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EXHIBIT 10.2
PET QUARTERS, INC.
EMPLOYEE EQUITY PARTICIPATION INCENTIVE PLAN
HISTORY
A. On ____________, 2000, the Board of Directors (the "BOARD") of
PET QUARTERS, INC. (the "Company"), an Arkansas corporation,
created the Pet Quarters, Inc. Employee Equity Participation
Incentive Plan (the "PLAN").
1. PLAN
1.1 PURPOSE. The purpose of the Plan is to promote the success of the
Company by providing compensatory equity incentives in order to
attract, motivate and retain employees. Capitalized terms are defined
in SECTION 7.
1.2 ADMINISTRATION.
1.2.1 BOARD. This Plan shall be administered by the Board, acting by
majority vote. The Board may delegate administrative functions
to third parties, including employees of the Company. All
actions of the Board are subject to this Plan.
1.2.2 POWERS OF BOARD. The Board has authority to (a) construe and
interpret this Plan and any related agreements, (b) further
define the terms used in this Plan, (c) prescribe, amend and
rescind rules and regulations relating to the administration
of this Plan, (d) establish and modify the terms of Award
Agreements including, but not limited to, restrictions on
transfer and repurchase rights, including the mandatory
exchange of any previously issued Award for an Award with
similar terms and conditions of a successor entity or parent
corporation, (e) determine the effect, if any, on a
Participant's rights from leaves of absence, (f) make all
other determinations necessary or advisable for the
administration of this Plan, and (g) cause (i) the issuance of
new Award Agreements in exchange for previously issued Awards,
(ii) the acceleration of any outstanding Award Agreement, or
(iii) the termination of any outstanding Award Agreement,
pursuant to and in accordance with Section 6.2 hereof. The
determination of the Board on any of the foregoing matters
shall be conclusive, provided that such Board actions are not
inconsistent with applicable federal or state securities
registration exemption statutes.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of,
the Company, or the Board relating to this Plan is within the
absolute discretion of that group or entity. No member of the
Board, or officer or employee of the Company or any
Subsidiary, will be liable for any such action or inaction. In
determining whether to take any action permitted under this
Plan, the Company or the Board may rely upon the advice of
counsel and accountants of the Company, and such determination
shall be conclusive.
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1.3 PARTICIPATION. Awards may be granted only to Eligible Persons. An
Eligible Person who has been granted an Award may, if otherwise
eligible, be granted additional Awards.
1.4 SHARES SUBJECT TO PLAN.
1.4.1 NUMBER OF SHARES. The aggregate number of Shares that may be
issued pursuant to all Awards may not exceed __________. Each
of the foregoing limits is subject to adjustment under Section
6.2. Shares may be issued for any lawful consideration.
1.4.2 CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. If any
Option or Stock Appreciation Right lapses or terminates
without having been exercised in full, or any Shares subject
to a Restricted Stock Award or Performance Share Award do not
vest or are not delivered, the unpurchased, unvested or
undelivered Shares will again be available for purposes of
this Plan. The foregoing sentence does not apply to Shares
withheld under Section 6.5.1.
1.5 GRANT OF AWARDS. The Board will determine the Eligible Persons to whom
Awards will be granted, the terms and conditions of Awards (which need
not be identical) and the number of Shares subject to each Award. Each
Award will be evidenced by an Award Agreement approved by the Board.
The grant of an Award is made on the Award Date.
1.6 EXERCISE OF AWARDS. An exercisable Award will be deemed to be exercised
when the Secretary of the Company receives an executed Exercise
Agreement from the Participant, together with payment of any required
Purchase Price or other payments (including, without limitation, any
withholding of taxes requested or required by the Company pursuant to
Section 6.5) as well as delivery of any other materials required by the
Board. Awards are exercisable only for whole shares. Fractional shares
will be disregarded for all purposes under this Plan.
1.6.1 CASH OR NOTE EXERCISES. The Purchase Price of each Award Share
must be paid in full at the time of each purchase in one or a
combination of the following methods, to the extent authorized
by the Board or set forth in the Award Agreement: (a) cash or
cashier's check payable to the Company or (b) if the Board
approves, a Note. Shares used to satisfy the Purchase Price
will be valued at their Fair Market Value on the exercise
date.
1.6.2 CASHLESS EXERCISES. Award Agreements may also provide that an
Option may be exercised, in whole or in part, in a "cashless"
exercise, upon delivery to the Company of a properly executed
notice to the Company to the extent authorized by the Board or
set forth in the Award Agreement.
