that: (a) the functionality and features within the MERCHANT Site
are optimized for the client software then in use by AOL Members; and (b)
the MERCHANT Site is designed and populated in a manner that minimizes
delays when AOL Members attempt to access such site. At a minimum, MERCHANT
will ensure that the MERCHANT Site's data transfers initiate within fewer
than fifteen (15) seconds on average. Prior to commercial launch of any
material promotions described herein, MERCHANT will permit AOL to conduct
performance and load testing of the MERCHANT Site (in person or through
remote communications), with such commercial launch not to commence until
such time as AOL is reasonably satisfied with the results of any such
testing.
3. User Interface, MERCHANT will maintain a graphical user interface within
the MERCHANT Site that is competitive in all material respects with
interfaces of other similar sites based on similar form technology. AOL
reserves the right to review and approve the user interface and site design
prior to launch of the Promotions and to conduct focus group testing to
assess compliance with respect to such consultation and with respect to
MERCHANT'S compliance with the preceding sentence.
4. Technical Problems. MERCHANT agrees to use commercially reasonable efforts
to address material technical problems (over which MERCHANT exercises
control) affecting use by AOL Members of the MERCHANT Site (a "MERCHANT
Technical Problem") promptly following notice thereof. In the event that
MERCHANT is unable to promptly resolve a MERCHANT Technical Problem
following notice thereof from AOL (including, without limitation,
infrastructure deficiencies producing user delays), AOL will have the right
to regulate the promotions it provides to MERCHANT hereunder until such
time as MERCHANT corrects the MERCHANT Technical Problem at issue.
<PAGE>
5. Monitoring. MERCHANT will ensure that the performance and availability of
the MERCHANT Site is monitored on a continuous basis. MERCHANT will provide
AOL with contract infomation (including e-mail, phone, pager and fax
information, as applicable, for both during and after business hours) for
MERCHANT's principal business and technical represenatives, for use in
cases when issues or problems arise with respect to the MERCHANT Site.
6. Security. MERCHANT will utilize Internet standard encryption technologies
(e.g., Secure Socket Layer - SSL) to provide a secure environment for
conducting transactions and/or transferring private member information
(e.g. credit card numbers, banking/financial information, and member
address information) to and from the MERCHANT Site. MERCHANT will
facilitate periodic reviews of the MERCHANT Site by AOL in order to
evaluate the security risks of such site. MERCHANT will promptly remedy any
security risks or breaches of security as may be identified by AOL's
Operations Security team.
7. Technical Performance.
i. MERCHANT will design the MERCHANT Site to support the AOL-client
embedded versions of the Microsoft Internet Explorer 3.XX and 4.XX
browsers (Windows and Macintosh), the Netscape Browser 4.XX and
make commercially reasonable efforts to support all other AOL
browsers listed at: "http://webmaster.info.aol.com/".
ii. To the extent MERCHANT creates customized pages on the MERCHANT
Site for AOL Members, Merchant will develop and employ a
methodology to detect AOL Members (e.g. examine the HTTP User-Agent
field in order to identify the "AOL Member-Agents" listed at:
"http://webmaster.info.aol.com/").
iii. MERCHANT will periodically review the technical information made
available by AOL at http://webmaster.info.aol.com.
iv. MERCHANT will design its site to support HTTP 1.0 or later protocol
as defined in RFC 1945 and to adhere to AOL's parameters for
refreshing or preventing the caching of information in AOL's proxy
system outline in the document provided at the following URL:
http://webmaster.info.aol.com. The Merchant is responsible for the
manipulation of these parameters in web based objects so as to
allow them to be cached or not cached as outlined in RFC 1945.
v. Prior to releasing material, new functionality or features through
the MERCHANT Site ("New Functionality"). MERCHANT will use
commercially reasonable efforts to: (i) test the New Functionality
to confirm its compatibility with AOL Service client software and
(ii) provide AOL with written notice of the New Functionality so
that AOL can perform tests of the New Functionality to confirm is
compatibility with the AOL Service client software. Should any new
material, new functionality or features through the Merchant Site
be released without notification to AOL, AOL will not be
responsible for any adverse member experience until such time that
compatibility tests can be performed and the new material,
functionality or features qualified for the AOL Service.
<PAGE>
8. AOL Internet Services MERCHANT Support. AOL will provide MERCHANT with
access to the standard online resources, standards and guidelines
documentation, technical phone support, monitoring and after-hours
assistance that AOL makes generally available to similarly situated
web-based partners. AOL support will not, in any case, be involved with
content creation on behalf of MERCHANT or support for any technologies,
databases, software or other applications which are not supported by AOL or
are related to in this Exhibit E.
[CONTRACT READS AS IS]
any MERCHANT area other than the MERCHANT Site. Support to be provided by
AOL is contingent on MERCHANT providing to AOL demo account information
(where applicable), a detailed description of the MERCHANT Site's software,
hardware and network architecture and access to the MERCHANT Site for
purposes of such performance and the coordination of load testing as AOL
elects to conduct. As described elsewhere in this Agreement, MERCHANT is
fully responsible for all aspects of hosting and administration of the
Merchant Site and must ensure that the site satisfies the specified access
and performance requirements as outlined.
<PAGE>
AOL ADVERTISING INSERTION ORDER
Contract # 18769 [GRAPHIC OMITTED]
AOL Salesperson: Brandon Bergmark
Sales Coordinator: Alex Thiesan
Date: 7/14/99
Credit Approval Received:
<TABLE>
<CAPTION>
Advertiser Advertising Agency
<S> <C> <C>
Contact Person Steve Marder
Company Name PetPlanet.com
Address -- Line 1 21 Stillman St. #600
Address -- Line 2 San Francisco, CA 94107
Phone # 415-243-9000
Fax #
Email
SIC Code
Advertiser IAB Category
Description of Advertiser's Product/Service Online retailer in pet supplies
</TABLE>
<TABLE>
<CAPTION>
Billing Information
Send Invoices to (choose one): Advertiser Agency
<S> <C> <C>
Advertiser or Agency Billing Contact Person Steve Marder
Company Name PetPlanet.com
Billing Address -- Line 1 21 Stillman St. #600
Billing Address -- Line 2 San Francisco, CA 94107
Billing Phone # 415-243-9000
Billing Fax #
Billing Email Address
P.O. #, if applicable
</TABLE>
Billing Schedule (select one):
/ / If total payment due is less than or equal to $5,000, and the advertiser is
new to AOL, payment is due upon signing* and must be received by AOL prior to ad
flight.
/ / If total payment due is greater than $5,000 an advertiser new to AOL must
have a favorable D&B credit rating (as determined by AOL). If the new advertiser
does not receive a favorable credit rating or no D&B credit rating is available,
payment is due* in advance of display start date.
/X/ Given a favorable credit rating for a new advertiser or a positive payment
history for a current advertiser, invoices will be due monthly commencing on the
display start date, due net 30. A current advertiser with invoices past due to
AOL must pay outstanding debts prior to new display start date.
*Payment information if payment is due to AOL upon signing or prior to display
start date (select one):
/ / To wire funds: Payment due is greater than or equal to $100,000, please wire
funds to: Acct Title: America Online, Inc., ABA: 021000021, Acct #: 323070752,
The Chase Manhattan Bank, 1 Chase Manhattan Bank, New York, NY 10081.
/ / To mail checks: Payment due is less than $100,000, please mail checks to:
America Online, Inc., Attn: Accounts Receivable, General Post Office, P.O. Box
5696, New York, NY 10087-5696.
/ / To overnight checks: Send payment to Chase Manhattan Bank, 55 Water Street,
Lockbox dept. Room #413, New York, NY 10041, Lockbox #5696.
All amounts not paid when due and payable will bear interest, from the due date
at the prime rate in effect at such time. In the event of nonpayment, AOL
reserves the right to immediately terminate this Insertion Order Agreement
with written notice to Advertiser.
Inventory Type: /X/ AOL Service /X/ AOL.COM/Netfind
/X/ Compuserve / / Netscape / / ICQ
<PAGE>
AOL Service
Inventory
<TABLE>
<CAPTION>
Display Display # of Ad Slots Total Gross Total
AOL Inventory/Demographic* Purchased Start Date Stop Date Ad Type Purchased Price Impressions CPM
<S> <C> <C> <C> <C> <C> <C> <C>
Entertainment ROC 09/01/99 05/01/00 $ 72,702 1,118,493 $65.00
News ROC 09/01/99 05/01/00 $117,000 1,800,000 $65.00
People Connection-SI-Pets Chat 09/01/99 05/01/00 $ 13,500 900,000 $15.00
People Connection-SI-Pets Cats 09/01/99 05/01/00 $ 3,375 225,000 $15.00
People Connection-SI-Pets Dog 09/01/99 05/01/00 $ 10,125 675,000 $15.00
People Connection-SI-Pets Fish 09/01/99 05/01/00 $ 3,375 225,000 $15.00
E-Mail In-Box 09/01/99 05/01/00 $ 37,530 2,502,000 $15.00
Personalogic-Decision Maker-Dogs 09/01/99 05/01/00 $110,250 1,575,000 $70.00
Personalogic-Decision Maker-Pets 09/01/99 05/01/00 $ 15,750 225,000 $70.00
Personalogic-Decision Maker-Cats 09/01/99 05/01/00 $ 15,750 225,000 $70.00
Slingo 09/01/99 05/01/00 $ 36,000 900,000 $40.00
ROS-Demo Target: W18* 09/01/99 05/01/00 $ 7,875 225,000 $35.00
ROS-Demo Targer: Pets in Household 09/01/99 05/01/00 $ 31,500 900,000 $35.00
Oxygen ROS 09/01/99 05/01/00 $300,150 4,617,594 $65.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
*Attach completed AOL Demographic Profile Worksheet Totals: $774,882 16,113,087 $48.09
</TABLE>
All necessary artwork and active URL's must be provided by advertiser
3 business days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
/ / 234x60 IAB Standard / 7k Max file size / / Special______________
/ / 175x45 Chat/Mail in-box / 5k Max file / / 120x60 Stopping / 5k Max file
size size
Linking URL: (Must Be Filled In)
The HTTP/URL address to be connected to the Advertisement shall be: http://
Please send artwork and URL to (choose one):
/X/ [email protected] / / [email protected] / / [email protected]
AOL reserves the right to immediately cancel any advertising flight in the event
of a material change to the nature or content of the site linked to the
Advertisement.
<PAGE>
AOL.com
Inventory
<TABLE>
<CAPTION>
Display Display # of Ad Slots Total Gross Total
AOL.com Inventory/Packages*** Purchased Start Date Stop Date Ad Type Purchased Price Impressions CPM
<S> <C> <C> <C> <C> <C> <C> <C>
Base Module 09/01/99 05/31/00 $ 18,720 360,000 $52.00
Cats Module 09/01/99 05/31/00 $ 3,120 59,994 $52.01
Dogs Module 09/01/99 05/31/00 $ 10,820 209,987 $52.00
Hometown-Run of Family Pets 09/01/99 05/31/00 $ 10,797 207,630 $52.00
Hometown-Run of Family Pets (member) 09/01/99 05/31/00 $ 19,743 379,665 $52.00
Yellow Pages Pets 09/01/99 05/31/00 $ 8,775 135,000 $65.00
AOL.com Home Page 09/01/99 05/31/00 $135,000 9,000,000 $16.00
AOL.com ROS 09/01/99 05/31/00 $ 40,500 2,700,000 $15.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
***See attached package description for any AOL.com package purchases Totals: $247,574 13,0052.286 $18.97
</TABLE>
All necessary artwork and active URL's must be provided by advertiser
3 business days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
<TABLE>
<CAPTION>
<S> <C>
/ / 468x60 NF Reviews, Search Terms, My News & Hometown / 12k Max / Animation OK
/ / 100x70 AOL.com Home Page / 3k Max / No animation / / 120x60 NF Home Page / 2K max / No Animation
/ / 120x60 Shopping / 4k Max / No animation / / 234x60 NF Kids Only & Hometown / 5k Max / Animation OK
/ / 120x60 Instant Messenger/7.5k
</TABLE>
Linking URL: (Must Be Filled In)
The HTTP/URL address to be connected to the Advertisement shall be: http://
Please send artwork and URL to (choose one):
/ / [email protected] / / [email protected] / / [email protected]
AOL reserves the right to immediately cancel any advertising flight in the event
of a material change to the nature or content of the site linked
to the Advertisement.
<PAGE>
CompuServe
Inventory
<TABLE>
<CAPTION>
Display Display Total Gross Total
CompuServe Inventory Purchased Start Date Stop Date Ad Type Price Impressions CPM
<S> <C> <C> <C> <C> <C> <C>
Pets Decision Guide 09/01/99 05/31/00 $ 12,000 150,003 $80.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
Totals: $ 12,000 150,003 $80.00
</TABLE>
All necessary artwork and active URL's must be provided by advertiser
3 business days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
/ / 234x60 IAB Standard / 5k max File Size / / 468x60 /7k Max File Size
/ / 175x45 / 5k Max File Size / / 120x60 /3k Max File Size
Linking URL: (Must Be Filled In)
The HTTP/URL address to be connected to the Advertisement shall be: http://
Please send artwork and URL to: [email protected]
Please contact Peggy Day at 614-538-3542 with additional traffic specification
questions.
AOL reserves the right to immediately cancel any advertising flight in the event
of a material change to the nature or content of the site linked
to the Advertisement.
We accept animated banners but they must be accompanied by Static.
The animated ads have a loop limit of 3.
Animated ads can only account for no more than 20% of the campaigns impressions.
<PAGE>
Advertising Purchase Summary
<TABLE>
<S> <C> <C> <C>
Total Price Total Impressions CPM
AOL Service $774,882.00 16,113,087 $48.09
AOL.com $247,574.00 13,052,286 $18.97
CompuServe $12,000.00 150,003 $80.00
Netscape $0.00 -- $0.00
ICQ $0.00 -- $0.00
Total Purchase Price $1,034,456.00 29,315,376
(Less Agency Discount)
Net Purchase Price Total Guaranteed Impressions CPM
$1,034,456.00 29,315,376 $35.29
</TABLE>
In the event guaranteed impressions are reached prior to the Display Stop Date,
AOL may, at its option, discontinue display at such earlier time. Any guarantees
are to impressions (as measured by AOL in accordance with its standard
methodologies and protocols), not "clicking-throughs." To the extent that there
is a shortfall in impressions as of the end of the specified display period, AOL
will provide, as Advertiser's sole remedy, "make good" impressions through
comparable placements. To the extent impressions commitments are identified
without regard to specific placements, such placements will be as mutually
agreed upon by AOL and Advertiser during the course of the display period. AOL
reserves the right to alter Advertiser flight dates to accommodate trafficking
needs or other operational needs. In such cases, AOL will make available to
Advertiser reasonably equivalent flight(s).
Standard Terms and Conditions
This Insertion Order incorporates by reference AOL's standard advertising terms
and conditions (the "Standard Terms"), including terms related to advertising
material, payment modifications, cancellation rights, usage data, limitations of
liability, disclaimers, indemnifications, use of AOL member information and
miscellaneous legal terms. Among other things, the Standard Terms provide AOL
the right to cancel this Insertion Order Agreement on thirty days notice to
Advertiser (or upon such shorter notice as may be designated by AOL in the event
that AOL believes that further display of the Advertisement will expose AOL to
liability or other adverse consequences), in which case Advertiser shall only be
responsible for the pro-rata portion of payments attributable to the period
preceding such termination. The Standard Terms appear at keyword "Standard Ad
Terms 4" on the U.S.-based America Online brand service and at
http://mediaspace.aol.com/adterms4.html. Advertiser acknowledges that it has
been provided an opportunity to review the Standard Terms and agrees to be bound
by them.
AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order Agreement, their duly
authorized representatives have signed their names below on the dates indicated.
This Agreement (including the Standard Terms incorporated by reference) shall be
binding on both parties when signed on behalf of each party and delivered to the
other party (which delivery may be accomplished by facsimile transmission of the
signature pages hereto).
America Online Inc. Advertiser
- ------------------- ----------
By: /s/ Eric L. Keller By: /x/ Steven E. Marder
----------------------------------- -----------------------------------
(signature) (signature)
Print Name: ERIC L. KELLER Print Name: STEVEN E. MARDER
--------------------------- ---------------------------
Title: VP, Business Affairs Title: CEO
-------------------------------- --------------------------------
(Print or Type) (Print or Type)
Date: 7-30-99 Date: 7-23-99
<PAGE>
Addendum To Exhibit A to AOL/PetPlanet.com Shopping Channel Promotional
Agreement dated June 28, 1999
Animal Categories and Products
PetPlanet.com will offer assorted content and information, community features
and products and services primarily serving users with interests in pet
categories including dogs, cats, fish, birds, small pets, exotics, reptiles,
horses and other animals and pets with product categories as further described
below.
Dogs
Cages/Beds/Carriers/Houses
Doors/Gates
Edibles/Chews
Toys
Health/Grooming/Training
Collars/Leads/Ties/Harnesses
Dishes/Feeders/Waterers
Apparel
Repellents/Deodorizers
Accessories
Books/Videos/Magazines
Gifts & Novelties
Pet Travel & Adventure
Pet Food
Pet Medications
Furniture
Cats
Cages/Beds/Carriers
Doors/Gates
Repellants/Deodorizers
Edibles
Dishes/Feeders/Waterers
Collars/Leads/Ties/Harnesses
Toys
Health/Grooming/Training
Litter & Litter Accessories
Furniture
Books/Videos/Magazines
Pet related Gifts & Novelties
Pet Travel & Adventure
Pet Food
Medications
Fish
Aquariums/Bowls
Filters/Pumps/Heaters
Rock/Gravel/Coral
Feeders/Food/Supplements
Plants
Accessories
Fish/Water Care
Books/Videos/Magazines
Gifts & Novelties
Pet Travel & Adventure
Medications
<PAGE>
Birds
Cages/Stands/Accessories
Bedding/Litter
Edibles
Health/Grooming/Training
Toys
Feeders/Waterers/Baths
Bedding & Litter
Accessories
Gifts & Novelties
Pet Travel & Adventure
Pet Food
Medications
Books/Magazines/Videos
Equine
Apparel/Blankets/Hoods
Buckets/Totes/Tubs
Feed & Supplements
Bridles/Halters/Leads/Ties
Health/Grooming
Feeders/Waterers/Training
Stable Supplies/Accessories
Saddles/Pads/Girths/Clinches
Accessories
Gifts & Novelties
Pet Travel & Adventure
Pet Food
Medications
Books/Magazines/Videos
Small Pets
Cages/Carriers/Pens
Bedding/Litter
Books/Videos/Magazines
Feeders/Waterers
Health/Grooming/Training
Edibles
Collars/Leads/Harnesses
Toys
Terrarium Accessories
Heaters/Caves/Lamps/Rocks
Accessories
Gifts & Novelties
Pet Travel & Adventure
Pet Food
Medications
Reptiles
Books/Videos/Magazines
Cages/Kits/Cage Liners/Accessories
Toys
Edibles
Health Medications/Supplements
Heaters/Light Bulbs/Hoods
Leads/Collar/Harnesses
General Pet Related Products
Pet related Gifts/Novelties
Pet related Apparel
Pet related Stationary
Pet related Toys
Pet Insurance
Pet Friendly Accomodations
Pet related Books/Magazines/Videos
Pet Service Provider Discounts
<PAGE>
Shopping Contract Deal Summary for Anchors and Golds
PetPlanet.com
Instructions: Please attach this 1 page summary for all anchor and gold deals
when forwarding on shopping contracts to Legal and Business Affairs. Each deal
bullet point cites the appropriate provision location in the contract for
purposes of referencing. Where the deal bullet points ask for Yes/No responses,
if the resolution was not AOL's standard provision (therefore, No), please
indicate the compromise solution.
Basic Deal Terms
o Term (please list earliest launch date and last end date) 9/1/99-5/1/00
o Total Guaranteed Payments 3.1 ($)1,192,928 (shopping: $158,472/carriage:
$1,034,456)
o Total Credits ($ for any existing prepaid shopping carriage-to be provided by
Cici Kelly) $0
o Payment Schedule/Timing 3.1 (please list ($) on signing, ($ and dates) for
each of the subsequent payments) $52,824 (7/21/99-accompanying)
Carriage
o Commerce Centers Exh. A (please list all relevant commerce centers involved)
Pets
o Departments Exh. A (please list Anchor, Gold and Silver slots) Anchor: Pets
Accessories
o Total Impressions Exh. A (#) 31,197,748 (shopping: 1,864,372 carriage:
29,315,376)
o Impressions by Department Exh. A (#) shopping anchor: 1,864,372
o Average CPM ($) (please calculate) $38 (shopping: $85/carriage $35)
Affiliated Site
o Customized/Mirrored Exh. E (Y/N) (please inquire about partner's intent here)
Y - Mirrored Site
o Product Categories Description (please list - should already be on Exhibit A
of contract) attached
o Competitive Ads Restrictions Exh. C.1 (Y/N) (automatically implied in
Exh. C.1 - please note any changes) Y
o Third Party Exclusions Exh. C.4 (Y/N) (automatically implied in Exh. C.4 -
please note any changes) Y
o Operating Standards Exh. E (Y/N) Y
o Navigation/Traffic Flow back to AOL Exh C.12 (Y/N) Y
o URL Redirect Exh. C.12 (Y/N) (automatically implied in Exh. C.12 - please note
any changes) Y
Member Benefits
o Product Offering Exh. C.6 (Y/N) Y
o Pricing Exh. C.7 (Y/N) Y
o Exclusive/Special Offers Exh. C.8 (Y/N) Y
Cross Promotion
o Online 2.2A (Y/N) Y
o Offline 2.2B (Y/N) Y
Shopping Specific Terms
o Reports 3.2 (Y/N) Y
o Merchant Certification Exh. C.11 (Y/N) Y
o Customer Service Exh. C.9 (Y/N) Y
o Optional Shopping Search Exh. C.3 (Y/N) (please inquire about partner's intent
here) Y
o Optional QuickCheckout Exh. C.3 (Y/N) (please inquire about partner's intent
here) Y
o Optional BizRate Exh. C11 (Y/N) (please inquire about partner's intent here) Y
<PAGE>
MapQuest.com, Inc.
License Agreement
------------------
MapQuest.com, Inc. ("MapQuest") has developed a proprietary service (the
"MapQuest Service"), comprised of (i) interactive mapping and locator technology
located on its Internet site ("MapQuest Site"), and (ii) systems to connect
certain mapping and routing components of its service with agreed upon data of
the undersigned party ("Licensee"). In consideration of the terms and conditions
set forth herein, MapQuest and Licensee agree as follows:
(a) "Licensee Site" shall mean the following Internet site of Licensee:
Any URL owned by PetPlanet.com, it's parent, or it's subsidiaries.
(b) "Licensee Data" shall mean solely and exclusively the
following data (meaning a description of the customer database
available for searches): Pet Planet location data, which
shall be searched using the MapQuest Service for the following
purpose(s): to display PetPlanet location data on an
interactive map, calculate driving directions and display POI
(Points of Interest) data. Except as may be expressly set
forth in the above definition, Licensee Data shall not include
any third party data.
(c) "MapQuest Service" shall also mean the following "Licensed
Components": Connect, TripConnect Plus and Points of Interest.
(d) The "Term" of this Agreement shall be from August 15, 1999, to
August 14, 2000, and thereafter if renewed in accordance
herewith.
(e) "License Agreement" means, collectively, this License
Agreement, Schedule A, and the following additional schedules:
This License Agreement and any attachments thereto.
(f) "Fees" means, collectively, the following charges, payable in
accordance with Section V of Schedule A:
Service set-up fee of: $1,500 for which Licensee shall receive
the software, related manuals and up to 10 hours of technical
support.
Annual service fee of: $18,000 for up to 2,000,000 map draws.
$7,500 for up to 200,000 routes. $1,200 for Nav Tech POI data if
client elects to license data. If client elects to sign Advertising
Insertion Order, all mapping, routing, and POI data will be applied
against discount of total price.
Additional fee of: # of Map Draws $ Per Million
--------------------------------------------
2 - 6 million $8,500
----------------------------------------------------------------
6 - 9 million $8,000
----------------------------------------------------------------
9 - 12 million $7,500
----------------------------------------------------------------
12 - 15 million $7,000
----------------------------------------------------------------
15 - 19 million $6,500
----------------------------------------------------------------
19 million + $6,000
----------------------------------------------------------------
Additional fee of: # of Routes $ Per 100,000
--------------------------------------------
200 - 600 thousand $3,500
----------------------------------------------------------------
600 - 1,000 thousand $3,000
----------------------------------------------------------------
1 million - 2 million $2,500
----------------------------------------------------------------
2 million + $2,000
----------------------------------------------------------------
Technical support in excess of 10 hours will be charged at $100.00
an hour.
(g) Licensee MapQuest Identification Number: TBD
<PAGE>
IN WITNESS WHEREOF, the parties have executed this License Agreement by their
duly authorized officers.
MapQuest.com, Inc. Licensee: PetPlanet.com
--------------
By: __________________________ By: _________________________
Date: __________________________ Date: _________________________
Name: Denny Reinert Name: Steven E. Marder
-------------------------- -------------------------
Title: Director of Sales Title: Chief Executive Officer
-------------------------- -------------------------
Address: 1730 Blake St. Ste. 310 Address: 21 Stillman Suite 600
-------------------------- -------------------------
Denver, CO 80202 San Francisco, CA 94107
-------------------------- -------------------------
Phone: 303-312-0200 Phone: (415) 243 -9000
-------------------------- -------------------------
Fax: Fax: 303-312-0201
-------------------------- -------------------------
E-mail: [email protected] E-mail:
-------------------------- -------------------------
Last revised: 4/5/99
-2-
<PAGE>
Schedule A - MapQuest Connect Services
General Terms and Conditions
--------------------------------------
I. Scope of Service. Licensee shall use the MapQuest Service, related
trademarks and other intellectual property ("MapQuest Technology") in
applications designed to run across the World Wide Web in an Internet, Intranet
or Extranet environment only as follows. Visitors to the Licensee Site may
request display of geographic information related to the Licensee Data. Upon
receipt of each such request, the MapQuest Service shall automatically append
spatial coordinates to the Licensee Data, so that such Licensee Data can be
viewed on an interactive map and/or driving directions subject to the services
selected and licensed hereunder by Licensee. Specifically excluded from this
"Scope of Service" are (i) any use or operation of the MapQuest Technology on
any Internet site other than the Licensee Site; (ii) products configured by
Licensee, its parent, or subsidiaries to be, or World Wide Web pages owned by
Licensee, its parent, or subsidiaries specifically designed for, wireless or
satellite delivery services or applications; and (iii) products, systems or
applications owned or operated by Licensee that are installed in or otherwise
connected to vehicles or capable of vehicle navigation, positioning, tracking or
routing.
II. MapQuest License. During the term hereof and all renewals thereof,
MapQuest agrees to provide Licensee with a non-exclusive license of the MapQuest
Service within the Scope of Service, subject to and in accordance with this
License Agreement. Licensee shall not use and shall not permit the MapQuest
Technology to be used outside of the Scope of Service or in contravention of
this License Agreement or applicable law. Licensee grants to MapQuest the right
to market the existence of this License Agreement and relationship.
III. Ownership of Technology and Restrictions on Use.
-----------------------------------------------
(a) MapQuest represents to Licensee that MapQuest has all right,
title and interest in and to the MapQuest Technology and, further, that
MapQuest lawfully authorized and approved to license the technology and
content that is the subject matter of this License Agreement. MapQuest
further represents and warrants that it has no right, title or interest
in the Licensee's Technology. MapQuest agrees not to use, disclose,
sell, transfer or copy the Licensee Data, or any portion thereof, other
than as necessary to perform within the Scope of Service. Licensee
agrees not to disassemble, decompile, reverse engineer, merge, use,
disclose, sell, transfer or copy the MapQuest Technology, or any
portion thereof, other than as expressly permitted in the Scope of
Service and as necessary to utilize the MapQuest Service that is the
subject matter of this License Agreement All latitude and longitude
coordinates, as they relate to the service,("MapQuest Geocodes")
assigned to locations either (i) by MapQuest's geocoding services or
(ii) by software licensed hereunder, shall be used by Licensee solely
in conjunction with the software specifically licensedhereunder. The
MapQuest Geocodes shall not be used by Licensee for any other purpose,
including without limitation, use with any computer software not
licensed hereunder, and uses or products which modify the delivered
unencrypted latitudes and longitudes hereunder during the term of this
License Agreement. As a condition to permitting end-user access to
MapQuest Technology, Licensee agrees to provide a link to MapQuest's
end-user license agreement.
(b) Unless owned, licensed, leased or held by Licensee or
otherwise existing in the public domain, Licensee agrees that all of
MapQuest's ideas, know-how, techniques, enhancements and modifications
developed by MapQuest in the future are owned by MapQuest and are not
licensed hereunder. MapQuest shall ensure that the MapQuest Service
licensed hereunder shall not be adversely affected by, and shall be
compatible with, any such enhancements, modifications or improvements
to the MapQuest Technology. MapQuest shall maintain its servers 24
hours a day, seven days a week.
(c) If any claim is asserted against one party ("Indemnitee") that
the Technology of the other party ("Indemnitor") infringes the
intellectual property rights in the United States of America of any
third party, the Indemnitee shall promptly advise the Indemnitor in
writing of such claim, and the Indemnitor shall have the right to elect
to control the defense of such claim with counsel of Indemnitor's
choosing, and to the extent Indemnitor so elects to defend, the
Indemnitee shall cooperate fully in the defense thereof and furnish to
the Indemnitor all evidence and assistance in Indemnitee's control. If
the Indemnitor controls the defense or in its sole discretion elects
not to control the defense but is determined to have so infringed, the
Indemnitor shall indemnify the Indemnitee from and against any and all
liability, damages, and reasonable costs (not including attorneys' fees
incurred by the Indemnitee in monitoring or
-3-
<PAGE>
participating in any defense provided by Indemnitor) incurred by
Indemnitee as a result of any such claim or any resulting judgment or
settlement.
IV. Limited Warranty.
----------------
(a) MapQuest warrants that the MapQuest Service shall function
substantially as set forth in the Scope of Service. Licensee
acknowledges that the services provided and databases used in the
MapQuest Service are complex and may contain some non-conformities,
defects or errors. MapQuest does not warrant that the services provided
and databases used will meet Licensee's needs or expectations, that
operations of the MapQuest Service will be error free or uninterrupted
(which interruptions shall include periodic system maintenance and
upgrades), or that all non-conformities or defects can or will be
corrected. No oral or written advice or information provided by
MapQuest or any of its agents or employees shall create a warranty or
in any way increase the scope of this limited warranty and Licensee is
not entitled to rely on any such advice or information. MapQuest
warrants that the MapQuest Service licensed hereunder shall not
abnormally end or produce invalid or incorrect results as a consequence
of the turn of the century, and will under normal use operate on
calendar dates falling on or after January 1, 2000, in the same manner,
and with the same functionality, data integrity and performance as on
or before December 31, 1999. Specifically excluded from this warranty
are (i) Licensee's databases (including Licensee Data), operating
system, hardware and any other Licensee software or hardware
interfacing, connecting or operating with the MapQuest Service provided
pursuant to this License Agreement, and (ii) all third party databases
and software licensed by MapQuest or otherwise used in connection with
the MapQuest Service. EXCEPT AS SET FORTH IN THIS SECTION, MAPQUEST
MAKES NO WARRANTY OF ANY KIND OR NATURE, INCLUDING WITHOUT LIMITATION,
AS TO MERCHANTABILITY OR FITNESS FOR ANY USE OR PURPOSE, FOR ANY OF ITS
SERVICES OR RIGHTS HEREUNDER, INCLUDING WITHOUT LIMITATION WITH RESPECT
TO THE MAPQUEST TECHNOLOGY.