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2. OPTIONS
2.1 GRANTS. Options maybe granted to any Eligible Person. Each Option must
be designated by the Board as either an NQSO or an ISO, and such intent
will be indicated in the Award Agreement. If no such intent is
indicated, such Option will be an NQSO. ISOs may be granted only to
Eligible Persons who are employed by the Company or a corporation that
is a "parent" or "subsidiary" corporation within the meaning, of
Sections 424(e) and 424(f) of the Code, respectively.
2.2 OPTION PRICE. The Purchase Price per Award Share will be determined by
the Board, provided that
2.2.1 GENERAL PRICE RESTRICTION. The Purchase Price per Award Share
must be at least 85% (110% in the case of a Significant
Holder) of the Fair Market Value of the Shares on the Award
Date.
2.2.2 ISO PRICE RESTRICTION. In the case of ISOs, the Purchase Price
per Award Share must be at least 100% (110% in the case of a
Significant Holder) of the Fair Market Value of the Shares on
the Award Date.
2.3 OPTION PERIOD. Each Option will expire on a date determined by the
Board, but not later than 10 years after the Award Date, and will be
subject to earlier termination as set forth in this Plan or in the
Award Agreement.
2.4 EXERCISE OF OPTIONS. An Option shall become exercisable, in whole or in
part, on the date or dates specified in the Award Agreement and
thereafter such portion will remain exercisable until the earliest of
its exercise or its expiration or termination in accordance with the
Award Agreement, or as otherwise set forth in this Plan. At least 100
Shares must be purchased at one time unless the number of Shares
purchased is the total number at the time available for purchase under
the Option. If an Option granted concurrently with a Stock Appreciation
Right is exercised, the number of Shares subject to the Option and the
related Stock Appreciation Right will be reduced by the number of
Shares subject to any portion of the Option that has previously been
exercised.
2.5 VESTING RATE. Unless otherwise provided in the Award Agreement to
purchase Award Shares pursuant to the Option shall vest at the rate of
20% per year over 5 years from the Award Date, subject to reasonable
conditions. However, an Option granted to an officer, director or
consultant may become fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any
period established by the Company.
2.6 LIMITATIONS ON GRANT OF ISOS.
2.6.1 $100,000 LIMIT. If the aggregate Fair Market Value of Award
Shares with respect to which ISOs first become exercisable by
a Participant in any calendar year exceeds $100,000, taking
into account Award Shares subject to all ISOs
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granted by the Company that are held by the Participant, the
excess will be treated as if issued pursuant to a NQSO. To
determine whether the $100,000 limit is exceeded, the Fair
Market Value of Award Shares subject to the Options shall be
determined as of the Award Dates of each respective Option. In
reducing the number of Options treated as ISOs to meet the
$100,000 limit, Award Shares under the most recently granted
Options will be reduced first. If a reduction of
simultaneously granted Options is necessary to meet the
$100,000 limit, the Company may designate which Award Shares
are to be treated as Award Shares acquired pursuant to an ISO.
2.6.2 LIMITATION ON PURCHASE PRICE AND TERM. No ISO may be granted
to a Significant Holder unless the Purchase Price of the Award
Shares is at least 110% of the Fair Market Value of the Award
Shares and such Option by its terms is not exercisable after
the expiration of five years from the Award Date.
3. STOCK APPRECIATION RIGHTS
3.1 GRANTS. The Board may grant Stock Appreciation Rights concurrently with
the grant of other Awards or independently. A Stock Appreciation Right
granted concurrently with the grant of another Award may extend to all
or a portion of the Shares covered by the related Award. A Stock
Appreciation Right will entitle the Participant who holds the related
Award, upon exercise of such Stock Appreciation Right and surrender of
the related Award, or portion thereof, to receive payment of an amount
determined pursuant to Section 3.3.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
3.2.1 CONCURRENTLY GRANTED STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right granted concurrently with another Award
shall be exercisable only to the extent that the related Award
is exercisable, and only when the Fair Market Value of the
Award Shares exceeds the exercise price of the related Award.
If a Stock Appreciation Right granted concurrently with an
Award is exercised, the number of Award Shares will be charged
against the maximum number of Shares that may be issued
pursuant to Awards. The number of Shares subject to the Stock
Appreciation Right and the related Award will also be reduced
by such number of shares. If a Stock Appreciation Right
granted concurrently with an Award extends to fewer than all
the Shares covered by the related Award, and if a portion of
the related Award is subsequently exercised, the number of
Shares subject to the unexercised Stock Appreciation Right
will be reduced only to the extent that the remaining number
of Shares covered by such related Award is fewer than the
remaining number of Shares subject to such Stock Appreciation
Right.