Notwithstanding the foregoing, MapQuest shall remedy any material
non-conformities, defects or errors in the software within a reasonable amount
of time under the circumstances. Excluded is third-party data related to the
MapQuest Technology. MapQuest's rights' under this agreement are subject to
timely performance of service.
V. Fees. Licensee shall pay all Fees within 30 calendar days after
receipt of the invoice. In addition to any other rights hereunder, Licensee
shall pay to MapQuest interest equal to 1.5% of an unpaid, overdue Fee which is
not disputed, for each 30 day period, or portion thereof, in which any Fee
remains unpaid. Licensee's rights under this Agreement are subject to timely
payment of Fees.
VI. Term. This License Agreement will automatically renew for
additional one-year terms, unless either party gives notice of termination to
the other at least 30 days prior to the end of the then current term. Upon
termination of this License Agreement, those provisions that expressly or by
their nature survive shall survive termination of this License Agreement,
including, without limitation, all payments due and owing to either party and
Sections III and IX of this Schedule A. All other rights and obligations of the
parties shall cease upon termination of this License Agreement.
VII. Default. This License Agreement shall be terminated at the option
of the non-defaulting party, by written notice thereof to the defaulting party,
specifying in reasonable detail the reason for termination, if (i) the
defaulting party breaches or otherwise fails to perform or comply in a material
respect with a material obligation or covenant, and such breach or failure is
not cured to the non-defaulting party's reasonable satisfaction within 30 days
receipt of such notice; or (ii) the defaulting party fails to comply strictly
with the provisions of Section III or IX of Schedule A. If the non-defaulting
party is Licensee, then the sole and exclusive remedy of Licensee shall be that
MapQuest refunds to Licensee all Fees paid by Licensee up to the amount of the
loss incurred and that this License Agreement is terminated, subject to Section
III(c), without further recourse. If the non-defaulting party is MapQuest, then
the sole and exclusive remedy of MapQuest shall be that Licensee pays to
MapQuest an amount equal to the unpaid Fees to have accrued for the remainder of
the term up to the amount of the loss incurred and that this License Agreement
is terminated, subject to Section III(c), without further recourse.
-4-
<PAGE>
VIII. Limitation of Liability. IN NO EVENT WILL EITHER PARTY BE LIABLE
FOR ANY LOST PROFITS, OR OTHER CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR PUNITIVE
DAMAGES ARISING OUT OF THIS LICENSE AGREEMENT, THE USE OF THE MAPQUEST
TECHNOLOGY OR PERFORMANCE OF THE OBLIGATIONS HEREUNDER, EVEN IF THE AFFECTED
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Nor shall either
party be liable for any claim or demand against the other party by any other
person, organization, or entity (except as expressly set forth in Section III(c)
of this Schedule A). Excepting any indemnity pursuant to Section III(c), each
party agrees that the other's liability hereunder arising out of contract,
negligence, strict liability in tort or otherwise, shall not exceed the amounts
paid and otherwise payable by Licensee to MapQuest hereunder.
IX. Confidentiality. At all times during the term hereof and at all
times thereafter, each party shall keep confidential and not disclose, directly
or indirectly, and shall not use for the benefit of itself or any other
individual or entity any Confidential Information of the other party.
"Confidential Information" means any trade secrets or confidential or
proprietary information whether in written, digital, oral or other form which is
unique, confidential or proprietary to the disclosing party, including, but not
limited to, the Licensee Data and MapQuest Technology, and any other materials
or information related to the business or activities of the disclosing party
which are not generally known to others engaged in similar businesses or
activities. Either party's failure to mark any Confidential Information as
confidential, proprietary or otherwise shall not affect its status as
Confidential Information hereunder.
X. Miscellaneous.
-------------
(a) This License Agreement constitutes the entire understanding and
agreement of the parties with respect to its subject matter, and supersedes all
prior and contemporaneous understandings and agreements, whether written or
oral, with respect to such subject matter. No terms contained on any proposal,
purchase order, acknowledgment or other document will be effective with respect
to affecting the terms hereof.
(b) No delay or failure by either party to exercise or enforce at
any time any right or provision hereof will be considered a waiver thereof of
such party's rights thereafter to exercise or enforce each and every right and
provision hereof. No single waiver will constitute a continuing or subsequent
waiver. No waiver, modification or amendment of any provision hereof will be
effective unless it is in a signed writing by the parties.
(c) Licensee may not assign its rights or obligations hereunder
(including as a change of control) without the prior written consent of
MapQuest, such consent shall not be unreasonably withheld. This License
Agreement will bind and inure to the benefit of the successors and assigns of
the parties.
(d) This License Agreement shall be governed and construed in all
respects by the laws of the State of California, without regard to principles of
conflict of laws. Each party shall abide by, and ensure that its officers and
employees abide by, all United States federal, state and local laws, ordinances,
rules and regulations applicable to the transactions contemplated hereunder.
(e) Each party expressly acknowledges and agrees that any breach or
threatened breach of this License Agreement may cause immediate and irreparable
harm to the other party which may not be adequately compensated by damages. Each
party, therefore, expressly agrees that in the event of such breach or
threatened breach and in addition to any and all available equitable and legal
remedies, each party shall have the right, after providing timely notice to the
other party, to seek equitable injunctive relief in connection with such breach
or threatened breach.
(f) If any provision of this License Agreement or the application
thereof to any party or circumstance is held to be invalid, illegal, or
unenforceable in any respect, that provision to that extent shall be severed
from this License Agreement (but, to the extent permitted by law, not
otherwise), and shall not affect the remainder hereof, and the parties agree to
substitute for such provision a valid provision which most closely approximates
the intent and economic effect of such severed provision.
(g) Neither party shall be liable to the other for a failure to
perform any of its obligations under this License Agreement, except for payment
obligations, during any period in which such performance is delayed due to
circumstances beyond its reasonable control.
-5-
<PAGE>
MAPQUEST.COM, Inc
-------------
Insertion Order Request For: PetPlanet.com
-------------
Sales Manager: A. G. Germano Date: 08/17/1999
<TABLE>
<S> <C>
Advertiser PetPlanet.com Agency
----------------------------------- -------------------------------------------
Address 21 Stillman Street, Suite 600 Address
----------------------------------- -------------------------------------------
San Francisco, CA 94107
----------------------------------- -------------------------------------------
Contact Ms. Kim Marder Contact
----------------------------------- -------------------------------------------
Phone 415-243-9000 Phone
----------------------------------- -------------------------------------------
Fax 415-243-3399 Fax
----------------------------------- -------------------------------------------
Email [email protected] Email
----------------------------------- -------------------------------------------
Campaign Exclusive Pet-Site Partnership URL
----------------------------------- -------------------------------------------
Start Date 09/01/1999 End Date 08/31/2000 Length of Insertion One Year
--------------------- --------------------- -----------------
Detailed Position
include guaranteed page views (per month, quarter or total) & GROSS cost/month
- -------------------------------------------------------------------------------------------------------
MapBrand Buttons-Category Exclusive
Locations Along The Way-Category Exclusive
Home Page MarQuis-500,000 impressions per month-Category Exclusive
Hard-coded Home Page Button- x 12 months-Category Exclusive
1 million ROS impressions in Driving Directions Per Month-Category Exclusive
MyMapQuest Registration-Shared Database & Button On Registration Page-Category Exclusive
Mapping Services from MapQuest.com Business To Business Div. (mapping value = $69,500)
All The Above Per Month For A Total Monthly Net = $87,000 x 12 months
- -------------------------------------------------------------------------------------------------------
-----------------------------------------------
Total Guaranteed Page Views per Month: n/a
-----------------------------------------------
Total Guaranteed Page Views for the Program: n/a
-----------------------------------------------
CPM: n/a (Net)
-------------------
----------------------------------------------
Net Cost Per Month $ 87,000.00
----------------------------------------------
Bill To: PetPlanet.com
------------------------------------------------ ----------------------------------------------
Terms: Standard/Monthly Invoice for $87,000 net Total Net Cost for the Program $ 1,044,000.00
------------------------------------------------ ----------------------------------------------
Special Billing Instructions:
- ---------------------------------------------------------------
PREMIUMS AMOUNT
------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
- --------------------------------------------------------------- ---------------------------------------------
DISCOUNTS (INCLUDE %)
Send Performance Reports to: ------------------------
---------------------------------------------
Name: Kim Marder ---------------------------------------------
--------------------------------------------------- ---------------------------------------------
Company: PetPlanet.com ---------------------------------------------
--------------------------------------------------- ---------------------------------------------
Email: [email protected] TOTAL NET DUE $ 87,000.00
--------------------------------------------------- ------------------------------
Phone: 415-243-9000
---------------------------------------------------
<PAGE>
Other Instructions
- --------------------------------------------------------------------------------------------------------------
Send all creatives to:
Kristin Wyman
[email protected]
303-312-0217 (ph) 303-312-0201 (f)
- --------------------------------------------------------------------------------------------------------------
A. G. Germano Date: 8/17/99 Date: 8/17/99
------------------------------------------------ ----------------------------------------------
MapQuest.Com
1700 Monterey Drive
San Bruno, CA 94066
650-952-8168-tel
650-952-4479-fax
</TABLE>
-6-
<PAGE>
Exhibit 10.4
EXCLUSIVE DISTRIBUTION AND FULFILLMENT AGREEMENT
BETWEEN
AMERICAN AGCO, INC. AND PETPLANET. COM, INC.
THIS AGREEMENT is made and entered into this 10th day of September 1999
(the "Effective Date"), by and between PETPLANET.COM, INC., a Delaware
corporation ("PETPLANET"), and American AGCO, Inc. a Minnesota corporation
("AGCO").
WHEREAS, PETPLANET is an internet retail company that sells pet food,
pet supplies and pet-related products and services to its customers over the
Internet;
WHEREAS, AGCO owns and operates a pet supply distributorship, has or
will immediately build the capability to handle the pick, pack and ship
requirements for pet food, pet supplies and pet-related product orders, and
wishes to participate in internet commerce; and
WHEREAS, PETPLANET wishes to engage AGCO for the purpose of fulfilling
its orders for pet food, pet supplies and pet-related products and otherwise
contribute to the development of e-commerce on the PETPLANET on-line pet channel
network and AGCO wishes to act in that capacity, subject to the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties do agree as follows:
ARTICLE I. TERM OF AGREEMENT
1.1. Term. The term of this Agreement (the "Term") shall commence upon
execution of this Agreement and shall remain in full force and effect for a term
of five (5) years. This Agreement may be renewed for a subsequent five (5) year
period upon the mutual written agreement of the Parties. If either Party desires
to extend the Term of this Agreement for the additional five (5) year period,
that Party shall give notice of election to renew at least ninety (90) days
prior to the then-current expiration date and the Parties shall thereafter
commence negotiations regarding the terms and conditions of the renewed
Agreement.
ARTICLE II. SERVICES
2.1 Services. Each party shall perform the services (the "Services")
set forth in Exhibit "A," along with such other related services as may be
reasonably necessary from time to time to further the intent of this Agreement,
all in accordance with the terms and conditions hereof. Each party shall
diligently and to the best of their ability perform the Services and shall
dedicate their time and resources to such performance as may be commensurate
with such Services.
ARTICLE III. EXCLUSIVITY
3.1 Exclusive Agreement.
a. AGCO acknowledges and agrees that during the term of this Agreement, and any
extended or renewed term thereof, AGCO may not distribute for, contract with or
otherwise be engaged in fulfilling, or assisting in the fulfillment of, pet
product distribution for competing domestic or international third parties, or
their employees, agents, representatives, directors, officers and partners, who
are primarily engaged in the on-line pet food, pet services or pet- related
1
<PAGE>
products industry, in any capacity, or who maintain, support or are affiliated
with any individual or entity operating or intending to operate on the Internet
in the pet space or pet category or any other pet food, pet service or pet
product Internet provider, electronic retailer or retailer conducting themselves
via a similar medium, or whom are otherwise in direct competition with PETPLANET
as an Internet e-commerce provider, without the express written consent of
PETPLANET. Violation of this provision shall be cause for immediate termination
of this Agreement. Notwithstanding the foregoing, AGCO reserves the right to
maintain its own website and to respond directly to customer requests and
purchase orders to the extent AGCO is not engaged in meeting direct fulfillment
activities of Internet retailers as set forth above.
b. PETPLANET acknowledges and agrees that during the term hereof,
PETPLANET may not contract with or otherwise be engaged to perform services for
third parties engaged in the non-food pet products distribution business,
without the express written consent of AGCO. Upon execution of this Agreement,
AGCO and PETPLANET shall mutually designate and negotiate with a carrier or
shipper for delivery of the pet products contemplated under this Agreement.
Notwithstanding the foregoing, in the event that AGCO and PETPLANET are unable
to maintain product transportation costs in specific geographical regions at
prices reasonably equal to or less than PETPLANET's competitors in those
specific geographical regions, PETPLANET may undertake to negotiate, establish
and designate a delivery and transportation company through which AGCO shall
arrange for transportation of its pet products into such geographical regions;
provided, however, that such use of another delivery and transportation company
does not violate any exclusive agreement between AGCO and a third party shipper
which PETPLANET has previously approved.
ARTICLE IV. ORDER FULFILLMENT REQUIREMENTS
4.1 General. During the term of this Agreement, AGCO shall (a) fulfill
PETPLANET customer's orders for pet food, pet supplies and pet-related products;
(b) direct order fulfillment to customers; (c) provide merchandising advice and
assistance as needed; and (d) organize and arrange for meetings between
PETPLANET and key vendors.
4.2 Order Transmittal. PETPLANET shall transmit orders on a regular
basis to AGCO in accordance with PETPLANET'S electronic file transfer system.
4.3 Product Selection and Data Requirements. AGCO will offer all
cataloged and inventoried pet food, pet supplies and pet-related products
currently stocked by AGCO or otherwise readily available through AGCO product
channels. AGCO will also provide support to PETPLANET in its efforts to (a)
develop the product data base elements required for the web site in the form of
data available from AGCO's own data base; (b) obtain graphics and product
feature/benefit information from the manufacturers for product presentations;
(c) use its best efforts to arrange group or individual meetings with key
vendors for the purpose of encouraging them to support PETPLANET in the form of
payments for product presentations and co-op advertising programs; and (d)
identify all initial product offerings on the site as well as consult with, and
seek the advice of, PETPLANET prior to release of all future product offerings.
4.4 Inventory. AGCO shall use its best efforts to maintain and
establish sufficient inventory of products from major vendors of pet food, pet
supplies and pet-related products for PETPLANET. AGCO will keep PETPLANET
abreast of any product offerings on the site that may be currently out of stock
in order for PETPLANET to make the necessary adjustments to the site. AGCO
agrees to maintain sufficient inventory levels of product offerings on the
website to achieve a 94% of better in-stock fulfillment rate. For any items that
AGCO does not currently have in stock, AGCO agrees to use its best efforts to
expeditiously obtain the desired product from the product source.
2
<PAGE>
4.5 Product Inventory Carried at the Request of PETPLANET. AGCO
currently maintains, and agrees to continue to maintain during the term of this
Agreement, the major pet food lines and related products that AGCO is able to
obtain contractually from manufacturers of pet food, pet supplies and
pet-related products, based on the wholesale distribution policies of said
manufacturers. AGCO reserves the right to discontinue or change its products
sold and inventory requirements upon ninety (90) days written notice to
PETPLANET. In the event that PETPLANET wishes to sell certain minor or unusual
product line(s) not carried by AGCO, AGCO shall maintain, monitor, reorder, and
fulfill orders of same for PETPLANET, for a charge equal to landed costs.
PETPLANET will negotiate pricing and payment terms with the manufacturers of
such minor or unusual product(s).
4.6 Order Fulfillment and Delivery. Orders will be packed and shipped
no later than 24 hours following receipt of orders by AGCO except that shipments
will not be made on Saturdays, Sundays, and holidays. Orders shall be shipped
using PETPLANET's master billing account with a shipper of PETPLANET'S choice.
All orders will be via EDI, facsimile or electronic file transfer. AGCO will
provide PETPLANET with the shipping information and acknowledgment of shipment
within 24 hours of an actual shipment.
ARTICLE V. PRICING AND PAYMENT TERMS
5.1 General. Prices for all goods purchased hereunder shall be
determined, and during the term hereof shall remain, equal to or less than "most
favored nation" pricing for the same or similar products, less a five percent
(5%) discount. AGCO may change any agreed upon pricing, in whole or in part, at
any time, upon ninety (90) days prior notice to PETPLANET. However, in the event
that AGCO is provided less than ninety day notice of a vendor price change, AGCO
shall notify PETPLANET of such price change as soon as possible under the
circumstances.
5.2 Payment Terms. AGCO will invoice PETPLANET on a weekly basis for
each product delivered to a PETPLANET customer at agreed upon pricing.
ARTICLE VI. ADDITIONAL CONSIDERATION
6.1 Options. Additional compensation shall include a warrant to
purchase 250,000 shares of PETPLANET common stock vesting on a quarterly basis
and pursuant to the terms and conditions as set forth in Exhibit "C" (the
"Common Stock Warrant"). The terms and conditions of the Common Stock Warrant
are incorporated into the terms and conditions of this Agreement such that
default or termination of one agreement shall constitute default or termination
of the other agreement. Specifically, failure to execute the Common Stock
Warrant at the time of grant shall constitute a unilateral breach of this
Agreement, subject to voidability by PETPLANET.
6.2 Variable Stock Consideration. AGCO shall also be compensated for
each paying account that enrolls in the Pet Small Business Network (PSBN) for a
minimum term of four (4) months and names AGCO as its referral source to PSBN,
subject to verification by PETPLANET. Such compensation shall be in the form of
warrants to purchase an additional fifty- (50) shares of PETPLANET common stock
for each paying account that enrolls in the PSBN. Warrants issued under this
Section 6.2 shall be awarded on a semi-annual basis dependent upon the number of
accounts enrolled by AGCO in the prior six-month period and verified by
PETPLANET. All warrants issued hereunder shall be issued subject to the terms
and conditions set forth in Section 6.1 and a vesting period of four (4) months
for each participant's account enrollment period.
6.3 Bonus Consideration. If AGCO introduces PETPLANET to third parties
distributors with the intention of those third party distributors possibly
providing distribution services to PETPLANET and, thereafter, PETPLANET enters
3
<PAGE>
into one or more exclusive product distribution agreements with those third
parties, AGCO may be awarded, as bonus consideration, a warrant to purchase
25,000 shares of PETPLANET common stock subject to the terms and conditions as
set forth in Exhibit C. Any bonus consideration awarded shall be issued at the
reasonable discretion of PETPLANET.
ARTICLE VII. GUARANTEE OF PERFORMANCE
7.1 Performance Guarantee. PETPLANET shall use its best efforts to meet
certain performance goals in the sale of AGCO products as set forth below (the
"Gross Sales Projections"). Gross Sales Projections shall be calculated from the
PETPLANET actual gross revenue derived from PETPLANET visitor purchases of AGCO
products. PETPLANET agrees to meet or exceed those Gross Sales Projections. In
the event that the Gross Sales Projections are not met within the agreed upon
time frame, PETPLANET shall be subject to a margin deficiency payment as defined
below (the "Margin Deficiency Payment").
Gross Sales Projections
-----------------------
Effective Date to September 30, 2000 $1,000,000
October 1, 2000 to September 30, 2001 $3,000,000
October 1, 2001 to September 30, 2002 $5,000,000
7.2. Margin Deficiency. The Margin Deficiency shall be calculated based
on the difference between the Gross Sales Projections and the actual gross sales
of AGCO products to PETPLANET visitors incurred in the same period of time as
the Gross Sales Projections (the "Actual Gross Sales"). That number shall be
multiplied by the average margin of sales to date of the existing product mix
for AGCO products sold over the immediately preceding twelve-month period.
PETPLANET shall prepare an accounting to determine the Actual Gross Sales; such
accounting shall be prepared according to Generally Accepted Accounting
Principles ("GAAP"), except that returned, defective or purchased products shall
be subtracted from the final calculation in determining the Actual Gross Sales.
The accounting will be prepared by PETPLANET within thirty (30) days of the
September 30th year-end Gross Sales Projection dates as stated above. PETPLANET
shall pay to AGCO the Margin Deficiency, if any, within thirty (30) days of
preparation of the accounting.
7.3. Breach. Failure of PETPLANET to pay any resulting Margin
Deficiency will constitute a material breach of this Agreement and be grounds
for termination as set forth in Article XI herein.
7.4. Expiration of this Article. Guarantees of performance and
provisions of this Article VII shall expire on November 30, 2002, save and
except for the survivability of remedies available to either party at law or in
equity and as set forth in Article XVII below.
ARTICLE VIII. RIGHT OF FIRST REFUSAL
8.1 Grant. PETPLANET is hereby granted the right of first refusal (the
"First Refusal Right"), exercisable in connection with any proposed sale or
other transfer of thirty percent (30%) of the total number of outstanding AGCO
common stock. For purposes of this Article VIII the terms "sale" and "transfer"
shall include:
(a) any assignment, pledge, encumbrance or other disposition for value
of thirty percent (30%) of the total number of outstanding AGCO
shares;
4
<PAGE>
(b) a merger or acquisition in which AGCO is not the surviving entity,
except for a transaction the principal purpose of which is to
change the entity form or state of incorporation;
(c) the sale, transfer or other disposition of all or substantially all
of the assets of AGCO;
(d) any reverse merger in which AGCO is the surviving entity but in
which fifty percent (50%) or more of AGCO's outstanding voting
stock is transferred to holders different from those who held the
stock immediately prior to such merger;
(e) any sale or transfer of over sixty percent (60%) of the equitable
ownership interest in AGCO held by Gary Duclos; or
(f) the filing of applicable registration statements relating to an
initial underwritten public offering by AGCO of its equity
securities pursuant to an effective registration statement filed
under the 1933 Act.
8.2 Non-triggering Event. PETPLANET's right of first refusal shall not
be triggered in the event of (i) a gratuitous transfer of AGCO common stock made
to Gary Duclos' spouse or issue, including adopted children, or to a trust for
the exclusive benefit of Gary Duclos or his spouse or issue, (ii) a transfer of
AGCO common stock to Anthony Duclos or Anthony Duclos' spouse or issue, (iii) a
transfer of title to the AGCO common stock effected pursuant to Gary Duclos'
will or the laws of intestate succession, (iv) a transfer of AGCO common stock
by Gary Duclos in pledge as security for any purchase-money indebtedness
incurred by Gary Duclos with AGCO, or (v) a transfer of AGCO common stock to Tom
Hill pursuant to the effectuation of the terms of an employment agreement
entered into by Tom Hill and AGCO prior to the Effective Date.
8.3 Notice of Intended Disposition. In the event of a sale or transfer
of AGCO common stock (the "Target Shares"), AGCO shall promptly (i) deliver to
the Secretary of PETPLANET written notice (the "Disposition Notice") of the
offer and the basic terms and conditions thereof, including the proposed
purchase price, and (ii) provide satisfactory proof that the disposition of the
Target Shares to the third-party offeror would not contravene any provisions
this Agreement.
8.4 Exercise of Right. PETPLANET (or its assignees) shall, for a period
of twenty one (21) days following receipt of the Disposition Notice, have the
right to purchase the Target Shares specified in the Disposition Notice upon the
same terms and conditions specified therein. Such right shall be exercisable by
written notice (the "Exercise Notice") delivered to AGCO prior to the expiration
of the twenty one--(21) day exercise period. If such right is exercised with
respect to all the Target Shares specified in the Disposition Notice, then
PETPLANET (or its assignees) shall effect the purchase of the Target Shares,
including payment of the purchase price, not more than five (5) business days
after delivery of the Exercise Notice; and at such time AGCO shall deliver to
PETPLANET the certificates representing the Target Shares to be purchased,
properly endorsed for transfer, if applicable.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, PETPLANET (or
its assignees) shall have the right to pay the purchase price in the form of
cash equal in amount to the value of such property. If AGCO and PETPLANET (or
its assignees) cannot agree on such cash value within ten (10) days after
PETPLANET's receipt of the Disposition Notice, the valuation shall be made by an
appraiser of recognized standing selected by AGCO and PETPLANET (or its
assignees), or, if they cannot agree on an appraiser within twenty one (21) days
after PETPLANET's receipt of the Disposition Notice, each shall select an
5
<PAGE>
appraiser of recognized standing and the two appraisers shall designate a third
appraiser of recognized standing, whose appraisal shall be determinative of such
value. AGCO and PETPLANET shall share the cost of such appraisal equally. The
closing shall then be held on the latter of (i) the fifth business day following
delivery of the Exercise Notice or (ii) the 15th day after such cash valuation
shall have been made.
8.5 Non-Exercise of Right. In the event the Exercise Notice is not
given to AGCO within twenty one (21) days following the date of PETPLANET's
receipt of the Disposition Notice, AGCO shall have a period of thirty (30) days
thereafter, in which to sell or otherwise dispose of the Target Shares upon
terms and conditions (including the purchase price) no more favorable to the
third-party purchaser than those specified in the Disposition Notice. The
third-party purchaser shall acquire the Target Shares free and clear of all the
terms and provisions of this Agreement (including PETPLANET's First Refusal
Right hereunder). If AGCO does not sell or otherwise dispose of the Target
Shares within the specified thirty (30) day period, PETPLANET's First Refusal
Right shall continue to apply to any subsequent disposition of the Target Shares
by AGCO until such right lapses in accordance with Section 8.5.
8.6 Recapitalization.
(a) In the event of any stock dividend, stock split, recapitalization
or other transaction affecting AGCO's outstanding common stock as a class
effected without receipt of consideration, then any new, substituted or
additional securities or other property which is by reason of such transaction
distributed with respect to the AGCO shares shall be immediately subject to
PETPLANET's First Refusal Right hereunder, but only to the extent the AGCO
shares are at the time covered by such right.
(b) In the event of any of the following transactions (a "Corporate
Transaction"):
(i) a merger or acquisition in which AGCO is not the surviving entity,
except for a transaction the principal purpose of which is to change
the State in which AGCO is incorporated,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of AGCO,
(iii) any reverse merger in which AGCO is the surviving entity but in
which fifty percent (50%) or more of AGCO's outstanding voting stock is
transferred to holders different from those who held the stock
immediately prior to such merger, or
(iv) the closing of the initial underwritten public offering by AGCO of
its equity securities pursuant to an effective registration statement
filed under the 1933 Act,
then PETPLANET's First Refusal Right shall remain in full force and effect and
shall apply to the new capital stock or other property received in exchange for
the AGCO shares in consummation of the Corporate Transaction, but only to the
extent the AGCO shares are at the time covered by such right.
ARTICLE IX. LIABILITY AND INDEMNITIES
9.1 Indemnity. AGCO shall indemnify and defend and hold PETPLANET
harmless from any and all losses, claims, damages, liabilities, costs or
expenses, including attorney fees and costs, as a result of any claim, action,
lawsuit, proceeding, or administrative action is brought against PETPLANET
claiming that a product infringes a patent or copyright or that a product caused
damage or injury to persons or property, or any similar occurrence, but only if
(i) PETPLANET notifies AGCO promptly upon learning that the claim might be
6
<PAGE>
asserted, (ii) AGCO has sole control over the defense of the claim and any
negotiation for its settlement or compromise and (iii) PETPLANET takes no action
that, in AGCO's judgment, is contrary to AGCO's interest.
9.2 Limitation. AGCO will have no indemnity obligation to PETPLANET if
the patent or copyright infringement claim results from a correction or
modification of a product not provided by AGCO, or if PETPLANET makes any
representation or warranty outside the scope of any written warranty authorized
by AGCO or its manufacturers and made available to PETPLANET.
9.3 NO CONSEQUENTIAL DAMAGES. UNDER NO CIRCUMSTANCES WILL PETPLANET OR
ITS RELATED PERSONS BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL,
PUNITIVE, OR INCIDENTAL DAMAGES OR LOST PROFITS, WHETHER FORESEEABLE OR
UNFORESEEABLE, BASED ON CLAIMS OF AGCO (INCLUDING, BUT NOT LIMITED TO, CLAIMS
FOR LOSS OF DATA, GOODWILL, USE OF MONEY OR USE OF THE PRODUCTS, INTERRUPTION IN
USE OR AVAILABILITY OF DATA, STOPPAGE OF OTHER WORK OR IMPAIRMENT OF OTHER
ASSETS), ARISING OUT OF BREACH OR FAILURE OF EXPRESS OR IMPLIED WARRANTY, BREACH
OF CONTRACT, MISREPRESENTATION, NEGLIGENCE, STRICT LIABILITY IN TORT OR
OTHERWISE, EXCEPT ONLY IN THE CASE OF DEATH OR PERSONAL INJURY WHERE AND TO THE
EXTENT THAT APPLICABLE LAW REQUIRES SUCH LIABILITY. IN NO EVENT WILL THE
AGGREGATE LIABILITY WHICH PETPLANET AND ITS RELATED PERSONS MAY INCUR IN ANY
ACTION OR PROCEEDING EXCEED THE TOTAL AMOUNT ACTUALLY PAID TO AGCO FOR THE
SPECIFIC PRODUCT THAT DIRECTLY CAUSED THE DAMAGE.
ARTICLE X. FORCE MAJEURE
10.1 Force Majeure. AGCO shall not be responsible for delay or
nonperformance of its responsibilities under this Agreement if AGCO is unable to
carry out such responsibilities because of acts of God, war, public enemies,
seizure under legal process, strikes, lockouts, riots and civil commotions, or
any other reason of a similar nature beyond AGCO's control.
ARTICLE XI. DEFAULT AND TERMINATION
11.1 Initial Period. The initial period of this Agreement (referred to
herein as the "Initial Period") shall commence on the Effective Date of this
Agreement, and shall continue for a period of five (5) years, with renewal
period per above.
11.2 Default by Either Party. This Agreement may be terminated by
either party if the other party shall at any time default in the performance of
any obligation under the terms of this Agreement or any Exhibit attached hereto
and such default or breach shall not have been remedied within thirty (30) days
after a written notice specifying such default or breach has been given to the
defaulting party.