3.2.2 INDEPENDENT STOCK APPRECIATION RIGHT. A Stock Appreciation
Right granted independently of another Award will be
exercisable pursuant to the terms of the applicable Award
Agreement.
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3.3 PAYMENT.
3.3.1 CONCURRENTLY GRANTED STOCK APPRECIATION RIGHTS. Upon exercise
of a Stock Appreciation Right and surrender of an exercisable
portion of the related Award, the Participant will be entitled
to receive payment of an amount determined by multiplying
(a) The difference between the Purchase Price per Share
under the related Award and the Fair Market Value of
a Share on the exercise date of such Stock
Appreciation Right, by
(b) The number of Shares with respect to which such Stock
Appreciation Right is being exercised.
3.3.2 INDEPENDENT STOCK APPRECIATION RIGHTS. Upon exercise of a
Stock Appreciation Right granted independently of an Award,
the Participant will be entitled to receive payment of an
amount based on the difference between the Fair Market Value
per Share on the Award Date and the Fair Market Value per
Share on the exercise date of such Stock Appreciation Right.
Such amount shall be paid as described in Section 3.3.3.
3.3.3 FORM OF PAYMENT. The amount determined under Section 3.3.1 or
3.3.2 will be paid solely in cash, or, if the Board approves,
in Shares (valued at Fair Market Value on the exercise date of
the Stock Appreciation Right), or in any combination of Shares
and cash.
4. RESTRICTED STOCK AWARDS
4.1 GRANTS. The Board may grant one or more Restricted Stock Awards to any
Eligible Person. Each Award Agreement will specify the number of Shares
to be issued to the Participant, the Award Date, the consideration for
such Shares to be paid by the Participant, the extent to which the
Participant will be entitled to dividends, voting and other rights in
respect of the Shares, and the restrictions imposed on such Shares.
4.2 RESTRICTIONS.
4.2.1 LEGEND. Stock certificates evidencing Shares of Restricted
Stock pending the lapse of restrictions will bear a legend
making appropriate reference to the restrictions imposed and
will be held by the Company or by a third party designated by
the Board until the restrictions have lapsed.
4.2.2 FURTHER ASSURANCE. Upon issuance of Restricted Stock, the
Participant may be required to provide such further assurance
and documents as the Board requires.
4.2.3 RESTRICTIONS ON TRANSFER. Except as provided under this Plan
or the Award Agreement, Restricted Stock may not be sold,
assigned, transferred, pledged or
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otherwise disposed of or encumbered, either voluntarily or
involuntarily, until the restrictions have lapsed.
4.2.4 DIVIDENDS AND VOTING RIGHTS. Unless otherwise provided in the
Award Agreement, a Participant receiving a Restricted Stock
Award will be entitled to cash dividends and voting rights for
all Award Shares issued even though they are not vested, but
such rights will terminate immediately as to any unvested
Award Shares that cease to be eligible for vesting.
4.2.5 REPAYMENT. If the Participant has paid or received cash
(including any dividends) in connection with a Restricted
Stock Award, the Award Agreement will specify whether and to
what extent such cash will be returned (with or without an
earnings factor) as to any unvested Award Shares that cease to
be eligible for vesting.
4.2.6 PURCHASE PRICE. The Purchase Price per Award Share must be at
least 85% (100% in the case of a Significant Holder) of the
Fair Market Value of the Shares on the Award Date.
4.3 FORM OF PAYMENT. The amount determined under Section 4.1 will be paid
solely in cash or in the form of a Note. If payment is by Note, the
Participant will pledge the Restricted Stock Award and the Award Shares
to the Company as security for payment of the Note. Pursuant to the
terms of the Award Agreement, the Shares will be delivered to the
Participant upon payment of the Note obligation.
5. PERFORMANCE SHARE AWARDS
5.1 GRANTS. The Board may grant Performance Share Awards based upon factors
the Board deems relevant. The Award Agreement shall specify the maximum
number of Shares (if any) subject to the Performance Share Award, the
consideration to be paid for any Shares issuable to the Participant,
the duration of the Award, and the conditions upon which delivery of
any Shares or cash to the Participant will be based. The amount of cash
or Shares that may be deliverable pursuant to such Award will be based
upon the degree of attainment over a specified period (a "performance
cycle") of such measure(s) of the performance of the Company (or any
part thereof) or the Participant as may be established by the Board.