11.3 Termination by Either Party. This Agreement may be terminated by
either party under any of the following conditions:
(a) if one of the parties shall be declared insolvent or bankrupt;
(b) if a petition is filed in any court and not dismissed in ninety
(90) days to declare one of the parties bankrupt or for a reorganization under
the Bankruptcy Law or any similar statute;
7
<PAGE>
(c) if a party ceases to carry on business or ceases paying its debts
as they become due and payable;
(d) if either party ceases to be a validly existing corporation or an
order is made or a resolution passed for its winding up affairs;
(e) if either party makes an assignment or transfer of this Agreement
or any right or obligation under this Agreement without the written consent of
the other, except in the event of a Corporate Transaction as set forth in
Article XVI below; or
(f) if a Trustee in Bankruptcy or a Receiver or similar entity is
appointed for one of the parties.
11.4 Termination by PETPLANET Without Cause. This Agreement may be
terminated by PETPLANET without cause and without opportunity to cure provided
to AGCO upon two (2) months written notice and subject to the following
termination fees, payable upon the selected termination date:
(a) If the selected termination date is on or before one (1) year from
the Effective Date, the termination fee shall be two hundred and fifty thousand
dollars ($250,000);
(b) If the selected termination date is after one (1) year from the
Effective Date, but on or before two (2) years from the Effective Date, the
termination fee shall be one million dollars ($1,000,000);
(c) If the selected termination date is after two (2) years from the
Effective Date, but on or before three (3) years from the Effective Date, the
termination fee shall be two million dollars ($2,000,000);
(d) If the selected termination date is after three (3) years from the
Effective Date, but on or before four (4) years from the Effective Date, the
termination fee shall be three million dollars ($3,000,000); and
(e) If the selected termination date is after four (4) years from the
Effective Date, but on or before five (5) years from the Effective Date, the
termination fee shall be five million dollars ($5,000,000).
11.5 Expiration of Termination Fee. Unless otherwise terminated
pursuant to the terms and conditions of in this Agreement, AGCO's right to
termination fees under this Section 11.4 shall expire on September __, 2004, and
Section 11.4 shall no longer have any force or effect.
ARTICLE XII. RECORDS
12.1 Inspect Records. PETPLANET reserves the right, upon reasonable
request and notification, to enter AGCO's premises during normal working hours
to examine any of the goods owned by PETPLANET being held for resale under the
terms of this Agreement.
12.2 Accounting. PETPLANET shall be entitled to receive from AGCO
PETPLANET account report information maintained by AGCO, which shall include
levels of PETPLANET's existing inventory, PETPLANET's daily order processing,
and PETPLANET's transaction reports. PETPLANET shall not be charged for copies
of such account information. AGCO shall provide to PETPLANET computer reports
and batch updates on existing inventory levels and sales history as needed and
as reasonably requested by PETPLANET.
8
<PAGE>
ARTICLE XIII. INDEPENDENT CONTRACTOR STATUS
13.1 Independent Contractor. It is agreed and understood that PETPLANET
and AGCO are entering into this Agreement as independent contractors, and that
all personnel engaged in work to be done under this Agreement are to be
considered for all purposes as employees of PETPLANET or AGCO as the case may
be, and under no circumstances shall they be construed or considered to be
employees of the other. Nothing contained herein shall be construed to place
PETPLANET and AGCO in a relationship of partners, franchisees, joint ventures,
principal and agent, or employer and employee.
ARTICLE XIV. REPRESENTATIONS AND WARRANTIES.
14.1 AGCO Performance. AGCO warrants its services will be provided to
the best of AGCO's ability and in accordance with prevailing industry standards
of performance.
14.2 No Conflicting Obligations. AGCO warrants that AGCO is under no
obligation and will not, during the term of this Agreement, be under any
obligation to any third party that would impair, impede, or conflict with its
rendering professional services to PETPLANET.
14.3 PETPLANET Performance. PETPLANET warrants that it will use its
best efforts to adequately meet the terms and conditions of performance herein.
ARTICLE XV. PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY:
15.1 Confidential Information - No Disclosure by the Parties. The
Parties agree that none of their employees, agents, representatives, directors,
officers, or partners will be permitted access to certain confidential
information, proprietary know-how, methods, processes, and trade secrets
relating to their past, present, and future research, marketing, development,
and business activities ("Confidential Information"). The Parties agree that,
until such time as the Confidential Information enters the public domain either
by mutual design and/or express written permission of the other, the Parties,
and their employees, agents, representatives, directors, officers and partners
will never, directly or indirectly, use, disseminate, disclose, lecture upon, or
publish anything concerning any of the Confidential Information.
15.2 Confidential Information - Restricted Access. The Parties further
agree that none of their employees, agents, representatives, directors, officers
or partners will be permitted access to Confidential Information or be permitted
to perform services in connection with this Agreement without first entering
into a written non-disclosure and confidentiality agreement. The form of
"Non-Disclosure and Confidentiality Agreement and Invention Assignment" required
by PETPLANET is set forth in Exhibit "B."
15.3 Confidential Information - Return of Materials. Upon expiration or
termination of this Agreement the Parties agree to return all Confidential
Information of the other, including all related drawings, documents, records,
notebooks, discs, tapes or data residing or recorded in electronic media, and
all other representatives of Confidential Information.
15.4 Proprietary Information and Intellectual Property - PETPLANET
Ownership. AGCO agrees that all material, proprietary know-how, methods,
processes, trade secrets, and other intangible intellectual property, as well as
all tangible inventions, improvements, developments and discoveries conceived,
made,
9
<PAGE>
discovered or reduced to practice by AGCO, solely or in collaboration with
others during this Agreement (collectively, "IP"), (i) which relates in any
manner to the business operations or marketing methods of PETPLANET, or the
actual or demonstrably anticipated research or development of PETPLANET, that
AGCO may undertake, investigate, or experiment with during the course of this
Agreement, or (ii) which AGCO may become associated with in the course of AGCO's
work, investigation, or experimentation in performing AGCO's services hereunder,
or (iii) which are developed by AGCO using any supplies, facilities or
Confidential Information of PETPLANET, or (iv) which are developed by AGCO at
PETPLANET's expense, are the sole property of PETPLANET. AGCO further agrees to
assign and does hereby fully assign all such IP to PETPLANET, including all
rights of use, copyrights, trademarks, trade secrets, patent, patent application
and other rights in such IP. Such IP and the rights associated therewith do not
include any intellectual property rights held by AGCO prior to entering into
this Agreement or intellectual property rights and rights associated therewith,
if any, acquired during the course of this Agreement and exclusive of the
performance of services by AGCO hereunder.
ARTICLE XVI. ASSIGNMENT
16. Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the parties hereto, provided,
however, neither party to this Agreement shall assign or sublet its interest or
obligations herein, including, but not limited to, the assignment of any moneys
due and payable, without the prior written consent of the other party, which
consent shall not be unreasonably withheld, delayed or conditioned.
Notwithstanding the foregoing, PETPLANET need not obtain the consent of AGCO in
the event of a corporate transaction ("Corporate Transaction"). A Corporate
Transaction is defined as follows:
a. a merger or acquisition in which PETPLANET is not the surviving
entity;
b. the sale, transfer or other disposition of all or substantially
all of the assets of PETPLANET; and
c. any reverse merger in which PETPLANET is the surviving entity
but in which fifty percent (50%) or more of PETPLANET's outstanding
voting stock is transferred to holders different from those who held
the stock immediately prior to such merger.
ARTICLE XVII. REMEDIES
17.1 Remedies. The Parties acknowledge and agree that either party's
material breach of Articles XV is likely to give rise to irreparable injury to
the other party for which the non-breaching party will have no adequate remedy
at law. Accordingly, in the event of an actual or threatened breach of the
Article by one party, the non-breaching party is entitled to obtain injunctive
relief against the breaching party in addition to all other remedies available
at law or in equity.
ARTICLE XVIII. APPLICABLE LAW
18.1 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
10
<PAGE>
ARTICLE XIV. ARBITRATION
19.1 Arbitration.
a. In the event that any dispute shall arise between the parties
that is related in any way to this Agreement, that dispute shall be
resolved solely through binding arbitration to be held in San
Francisco, California and conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association.
b. The parties agree to submit to the exclusive jurisdiction of
the state and federal courts located San Francisco, California for the
enforcement of any award that the Arbitrator may make.
c. Except as may be otherwise required by law or in connection
with an action to enforce an arbitration award, neither party may
disclose the existence of results of any arbitration hereunder without
the written consent of the other party.
ARTICLE XX. INVALIDITY
20.1 Invalidity. Should any provision of this Agreement be declared
invalid, unenforceable or void in any judicial or administrative proceeding,
such decision shall not have the effect of invalidating or voiding any other
provision of this Agreement, and the parties agree that the part or parts of
this Agreement so held to be invalid, unenforceable or void, shall be deemed to
have been deleted from this Agreement, and the remainder of the Agreement shall
have the same force and effect as if such deleted parts had not been included.
ARTICLE XXI. NOTICES
21.1 Notices. Any notice or demand required or permitted hereunder
shall be given in writing and shall be considered as having been given by either
party to the other party upon the facsimile transmission confirmed by the
mailing thereof to such other party at the following addresses or to such other
address as such other party may from time to time specify in writing:
If to AGCO:
American AGCO, Inc.
545 Hardman Ave.
South St. Paul, MN
Attn: Gary Duclos, President
Telephone: (651)451-1349
Fax: (651)451-0708
If to PETPLANET:
PETPLANET
21 Stillman Street, Suite 600
San Francisco, CA 94107
Attn: Jeff Harris, VP Finance & Operations
Telephone: (415)243-9000
Fax: (415)243-3399
11
<PAGE>
ARTICLE XXII. ENTIRE AGREEMENT
22.1 Entire Agreement. This Agreement, together with all exhibits and
attachments, constitutes the entire agreement between the parties, and there are
no other terms and conditions.
ARTICLE XXIII. AMENDMENT AND WAIVER
23.1 Amendment and Waiver. This Agreement may not be amended or varied
except by the written agreement of the parties hereto. All waivers of any rights
of either party as set forth herein must be in writing to be effective.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
PETPLANET.COM, INC. AMERICAN AGCO, INC.
By: /s/ Steven E. Marder By: /s/ Gary Duclos
- ------------------------------- -------------------------
Steven E. Marder Gary Duclos
Title: Chief Executive Officer Its: President
12
<PAGE>
EXHIBIT A
Services
AGCO Service Obligations
1. Merchandising and distribution expertise
2. Direct fulfillment to consumer
3. Secondary customer service support: AGCO shall address specific
product inquiries outside the context of the e-commerce
service provided by PETPLANET and as otherwise set forth below.
4. Database integration consulting/management
5. Inventory management
6. Vendor relations
7. Small business network consulting
PETPLANET Service Obligations
1. Interface design & execution
2. Marketing, promotion & advertising
3. Traffic & Internet distribution
4. Sales
5. Primary customer service: Customer service inquiries shall initially be
directed to PETPLANET which shall undertake to adequately serve the
inquiror. In the event that the inquiry is beyond the scope of the
e-commerce transaction (ie; addresses the performance of the specific
product purchased or intended to be purchases) PETPLANET shall forward
the inquiry to customer service support contact provided by AGCO.
6. Content/editorial
7. Accounting & transaction processing
13
<PAGE>
EXHIBIT B
Non-Disclosure Agreement
NONDISCLOSURE AGREEMENT
This Agreement, made effective as of the ____day of September 1999 by
and between PetPlanet.com, Inc., a Delaware corporation ("PETPLANET") and
American AGCO, Inc., a Minnesota corporation located at _______________________
("AGCO"), to assure the protection and preservation of the confidential and or
proprietary nature of information to be disclosed or made available to each
other in connection with certain negotiations or discussions further described
herein.
WHEREAS, Petplanet.com, Inc. owns http://www.petplanet.com, an
online network service specializing in distributing pet related
information, services and products on the Internet.
WHEREAS, AGCO is engaged in the distribution of pet products.
WHEREAS, the parties are desirous of entering into discussions
concerning a potential relationship between the parties whereby AGCO is
interested in evaluating and potentially entering into a commercial
relationship with, and/or investing in PetPlanet.com, Inc.
WHEREAS, the parties desire to assure the confidential status
of the information which may be disclosed to each other;
NOW THEREFORE, in reliance upon and in consideration of the
following undertakings, the parties agree as follows:
1. Subject to the limitations set forth in Paragraph 2, all
information disclosed to the other party shall be deemed to be "Proprietary
Information." In particular, Proprietary Information shall be deemed to include
any information, process, program, design, financial information, customer
lists, trade secrets and marketing strategies relating to the disclosing party,
its present or future products, sales, suppliers, clients, customers, employees,
investors, or business, whether in oral, written, graphic or electronic form.
2. The term "Proprietary Information" shall not be deemed to
include information which: (i) is now, or hereafter becomes, through no act or
failure to act on the part of the receiving party, generally known or available;
(ii) is known by the receiving party at the time of receiving such information
as evidenced by its records; (iii) is hereafter furnished to the receiving party
by a third party, as a matter of right and without restriction on disclosure;
(iv) is independently developed by the receiving party without any breach of
this Agreement; or (v) is the subject of a written permission to disclose
provided by the disclosing party.
3. Each party shall maintain in trust and confidence and not
disclose to any third party or use for any unauthorized purpose any Proprietary
Information received from the other party. Each party may use such Proprietary
Information only to the extent required to accomplish the purposes of this
Agreement as set forth herein. Proprietary Information shall not be used for any
purpose or in any manner that would constitute a violation of any laws or
regulations, including without limitation the export control laws of the United
States. No other rights or licenses to trademarks, inventions, copyrights, or
patents are implied or granted under this Agreement.
14
<PAGE>
4. Proprietary Information supplied shall not be reproduced in
any form except as required to accomplish the intent of this Agreement.
5. The responsibilities of the parties are limited to using
their reasonable and best efforts to protect the Proprietary Information
received with the same degree of care used to protect their own Proprietary
Information from unauthorized use or disclosure. Both parties shall advise their
employees or agents who might have access to such Proprietary Information of the
confidential nature thereof. No Proprietary Information shall be disclosed to
any officer, employee or agent of either party who does not have a need for such
information.
6. All Proprietary Information (including all copies thereof)
shall remain the property of the disclosing party, and shall be returned to the
disclosing party after the receiving party's need for it has expired, or upon
request of the disclosing party, and in any event, upon completion or
termination of this Agreement.
7. Notwithstanding any other provision of this Agreement,
disclosure of Proprietary Information shall not be precluded if such disclosure:
(a) is in response to a valid order of a court or other
governmental body of the United States or any political subdivision thereof;
provided, however, that the responding party shall first have given notice to
the other party hereto and shall have made a reasonable effort to obtain a
protective order requiring that the Proprietary Information so disclosed be used
only for the purposes for which the order was issued;
(b) is otherwise required by law; or
(c) is otherwise necessary to establish rights or enforce
obligations under this Agreement, but only to the extent that any such
disclosure is necessary.
8. No furnishing of Proprietary and Confidential Information, and no obligation
under this Agreement, shall be construed to obligate either party to a) enter
into any further agreement or negotiation, or make any further disclosure; or b)
to restrict either party from pursuing other businesses in whatever manner such
party prefers.
9. This Agreement shall continue in full force and effect for
so long as the parties continue to exchange Proprietary Information. This
Agreement may be terminated at any time upon thirty-(30) days written notice to
the other party. The termination of this Agreement shall not relieve either
party of the obligations imposed by Paragraphs 3, 4, 5 and 11 of this Agreement
with respect to Proprietary Information disclosed prior to the effective date of
such termination and the provisions of these Paragraphs shall survive the
termination of this Agreement for a period of four (4) years from the date of
such termination.
10. This Agreement shall be governed by the laws of the State
of California
11. This Agreement contains the final, complete and exclusive
agreement of the parties relative to the subject matter hereof and may not be
changed, modified, amended or supplemented except by a written instrument signed
by both parties.
15
<PAGE>
12. Each party hereby acknowledges and agrees that in the
event of any breach of this Agreement by the other party, including, without
limitation, the actual or threatened disclosure of a disclosing party's
Proprietary Information without the prior express written consent of the
disclosing party, the disclosing party will suffer an irreparable injury, such
that no remedy at law will afford it adequate protection against, or appropriate
compensation for, such injury. Accordingly, each party hereby agrees that the
other party shall be entitled to specific performance of a receiving party's
obligations under this Agreement, as well as such further injunctive relief as
may be granted by a court of competent jurisdiction.
13. In the event of any dispute, proceeding or suit concerning
this Agreement or the provision of services hereunder, the losing party shall
pay all reasonable attorneys fees and legal costs of enforcement of prevailing
party rights under this Agreement.
AGREED TO: AGREED TO:
PETPLANET.COM, INC. AMERICAN AGCO, INC.
/s/ Steven E. Marder /s/ Gary Duclos
- -------------------------------- ------------------------------------
By: Steven E. Marder By: Gary Duclos
Title: Chief Executive Officer Title: President
Date: September 10, 1999 Date: September 10, 1999
<PAGE>
EXHIBIT C
COMMON STOCK WARRANT
17
<PAGE>
Exhibit 10.5
Adsmart Network
Representation Agreement
------------------------
THIS REPRESENTATION AGREEMENT (the "Agreement") is made on this __ day of
December, 1999 (the "Effective Date"), by and between Adsmart Network
("ADSMART") with its principal place of business located at 100 Brickstone
Square, 5th Floor, Andover, MA 01810 and PetPlanet.com, Inc. ("PPI") with its
principal place of business located at 21 Stillman Street, Suite 600, San
Francisco, CA 94107.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ADSMART and PPI agree to the
following:
1. ADSMART Responsibilities.
(a) Representation. ADSMART shall provide, in accordance with the terms of
this Agreement, advertising representation services to PPI, including, without
limitation, (i) soliciting online advertising from advertisers and advertising
agencies (collectively, the "Advertisers"); and (ii) reporting, serving and
tracking advertising campaigns initiated by ADSMART ("Campaigns"),
(collectively, the "Representation Services"), with respect to PPI's web site(s)
(the "Website") set forth in Attachment A ("Attachment A") and made a part of
this Agreement.
(b) Exclusivity. ADSMART is appointed the exclusive third-party sales
representative for PPI for the Initial Term and all Renewal Terms of this
Agreement, as defined below. For purposes of this Agreement, "exclusive"
third-party sales representative shall mean that PPI shall not retain any
third-party to conduct Representation Services during the Initial Term or any
Renewal Terms.
(c) Ad Serving and Reporting.
(i) Ad Serving. All advertisements sold by ADSMART shall be served by
ADSMART at no additional cost to PPI. PPI shall grant exclusive control to
ADSMART of the inventory allocated to ADSMART by PPI pursuant to Section 2(a)
below, and ADSMART shall have reasonable discretion over the content and nature
of the advertising that can be sold in order to re-coup serving costs. ADSMART
shall not run any advertising Campaign on the Website, which PPI reasonably
determines to be offensive to PPI or its customers or inconsistent with PPI's
published editorial policy.
(ii) Specific Requests. If PPI requests that specific paid or non-paid
Campaigns, including, without limitation, house banners, which are not sold by
ADSMART, be served by ADSMART, PPI shall pay ADSMART $.55 per thousand
impressions for all costs associated with serving, auditing and reporting with
respect to such Campaigns ("Serving Fee"). ADSMART shall deduct such fees from
payments owed to PPI for advertising revenue.
(iii) Default Banners. If ADSMART has no paid Campaigns to serve,
ADSMART shall not charge PPI the Serving Fee to serve the following standard
1
<PAGE>
sized house banners as default Campaigns: 468x60, 234x60, 125x125. However,
ADSMART shall charge PPI the Serving Fee for all other sized house banners.
(iv) Reporting. ADSMART shall provide PPI with the following: (a)
twenty-four (24) hour access to online reporting; and (b) accompanying payment,
as set forth in Section 5(a) below, revenue reports that detail ADSMART
generated activity on the Website, including each Campaign, its duration and the
number of Impressions, as defined below, delivered.
2. PPI's Responsibilities.
(a) Impressions. PPI shall allocate a minimum of five-hundred thousand
(500,000) advertising impressions ("Impressions") per month to ADSMART (the
"Allocated Monthly Impressions"). The Allocated Monthly Impressions shall be a
cross section of all available Impressions on the Website. PPI shall place a
maximum of one 468x60 (1) Impression on each page of the Website, unless PPI
receives ADSMART's prior written consent. ADSMART shall have the right to
terminate the Agreement immediately if PPI fails to deliver to ADSMART a minimum
of seventy-five (75%) percent of the Allocated Monthly Impressions each month
for a period of three (3) consecutive months. PPI must notify ADSMART by the
fifteenth (15th) day of the preceding month of a ten (10%) percent or more
increase or decrease in the Allocated Monthly Impressions for the following
month.
(b) Website Information. Upon execution of this Agreement, PPI shall
provide ADSMART with the following information: (i) available demographic and
psychographic (interest and behavioral) information regarding the Website's
audience, (ii) description of the Website by section, (iii) advertising and
sponsorship opportunities, (iv) technical specifications relating to
advertising, (v) marketing information, and (vi) contact information. PPI shall
keep all information provided to ADSMART current and shall advise ADSMART of new
opportunities regarding the Website and Website features offered by PPI.
(c) Tracking. Upon execution of this Agreement, PPI shall provide ADSMART
with a detailed inventory projection analysis of the Website's traffic,
including visitor and page view totals for its primary sections.
(d) Editorial Policy. Upon execution of this Agreement, PPI shall provide
ADSMART with the editorial policy of the Website.
(e) Privacy Policy. PPI shall have a privacy policy posted on the Website.
(f) Fulfillment of Advertising Campaigns. PPI shall use its best efforts to
fulfill all Campaigns obtained by ADSMART in a timely manner.
(g) In-House Sales. ADSMART acknowledges that PPI's in-house sales force
shall have the right to continue its advertising sales efforts during the
Initial Term and all Renewal Terms of this Agreement. ADSMART and PPI agree to
cooperate to prevent duplication of sales efforts and conflicts and to inform
each
2
<PAGE>
other of targeted advertisers. To facilitate this process, PPI shall provide
ADSMART with a written report each month, which shall include the names of all
potential advertisers being solicited by PPI, number of Impressions and dates
and duration of the advertising campaign. In addition, all Advertisers listed on
Attachment B ("Attachment B") and made a part of this Agreement shall be
retained by PPI as its house account list to be solicited by PPI's in-house
sales force. If PPI executes an insertion order with an Advertiser that is not
listed on Attachment B, then PPI must remit payment to ADSMART of the ADSMART
Commission, as set forth in Section 4 below, from revenue derived from such
Advertiser's Campaign. PPI may modify Attachment B once every three (3) months
commencing on the Effective Date upon thirty (30) days written notice to
ADSMART. For the avoidance of doubt, if PPI modifies Attachment B to add an
Advertiser to its house account list, which Advertiser has executed an insertion
order with ADSMART prior to such modification, then PPI must honor and fulfill
such insertion order.
(h) Advertiser Exclusions. ADSMART shall not pursue any Advertiser listed
on Attachment C ("Attachment C") and made a part of this Agreement. PPI may
modify Attachment C once every three (3) months commencing on the Effective Date
upon thirty (30) days written notice to ADSMART. For the avoidance of doubt, if
PPI modifies Attachment C to exclude an Advertiser, which Advertiser has
executed an insertion with ADSMART prior to such modification, then PPI must
honor and fulfill such insertion order.
3. Marketing Material
(a) Highlighting and Approval. ADSMART shall highlight the Website in its
World Wide Web site on the Internet located at www.adsmart.net and within its
media kit. PPI shall have the right to review in advance and approve the final
version of PPI's media kit, provided that such approval will not be unreasonably
withheld.
(b) Marketing Materials. PPI agrees and acknowledges that ADSMART may
market and promote the Website to potential Advertisers, by such means as it
deems appropriate, including, without limitation, listing the Website in
directories, trade publications, ADSMART proposals and presentations,
advertisements, and other promotional opportunities.
(c) Promotional Material. PPI agrees to provide ADSMART with reasonable
amounts of PPI's promotional materials.
(d) Press Releases. Except as required by law or as authorized by this
Agreement, both parties must approve all press releases or announcements
referring to the Agreement or ADSMART/PPI relationship prior to their release to
the press or any third party. However, ADSMART does not need to obtain prior
approval from PPI for any press release, in which PPI's Website is listed among
other websites represented by ADSMART as part of the ADSMART network.
(e) Registry as Agent. PPI authorizes ADSMART to register as PPI's
advertising sales agent in all relevant periodicals, directories, and other
3
<PAGE>
marketing sources identified by ADSMART and approved in advance by PPI within
the scope of and during the Initial Term and all Renewal Terms of this
Agreement.
4. Compensation. As consideration for the Representation Services provided
by ADSMART under this Agreement, PPI shall pay ADSMART a commission equal to
thirty-five (35%) percent of all Net Advertising Revenue (the "ADSMART
Commission"). "Net Advertising Revenue" is defined as gross advertising revenue
invoiced by ADSMART arising out of Campaigns sold and placed on the Website by
ADSMART during the term of this Agreement, less advertising agency commissions
(which shall not exceed fifteen (15%) percent), where applicable, and credits,
refunds and sales or use taxes.
5. Billing and Payment.
(a) ADSMART shall be responsible for invoicing and collecting all
advertising revenue from Advertisers on behalf of PPI. ADSMART shall remit
amounts due to PPI upon ninety (90) days following the end of each month in
which a Campaign generated advertising revenue on the Website, regardless of
whether ADSMART collects advertising revenue from Advertisers for such
Campaigns.
(b) ADSMART shall remit payments to:
Rick Ferber - Vice President Advertising & Promotions
PetPlanet.com
21 Stillman Street, Suite 600
San Francisco, CA 94107
[email protected]
415-243-9000 ext. 115
415-243-3399 fax
6. Confidential Information. "Confidential Information" means all
information identified in written or verbal format, or otherwise, held by the
Disclosing Party as confidential, trade secret or proprietary information.
Confidential Information shall also include the terms and conditions of this
Agreement. "Disclosing Party" is the party disclosing Confidential Information.
"Receiving Party" is the party receiving Confidential Information. The Receiving
Party shall not use the Confidential Information except to carry out the
purposes of this Agreement, or disclose the Confidential Information to any
third party except (a) the terms and conditions of this Agreement may be
disclosed as required by law, and (b) other than persons in the direct employ of
the Receiving Party who have a need to have access to and knowledge of the
Confidential Information solely for the purpose authorized above. Each party
shall take appropriate measures by instruction and agreement prior to disclosure
to such employees to assure against unauthorized use or disclosure, and such
persons shall have agreed in writing to maintain the confidentiality of such
information. The Receiving Party shall have no obligation with respect to
information which (i) was rightfully in possession of or known to the Receiving
Party without any obligation of confidentiality prior to receiving it from the
Disclosing Party; (ii) is, or subsequently becomes, legally and publicly
available without breach of this Agreement; (iii) is rightfully obtained by the
Receiving Party from a source other
4
<PAGE>
than the Disclosing Party without any obligation of confidentiality; or (iv) is
disclosed by the Receiving Party under a valid order of a court or government
agency, provided that the Receiving Party provides prior written notice to the
Disclosing Party of such obligation and the opportunity to oppose such
disclosure. Upon written demand of the Disclosing Party, the Receiving Party
shall cease using the Confidential Information provided by the Disclosing Party
and return the Confidential Information and all copies, notes or extracts
thereof to the Disclosing Party within seven (7) days of receipt of notice.
7. PPI's Representations and Warranties. PPI represents and warrants that
(i) it has full power and authority to enter into this Agreement, (ii) this
Agreement does not conflict with any other agreement or commitment made by PPI,
(iii) it shall not do anything to knowingly or intentionally harm or bring into
disrepute or disparage ADSMART or any Advertiser, (iv) the Website is year 2000
compliant and shall provide such documentation prior to December 15, 1999, and
(v) it shall use its commercially reasonable efforts to provide its services in
accordance with the terms of this Agreement and in accordance with industry
standards.
8. ADSMART's Representations and Warranties. ADSMART represents and
warrants that (i) it has full power and authority to enter into this Agreement,
(ii) this Agreement does not conflict with any other agreement or commitment
made by ADSMART, (iii) it shall not do anything to knowingly or intentionally
harm or bring into disrepute or disparage PPI, and (iv) it shall use its
commercially reasonable efforts to provide its services in accordance with the
terms of this Agreement and inaccordance with industry standards.
9. Warranty Disclaimer. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND
WARRANTIES PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR
WARRANTY EXPRESS OR IMPLIED WITH RESPECT TO ANY MATTER WHATSOEVER, INCLUDING
WITHOUT LIMITATION, NETWORK FAILURES, THIRD-PARTY AD SERVING DIFFICULTIES, THE
SOFTWARE PROGRAMS, SERVICES PROVIDED HEREUNDER, OR ANY OUTPUT OR RESULTS
THEREOF. BOTH PARTIES SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10. Indemnification. If notified promptly in writing, each party agrees to
indemnify, defend, and hold harmless the other party, and its successors,
officers, directors, employees, agents and assigns, from and against any and all
third party actions, causes of action, claims, demands, costs, liabilities,
expenses and damages arising out of or in connection with any claim which, if
true, would be a breach of the warranties, representations, obligations and
covenants set forth in this Agreement. ADSMART is not a party to and has no
liability for any and all problems which may arise in connection with the
Website, including, without limitation, failure to fulfill an advertising
insertion order obtained as part of the Representation Services. The
indemnifying party will control the defense and settlement of each claim.
5
<PAGE>
11. Limitation of Liability. ADSMART's total liability arising out of this
Agreement or the services provided hereunder, whether based on contract, tort or
otherwise, shall not exceed commissions paid to ADSMART for Campaigns run on
PPI's behalf or $100,000, whichever is less.
12. Exclusion of Damages. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT
LIMITED TO, LOSS OF DATA, LOSS OF USE, OR LOSS OF PROFITS ARISING HEREUNDER OR
FROM THE PROVISION OF SERVICES, INCLUDING ADVERTISING ON THE WEBSITE, EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
13. Term and Termination.
(a) Basic Provisions. This Agreement shall have an initial term of one year
(the "Initial Term") and shall automatically renew for periods of one year
thereafter (each, a "Renewal Term"), unless either party provides ninety (90)
days written notice of their intent to terminate the Agreement immediately prior
to any renewal.
(b) Minimum Term. At the completion of an initial evaluation period of six
(6) months, either party may terminate this Agreement upon ninety-(90) days
written notice to the other party. If either party does not execute this option,
this Agreement shall remain in full force and effect.
(c) Breach and Cure. In the event a party is given written notice that it
is in material breach of this Agreement, it shall have thirty (30) days from the
date of such notice to cure its breach. On the failure to cure, the
non-breaching party may terminate this Agreement by written notice with such
termination effective on the date of said written notice. In the event of
termination pursuant to this section, all Net Advertising Revenue due PPI (minus
all ad-serving fees & compensations due ADSMART, including ADSMART Commissions)
prior to termination shall be paid in accordance with this Agreement.
(d) Content. Notwithstanding any other provisions in this Agreement,
ADSMART may, in its sole discretion, decide to terminate this Agreement
immediately by providing written notice to PPI if ADSMART determines that PPI
content contains material that is pornographic, excessively violent or contains
abusive and/or foul language.
(e) For a period of three (3) months following the expiration or earlier
termination of this Agreement, ADSMART shall continue to be entitled to its
ADSMART Commission for Net Advertising Revenue generated from any and all
Advertisers that initially executed an insertion order with ADSMART during the
Initial Term or any Renewal Terms of this Agreement.
14. Non-Solicitation. PPI agrees that during the Initial Term and all
Renewal Terms of this Agreement and for a period of six (6) months following the
expiration or earlier termination of this Agreement, PPI shall not solicit the
services of any ADSMART employee, including, without limitation, as a full or
part-time employee or independent contractor.
6
<PAGE>
15. Miscellaneous. Sections 4, 6, 7, 8, 9, 10, 11, 12, 13(d), 14 and 15 and
the accompanying provisions of any Attachment shall survive expiration or
earlier termination of this Agreement. Nothing in this Agreement shall be deemed
to create a partnership or joint venture between the parties and neither ADSMART
nor PPI shall hold itself out as the agent of the other, except for that
specified in this Agreement. Neither party shall be liable to the other for
delays or failures in performance resulting from causes beyond the reasonable
control of that party, including, but not limited to, acts of God, labor
disputes or disturbances, material shortages or rationing, riots, acts of war,
governmental regulations, communication or utility failures, or casualties. Any
notice required or permitted to be given by either party under this Agreement
shall be in writing and shall be personally delivered or sent by a reputable
overnight mail service (e.g., Federal Express), or by first class mail
(certified or registered). Failure by either party to enforce any provision of
this Agreement shall not be deemed a waiver of future enforcement of that or any
other provision. Any waiver, amendment or other modification of any provision of
this Agreement shall be effective only if in writing and signed by the parties.
If for any reason a court of competent jurisdiction finds any provision of this
Agreement to be unenforceable, that provision of the Agreement shall be enforced
to the maximum extent permissible so as to effect the intent of the parties, and
the remainder of this Agreement shall continue in full force and effect. This
agreement shall be interpreted under the laws of the State of New York, and the
parties submit to the exclusive jurisdiction of the courts of the State of New
York, including the federal courts located there. This Agreement may be assigned
by PPI without the prior written consent by ADSMART. Headings used in this
Agreement are for ease of reference only and shall not be used to interpret any
aspect of this Agreement. This Agreement shall be binding on permitted
successors and assigns. This Agreement, including all attachments which are
incorporated herein by reference, constitutes the entire agreement between the
parties with respect to the subject matter hereof, and supersedes and replaces
all prior and contemporaneous understandings or agreements, written or oral,
regarding such subject matter.
IN WITNESS OF THE FOREGOING, the parties have caused the Agreement to be signed
as of the Effective Date set forth above.
ADSMART NETWORK PETPLANET.COM, INC.
By: John Federman By: Steven E. Marder
------------------------------ --------------------------------
Name: /s/ John Federman Name: /s/ Steven E. Marder
------------------------------ --------------------------------
Title: Chairman & CEO Title: CEO
------------------------------ --------------------------------
Date: 12/14/99 Date: 12/6/99
------------------------------ --------------------------------
7
<PAGE>
Attachment A
This Attachment dated the Effective Date supersedes any previous
drafted Attachment.
Representation by ADSMART for PPI includes the following Website(s):
Site Name - http://www.petplanet.com, including any url owned by PPI,
its parents or any subsidiaries.
8
<PAGE>
Attachment B
House Accounts
This Attachment dated the Effective Date supersedes any previous
drafted Attachment.
ADSMART is not to contact any of the following accounts on behalf of
PPI, unless PPI formally notifies ADSMART in writing:
Ralston-Purina
Sun Seed
Heinz Pet Products
Hartz
Whiskas
Bil-Jac
FourPaws
OnlinePhotoContest.com
Expressly Portraits/the Picture People
Nylabone
Pet Music
PC Flowers
9
<PAGE>
Attachment C
Advertiser Exclusions
This Attachment dated the Effective Date supersedes any previous
drafted Attachment.
ADSMART is not to contact any of the following accounts on behalf of
PPI, unless PPI formally notifies ADSMART in writing:
PETsMART.com
PETsMART
Pets.com
Petopia.com
Petco
Petstore.com
Allpets.com
10
<PAGE>
EXHIBIT 10.6
PETPLANET.COM, INC.
1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants of the Company and Related Entities and to promote the success of
the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees appointed
to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, the
rules of any applicable stock exchange or national market system, and the rules
of any foreign jurisdiction applicable to Options granted to residents therein.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means any committee appointed by the Board to
administer the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means PetPlanet.com, Inc.
(h) "Consultant" means any person (other than an Employee or Director,
solely with respect to rendering services in such person's capacity as a
Director) who is engaged by the Company or any Parent or Subsidiary to render
consulting or advisory services as an independent contractor and is compensated
for such services.
(i) "Continuous Status as an Employee, Director or Consultant" means
that the employment, director or consulting relationship with the Company, any
Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an
Employee, Director or Consultant shall not be considered interrupted in the case
of (i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor. A leave of absence approved by the Company shall include sick
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed ninety (90) days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract.
-1-
<PAGE>
(j) "Corporate Transaction" means any of the following transactions to
which the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company;
(iii) any reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger; or
(iv) acquisition by any person or related group of persons (other
than the Company or by a Company-sponsored employee benefit plan) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities, but excluding any such transaction that
the Administrator determines shall not be a Corporate Transaction.
(k) "Director" means a member of the Board.
(l) "Dividend Equivalent Right" means a right entitling the Optionee
to compensation measured by dividends paid with respect to Common Stock.
(m) "Employee" means any person, including an Officer or Director, who
is an employee of the Company or any Parent or Subsidiary for purposes of
Section 422 of the Code. The payment of a director's fee by the Company or a
Parent or Subsidiary shall not be sufficient to constitute "employment" 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 value of Common
Stock determined as follows:
(i) Where there exists a public market for the Common Stock, the
Fair Market Value shall be (A) the closing price for a Share for the last market
trading day prior to the time of the determination (or, if no closing price was
reported on that date, on the last trading date on which a closing price was
reported) on the stock exchange determined by the Administrator to be the
primary market for the Common Stock or the Nasdaq National Market, whichever is
applicable or (B) if the Common Stock is not traded on any such exchange or
national market system, the average of the closing bid and asked prices of a
Share on the Nasdaq Small Cap Market for the day prior to the time of the
determination (or, if no such prices were reported on that date, on the last
date on which such prices were reported), in each case, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
-2-
<PAGE>
(ii) In the absence of an established market for the Common Stock
of the type described in (i), above, the Fair Market Value thereof shall be
determined by the Administrator in good faith and in a manner consistent with
any applicable federal or state securities laws.
(p) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(q) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "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.
(s) "Option" means a stock option granted pursuant to the Plan. ------
(t) "Option Agreement" means the written agreement evidencing the
grant of an Option executed by the Company and the Optionee, including any
amendments thereto.
(u) "Optionee" means an Employee, Director or Consultant who receives
an Option under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this PetPlanet.com, Inc. 1999 Stock Option Plan.
(x) "Registration Date" means the first to occur of (i) the closing of
a secondary sale to the general public of (A) the Common Stock or (B) the same
class of securities of a successor corporation (or its Parent) issued pursuant
to a Corporate Transaction in exchange for or in substitution of the Common
Stock, pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the Securities Act of 1933, as
amended; and (ii) in the event of a Corporate Transaction, the date of the
consummation of the Corporate Transaction if the same class of securities of the
successor corporation (or its Parent) issuable in such Corporate Transaction
shall have been sold to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended on or prior to the date of
consummation of such Corporate Transaction.
(y) "Restricted Stock" means Shares issued under the Plan to the
Optionee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
-3-
<PAGE>
(z) "Share" means a share of the Common Stock.
(aa) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
2. Stock Subject to the Plan.
(a) Subject to the provisions of Section 11(a), below, the maximum
aggregate number of Shares which may be issued pursuant to all Option grants
(including Incentive Stock Options) is 1,800,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
(b) If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option exchange program, or
if any unissued Shares are retained by the Company upon exercise of an Option in
order to satisfy the exercise price for such Option or any withholding taxes due
with respect to such Option, such unissued or retained Shares shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to an
Option shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
3. Administration of the Plan.
(a) Plan Administrator. With respect to grants of Options to
Employees, Directors, Officers or Consultants, the Plan shall be administered by
(A) the Board or (B) a Committee (or a subcommittee of the Committee) designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws and to permit such grants and related transactions under
the Plan to be exempted from Section 16(b) of the Exchange Act in accordance
with Rule 16b-3. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board.
(b) Multiple Administrative Bodies. The Plan may be administered by
different bodies with respect to Directors, Officers, Consultants, and Employees
who are neither Directors nor Officers.
(c) Powers of the Administrator. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants to whom
Options may be granted from time to time hereunder;
(ii) to determine whether and to what extent Options are granted
hereunder;
-4-
<PAGE>
(iii) to determine the number of Shares or the amount of other
consideration to be covered by each Option granted hereunder;
(iv) to approve forms of Option Agreement for use under the Plan;
(v) to determine the terms and conditions of any Option granted
hereunder;
(vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Optionees favorable treatment under such laws; provided, however,
that no Option shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
(vii) to amend the terms of any outstanding Option granted under
the Plan, provided that any amendment that would adversely affect the Grantee's
rights under an outstanding option grant shall not be made without the Optionees
written consent;
(viii) to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
(d) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be conclusive and binding on all
persons.
4. Eligibility.
(a) Recipients. Options other than Incentive Stock Options may be
granted to Employees, Directors and Consultants. Incentive Stock Options may be
granted only to Employees. An Employee, Director or Consultant who has been
granted an Option may, if otherwise eligible, be granted additional Options.
Options may be granted to such Employees of the Company and its subsidiaries who
are residing in foreign jurisdictions as the Administrator may determine from
time to time.
(b) Employment Relationship. The Plan shall not confer upon any
Optionee any right with respect to continuation of an employment or consulting
relationship with the Company, nor shall it interfere in any way with such
Optionee's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
5. Terms and Conditions of Options.
(a) Type of Options. The Administrator is authorized under the Plan to
grant any type of option award to an Employee, Director or Consultant that is
not inconsistent with the provisions of the Plan and that by its terms involves
or might involve the issuance of (i) Shares, (ii) an Option or (iii) any other
security with the value derived from the value of the Shares. Such Options
grants include, without limitation, Options, or sales or bonuses of Restricted
Stock, and an Option may consist of one such security or benefit, or two or more
of them in any combination or alternative.
-5-
<PAGE>
(b) Designation of Option Grant. Each Option shall be designated in
the Option Agreement. In the case of an Option, the Option shall be designated
as either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Optionee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the date the Option with respect to such Shares is granted.
(c) Conditions of Option. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Option including, but not limited to, the Option vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Option, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or vesting
corresponding to the degree of achievement as specified in the Option Agreement.
(d) Acquisitions and Other Transactions. The Administrator may issue
Options under the Plan in settlement, assumption or substitution for,
outstanding awards or obligations to grant future awards in connection with the
Company or a Parent or Subsidiary acquiring another entity, an interest in
another entity or an additional interest in a Parent or Subsidiary whether by
merger, stock purchase, asset purchase or other form of transaction. Such Option
grants shall be at the discretion of the Board and subject to terms of the
applicable transaction.
(e) Term of Option. The term of each Option shall be the term stated
in the Option Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant thereof or such shorter term as may be provided in the
Option Agreement.
(f) Non-Transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee; provided however, that the
Optionee may designate a beneficiary of the Optionee's Incentive Stock Option in
the event of the Optionee's death on beneficiary designation form provided by
the Administrator.
-6-
<PAGE>
(g) Time of Granting Options. The date of grant of an Option shall for
all purposes be the date on which the Administrator makes the determination to
grant such Option, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
6. Option Exercise or Purchase Price, Consideration and Taxes.
(a) Exercise or Purchase Price. The exercise or purchase price, if
any, for an Option shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant; or
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be not less than
one hundred percent (100%) of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Non-Qualified Stock Option:
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be not less than one hundred ten percent (110%)
of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person described in
the preceding paragraph, the per Share exercise price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
(iii) In the case of the sale of Shares:
(A) granted to a person who, at the time of the grant of
such Option, or at the time the purchase is consummated, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share purchase price shall be not
less than one hundred percent (100%) of the Fair Market Value per share on the
date of grant.
-7-
<PAGE>
(B) granted to any person other than a person described in
the preceding paragraph, the per Share purchase price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
(iv) In the case of other Options, such price as is determined by
the Administrator.
(v) Notwithstanding the foregoing provisions of this Section
7(a), in the case of an Option issued pursuant to Section 6(d), above, the
exercise or purchase price for the grant shall be determined in accordance with
Section 424(a) of the Code.
(b) Consideration. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase 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). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following, provided that the portion of the
consideration equal to the par value of the Shares must be paid in cash or other
legal consideration permitted by the Delaware General Corporation Law:
(i) cash;
(ii) check;
(iii) a cashless exercise program approved by the Administrator
and the Board; or
(iv) any combination of the foregoing methods of payment.
(c) Taxes. No Shares shall be delivered under the Plan to any Optionee
or other person until such Optionee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Option the Company shall withhold or collect from
Optionee an amount sufficient to satisfy such tax obligations.
7. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder.
(i) Any Option granted hereunder shall be exercisable at such
times and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Option Agreement, but in the case of an
Option, in no case at a rate of less than 20% per year over five (5) years from
the date the Option is granted.
-8-
<PAGE>
(ii) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. 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 Shares subject to an Option, notwithstanding the exercise of an Option or
other 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 the Option Agreement or
Section 11(a), below.
(b) Exercise of Option Following Termination of Employment, Director
or Consulting Relationship. In the event of termination of a Optionee's
Continuous Status as an Employee, Director or Consultant with the Company for
any reason other than disability or death (but not in the event of a Optionee's
change of status from Employee to Consultant or from Consultant to Employee),
such Optionee may, but only within three (3) months 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 or to such other extent as may be determined by the Administrator.
If the Optionee should die within three (3) months after the date of such
termination, the Optionee's estate or the person who acquired the right to
exercise the Option by bequest or inheritance may exercise the Option to the
extent that the Optionee was entitled to exercise it at the date of such
termination within twelve (12) months of the Optionee's 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. In the event of a Optionee's change of status from
Employee to Consultant, an Employee's Incentive Stock Option shall convert
automatically to a Non-Qualified Stock Option on the ninety-first (91) day
following such change of status. If the Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. In the event of termination of a
Optionee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Optionee may, but only within twelve (12) months from
the date of such termination (and 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; provided, however, that if such disability is not a "disability" as
such term is defined in Section 22(e)(3) of the Code, in the case of an
Incentive Stock Option such Incentive Stock Option shall automatically convert
to a Non-Qualified Stock Option on the day three (3) months and one day
following such termination. To the extent that Optionee is not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. In the event of the death of a Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Option Agreement), by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate.
-9-
<PAGE>
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
8. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all Applicable Laws, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) 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
Applicable Laws.
9. Repurchase Rights. If the provisions of an Option Agreement grant to the
Company the right to repurchase Shares upon termination of the Optionee's
Continuing Status as an Employee, Director or Consultant, the Option Agreement
shall provide that the repurchase price will be either:
(a) The higher of the original purchase price or Fair Market Value on
the date of termination of the Optionee's Continuous Status as an Employee,
Director or Consultant, if the right to repurchase must be exercised for cash or
cancellation of purchase money indebtedness for the Shares within ninety (90)
days of the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant, and the right terminates when the Company's securities
become publicly traded; or
(b) The original purchase price, provided (i) the right to repurchase
at the original purchase price lapses at the rate of at least twenty percent
(20%) per year over five (5) years from the date the Option is granted (without
respect to the date the Option was exercised or became exercisable), which right
must be exercised for cash or cancellation of purchase money indebtedness for
the Shares within ninety (90) days of termination of the Optionee's Continuous
Status as an Employee, Director or Consultant, and (ii) if the repurchase right
is assignable, the assignee must pay the Company upon assignment of the right,
(unless the assignee is a one hundred percent (100%) owned subsidiary of the
Company or is the parent of the Company owning one hundred percent (100%) of the
stock of the Company) cash equal to the difference between the original purchase
price and Fair Market Value if the original purchase price is less than Fair
Market Value.
-10-
<PAGE>
10. Adjustments Upon Changes in Capitalization or Corporate Transaction.
(a) Adjustments upon Changes in Capitalization. Subject to any
required action by the shareholders of the Company, the number of Shares covered
by each outstanding Option, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. 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 hereof shall be made with respect to, the
number or price of Shares subject to an Option.
(b) Corporate Transaction.
(i) Termination of Option if Not Assumed. In the event of a
Corporate Transaction, each Option will termination upon the consummation of the
Corporation Transaction, unless the Option is assumed by the successor
corporation or Parent thereof in connection with the Corporate Transaction.
(ii) Acceleration of Option Upon Corporate Transaction. Except as
provided otherwise in an individual Option Agreement, in the event of any
Corporate Transaction there will not be any acceleration of vesting or
exercisability of any Option.
(c) Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
11. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) No Option may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall not
affect Options already granted, and such Options shall remain in full force and
effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
-11-
<PAGE>
12. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
13. NO EFFECT ON TERMS OF EMPLOYMENT. THE PLAN SHALL NOT CONFER UPON ANY
OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTING
RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS OR HER
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS OR HER EMPLOYMENT OR CONSULTING
RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
14. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Option exercised
before shareholder approval is obtained shall be rescinded if shareholder
approval is not obtained within the time prescribed, and Shares issued on the
exercise of any such Option shall not be counted in determining whether
shareholder approval is obtained.
15. Information to Optionees. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options outstanding,
copies of financial statements at least annually and all annual reports and
other information which is provided to all shareholders of the Company.
-12-
<PAGE>
Exhibit 10.7
PETPLANET.COM, INC.
1999 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
You have been granted an option to purchase shares (the "Shares") of
common stock of PetPlanet.com, Inc. (the "Company"), subject to the terms and
conditions of the Company's 1999 Stock Option Plan (the "Plan") and this Stock
Option Agreement (the "Option Agreement"), as follows:
Grant Number 99-________
Date of Grant ___________
Vesting Commencement Date ___________
Exercise Price per Share ___________
Total Number of Shares Granted ___________
Total Exercise Price $__________
Type of Option: _____ Incentive Stock Option
_____ Non-Qualified Stock Option
Vesting Schedule:
- -----------------
Subject to other conditions and limitations as set forth in this Option
Agreement and the Letter of Agreement entered into by you and the
Company on July 19, 1999, outlining the terms of your employment with
the Company, this option to purchase Shares (the "Option") may be
exercised, in whole or in part, in accordance with the following:
One-quarter (1/4) of the Shares (8,750) shall vest upon the one (1)
year anniversary date of the Vesting Commencement Date and
one-sixteenth (1/16th) of the total number of Shares (2,187) shall vest
thereafter on a quarterly basis for eleven (11) quarters, with 2,193
Shares vesting in the twelfth (12th) and final quarter, such that the
option to purchase 35,000 Shares shall be fully vested on May 15, 2003.
Option Period:
- --------------
The Option may be exercised only during the Option Period, as defined
below, and during such Option Period, the exercisability of the Option
shall be subject to the limitations of Sections 5-7 and the vesting
schedule set forth above. The Option Period shall commence on the Date
of Grant and except as provided in Sections 5-7, shall terminate (the
"Expiration Date") ten (10) years from the Date of Grant (the "Option
<PAGE>
Period"); provided, however, that the Option Period for a person
possessing more than ten percent (10%) of the combined voting power of
the Company shall terminate five (5) years from the Date of Grant;
provided further that if an Optionee shall be terminated or otherwise
leave the service of the Company for any reason other than death or
disability, then the Option shall terminate sixty (60) days following
the last day of employment of Optionee with the Company.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Option is granted under and governed by the
terms and conditions of the 1999 Stock Option Plan and this Option Agreement,
both of which are attached hereto and made a part of this document.
Optionee PetPlanet.com, Inc.
__________________________ ______________________________
Signature Signature
__________________________ ______________________________
Print Name Print Name
OPTION AGREEMENT
1. Grant of Option. The Company hereby grants to the Optionee named in
the Notice of Stock Option Grant (the "Optionee"), an option (the "Option") to
purchase the total number of Shares set forth in the Notice of Stock Option
Grant, at the exercise price per share set forth in the Notice of Stock Option
Grant (the "Exercise Price") subject to the terms, definitions and provisions of
the Plan adopted by the Company, which is incorporated herein by reference and
this Option Agreement. Unless otherwise defined herein, the terms defined in the
Plan shall have the same defined meanings in this Option Agreement.
If designated in the Notice of Stock Option Grant as an Incentive Stock
Option, the Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Section 422(d) of the Code, the Option shall be treated as
a Non-Qualified Stock Option.
2. Exercise of Option.
(a) Right to Exercise. (i) The Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the applicable provisions of the Plan and this Option
Agreement; (ii) the Option may not be exercised for a fraction of a Share; (iii)
in the event of termination of Optionee's Continuous Status as an Employee,
Director or Consultant, the Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement; (iv) the Option
shall be subject to the provisions of Section 11 of the Plan relating to the
exercisability or termination of the Option in the event of a Corporate
Transaction; and (v) in no event may the Option be exercised after the
Expiration Date of the Option as set forth in the Notice of Stock Option Grant.
<PAGE>
(b) Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Administrator. Such Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price.
No Shares will be issued pursuant to the exercise of the Option
unless such issuance and such exercise shall comply with all Applicable Laws.
Assuming such compliance, for income tax purposes, the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(c) Taxes. No Shares will be issued to the Optionee or other person
pursuant to the exercise of the Option until the Optionee or other person has
made arrangements acceptable to the Administrator for the satisfaction of
foreign, federal, state and local income and employment tax withholding
obligations.
3. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee;
provided, however, that such exercise method does not then violate an Applicable
Law:
(a) cash;
(b) check;
(c) consideration received by the Company under a cashless exercise
program implemented and approved by the Company in connection with the Plan; or
(c) if the exercise occurs on or after the date that the Shares
become registered and no longer subject to restrictions on transfer (the
"Registration Date"), surrender of the Shares (including withholding of Shares
otherwise deliverable upon exercise of the Option) which have a fair market
value on the date of surrender equal to the Exercise Price of the Shares as to
which the Option is being exercised (but only to the extent that such exercise
of the Option would not result in an accounting compensation charge with respect
to the Shares used to pay the exercise price unless otherwise determined by the
Administrator); or
(d) any combination of the foregoing methods of payment.
4. Restrictions on Exercise. The Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company. In
addition, the Option may not be exercised if the issuance of the Shares subject
to the Option upon such exercise would constitute a violation of any Applicable
Laws.
5. Termination of Relationship. In the event the Optionee's Continuous
Status as an Employee, Director or Consultant terminates, the Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise the Option during the
<PAGE>
Option Period. Except as provided in Sections 6 and 7, below, to the extent that
the Optionee was not entitled to exercise the Option on the Termination Date, or
if the Optionee does not exercise the Option within the Option Period, the
Option shall terminate.
6. Disability of Optionee.
(a) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's Continuous Status as an Employee, Director or
Consultant as a result of Optionee's total permanent disability (as defined in
Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months
from the Termination Date (but in no event later than the Expiration Date set
forth in the Notice of Stock Option Grant), exercise this Option to the extent
Optionee was entitled to exercise it as of such Termination Date. To the extent
Optionee was not entitled to exercise the Option as of the Termination Date, or
if Optionee does not exercise such Option (to the extent so entitled) within the
time specified in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six (6) months from the Termination Date (but in no event later than
the Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date; provided, however, that if this is an Incentive Stock Option and Optionee
fails to exercise this Incentive Stock Option within (3) three months from the
Termination Date, this Option will cease to qualify as an Incentive Stock Option
(as defined in Section 422 of the Code) and Optionee will be treated for federal
income tax purposes as having received ordinary income at the time of such
exercise in an amount generally measured by the difference between the Exercise
Price for the Shares and the fair market value of the Shares on the date of
exercise. To the extent that Optionee was not entitled to exercise the Option at
the Termination Date, or if Optionee does not exercise such Option to the extent
so entitled within the time specified in this Section 6(b), the Option shall
terminate.
7. Death of Optionee. In the event of the death of the Optionee (a)
during the Option Period and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within thirty (30) days after Optionee's Termination
Date, the Option may be exercised at any time within six (6) months following
the date of death (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent the right to exercise had accrued at the Termination Date.
8. Non-Transferability of Option. The Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of the Option shall be binding upon the executors, administrators, heirs
and successors of the Optionee.
<PAGE>
9. Term of Option. The Option may be exercised only within the Option
Period set out in the Notice of Stock Option Grant, and may be exercised during
such Option Period only in accordance with the Plan and the terms of this Option
Agreement.
10. Stop-Transfer Notices. In order to ensure compliance with the
restrictions on transfer referred to in the legends placed upon certificates
evidencing ownership of the Shares, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, and, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
11. Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Option Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
12. Lock-Up Agreement.
(a) Agreement. Optionee, if requested by the Company and the lead
underwriter of any public offering of the common stock or other securities of
the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any common stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
common stock (except common stock included in such public offering or acquired
on the public market after such offering) during the 180-day period following
the effective date of a registration statement of the Company filed under the
Securities Act of 1933, as amended, or such shorter period of time as the Lead
Underwriter shall specify. Optionee further agrees to sign such documents as may
be requested by the Lead Underwriter to effect the foregoing and agrees that the
Company may impose stop-transfer instructions with respect to such common stock
subject until the end of such period. The Company and Optionee acknowledge that
each Lead Underwriter of a public offering of the Company's stock, during the
period of such offering and for the 180-day period thereafter, is an intended
beneficiary of this Section 13.
(b) Permitted Transfers. Notwithstanding the foregoing, Section 13(a)
shall not prohibit Optionee from transferring any of the Shares of common stock
or securities convertible into or exchangeable or exercisable for the Company's
common stock to the extent such transfer is not otherwise prohibited by this
Option Agreement, either during Optionee's lifetime or on death by will or
intestacy to Optionee's immediate family or to a trust the beneficiaries of
which are exclusively Optionee and/or a member or members of Optionee's
immediate family; provided, however, that prior to any such transfer, each
transferee shall execute an agreement pursuant to which each transferee shall
agree to receive and hold such securities subject to the provisions of Section
13 hereof. For the purposes of this subsection, the term "immediate family"
shall mean spouse, lineal descendant, father, mother, brother or sister of the
transferor.
(c) No Amendment Without Consent of Underwriter. During the period from
identification as a Lead Underwriter in connection with any public offering of
the Company's
<PAGE>
common stock until the earlier of (i) the expiration of the lock-up period
specified in Section 13(a) in connection with such offering or (ii) the
abandonment of such offering by the Company and the Lead Underwriter, the
provisions of this Section 13 may not be amended or waived except with the
consent of the Lead Underwriter.
13. Entire Agreement: Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Optionee
with respect to the subject matter hereof, and may not be modified adversely to
the Optionee's interest except by means of a writing signed by the Company and
Optionee. This Option Agreement is governed by California law except for that
body of law pertaining to conflict of laws.
14. Headings. The captions used in this Option Agreement are inserted
for convenience and shall not be deemed a part of this Option Agreement for
construction or interpretation.
15. Interpretation. Any dispute regarding the interpretation of this
Option Agreement shall be submitted by the Optionee or by the Company forthwith
to the Board or the Administrator that administers the Plan, which shall review
such dispute at its next regular meeting. The resolution of such dispute by the
Board or the Administrator shall be final and binding on all persons.
PETPLANET.COM, INC.
By: _______________________________
Steven Marder, CEO
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS OPTION AGREEMENT, NOR IN THE COMPANY'S 1999 STOCK OPTION
PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY
RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY,
NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
NOTICE OR CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof, and hereby accepts this
Option Agreement subject to all of the terms and provisions thereof. Optionee
has reviewed the Plan and this Option Agreement in
<PAGE>
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option Agreement and fully understands all provisions of the
Option Agreement. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Administrator upon any questions
arising under the Plan or this Option Agreement. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
Dated: ______________________ ________________________________________
Signed: ________________________________
Optionee
Residence Address:
________________________________________
________________________________________
________________________________________
<PAGE>
EXHIBIT A
PETPLANET.COM, INC.
1999 STOCK OPTION PLAN
EXERCISE NOTICE
PetPlanet.com, Inc.
21 Stillman Street, Suite 600
San Francisco, CA 94107
Attention: Secretary
- -----------------------
(date)
____ Incentive Stock Option Exercise
____ Non-Qualified Stock Option Exercise
I hereby notify PetPlanet.com, Inc. (the "Company") that I elect to
exercise the following stock options:
<TABLE>
<CAPTION>
Grant Grant # of Price/ Total Exercise Cost
Number Date Shares Share (excluding taxes)
------ ----- ------ ------ -------------------
<S> <C> <C> <C> <C>
------ ----- ------ ------
------ ----- ------ ------
</TABLE>
Concurrently with the delivery of this Exercise Notice to the Company,
I shall hereby pay to the Company the Total Exercise Cost for the Shares
purchased in accordance with the provisions of my agreement with the Company
evidencing the option(s) specified above. Furthermore, I understand that any
taxes which may be due at the time of this exercise will be calculated and added
to the Total Exercise Cost listed above.
<PAGE>
The payment of the Total Exercise Price will be made via:
1) ____ Cash, Check or Money Order,
2) ____ Payment by ________________________ (broker) as part
of the Company's "cashless" exercise program.
Please note the following:
1) ____ Yes I wish to have taxes withheld at the following
rate (above any minimum required):
Federal ______% State ______%
2) ____ No I do not wish to have taxes withheld above the
minimum requirement (if any).
Signature of Optionee ____________________________________
Please print
Optionee's Name: ____________________________________
Address: ____________________________________
____________________________________
____________________________________
Social Security Number: ____________________________________
<PAGE>
PETPLANET.COM, INC.
1999 STOCK OPTION PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : PETPLANET.COM, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Optionee is
acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon among other things, the bona fide nature
of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the securities. Optionee understands that the certificate evidencing the
securities will be imprinted with a legend which prohibits the transfer of the
securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company.
(c) Optionee is familiar with the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities"
<PAGE>
acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to certain limited circumstances under Rule 144, which requires
the resale to occur not less than one year after the later of the date the
securities were sold by the Company or the date the securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the securities by an affiliate, or by a non-affiliate who
subsequently holds the securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any securities of the Company during the
180-day period following the effective date of a registration statement of the
Company filed under the Securities Act; provided, however, that such restriction
shall only apply to public offerings which include securities to be sold on
behalf of the Company to the public in an underwritten public offering under the
Securities Act. The Company may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such
180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144 is
not exclusive, the Staff of the Securities and Exchange Commission has expressed
its opinion that persons proposing to sell private placement securities other
than in a registered offering and otherwise than pursuant to Rules 144 will have
a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk. Optionee understands that no assurances can be given that any such other
registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the securities
will be imprinted with a legend which prohibits the transfer of securities
without the consent of the Commissioner of Corporations of California. Optionee
has read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.
Signature of Optionee:
____________________________________________
Date:_________________________ 2000