The Board may provide for full or partial credit, prior to completion
of such performance cycle or the attainment of the performance
achievement specified in the Award Agreement, in the event of the
Participant's death, Retirement, Total Disability, or an Event, or as
the Board determines.
5.2 RESTRICTIONS ON AWARDS OF STOCK. Any Shares awarded to a Participant
pursuant to Section 5.1 may be, as determined by the Board on the Award
Date, Restricted Stock and, as such, may be subject to all or some of
the restrictions and requirements described above in Sections 4.2 and
4.3.
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6. OTHER PROVISIONS
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
6.1.1 NO BINDING COMMITMENT. Status as an Eligible Person is not a
commitment that any Award will be made to any Eligible Person.
6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or any
document related hereto) shall confer upon any Eligible Person
or Participant any right to continue in the service or employ
of the Company or constitute any contract or agreement of
service or employment, or interfere in any way with the right
of the Company to reduce such person's compensation or other
benefits or to terminate the services or employment of such
person, with or without cause. Nothing contained in this Plan
(or any related document) shall affect any other contractual
right of any Eligible Person or Participant.
6.1.3 LIMITATIONS ON TRANSFERABILITY. Amounts payable pursuant to an
Award will be paid only to the Participant or, if the
Participant dies, to the Participant's Beneficiary. If a
Personal Representative has been appointed for a Participant,
payment will be made to the Personal Representative. Other
than by will or the laws of descent and distribution or other
exception to transfer restrictions authorized by the Board, no
benefit payable under, or interest in, this Plan or in any
Award shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any such attempted action shall be void. No such
benefit or interest shall be, in any manner, liable for, or
subject to, debts, contracts, liabilities, engagements or
torts of any Eligible Person, Participant or Beneficiary. The
Board shall disregard any attempted transfer, assignment or
other alienation prohibited by this Plan or applicable law and
shall pay or deliver such cash or Shares in accordance with
this Plan.
6.1.4 NO TRUST OR FUND. Awards are payable in Shares or from the
general assets of the Company. No Participant, Beneficiary or
other person shall have any right, title or interest in any
fund or in any specific asset (including Shares) of the
Company by reason of any Award. Neither the provisions of this
Plan (or of any documents related hereto), nor the creation or
adoption of this Plan, nor any action taken pursuant to this
Plan, shall create a trust of any kind or a fiduciary
relationship between the Company and any Participant,
Beneficiary or other person. If a Participant, Beneficiary or
other person acquires a right to receive anything other than
Shares upon exercise of an Award, such right will be no
greater than the night of any unsecured general creditor of
the Company.
6.2 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ACCELERATION, POSSIBLE
EARLY TERMINATION OF AWARDS.
6.2.1 ADJUSTMENTS. If the outstanding Shares are changed into or
exchanged for cash or a different number or kind of shares or
securities of the Company or of another
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issuer, or if additional Shares or new or different securities
are distributed with respect to the outstanding Shares,
through a reorganization or merger to which the Company is a
party, or through a combination, consolidation,
recapitalization, reclassification, stock split, stock
dividend, reverse stock split, stock consolidation or other
capital change or adjustment, an appropriate adjustment will
be made in the number and kind of Shares or other
consideration that is subject to or may be delivered under
this Plan and pursuant to outstanding Awards.
6.2.2 ACCELERATION. Upon the occurrence of an Event, the Board may
(i) make each Option and Stock Appreciation Right immediately
exercisable, vest Restricted Stock free of restrictions, and
pay to each Participant the number of Shares covered by each
Performance Share Award, (ii) determine that only certain
benefits under Awards shall be accelerated and the extent to
which they shall be accelerated, and/or (ill) establish a
different time in respect of such Event for such acceleration.
Any discretion with respect to these events shall be limited
to the extent required by applicable accounting requirements
in the case of a transaction intended to be accounted for as a
pooling-of-interests transaction. If the Board does not
accelerate the benefits under Awards upon the occurrence of
such Event pursuant to this Section 6.2.2, and, within two (2)
years after the occurrence of such Event, a Participant's
employment or services with the Company terminates for any
reason other than for Cause, then effective as of the day
prior to the date of such termination, all of the
Participant's Options and Stock Appreciation Rights shall
become immediately exercisable, the Participant's Restricted
Stock shall vest free of restrictions, and, within a
reasonable time after such date of termination, the number of
Shares covered by each of the Participant's Performance Share
Awards shall be paid to the Participant. The Board may accord
any Participant a night to refuse any acceleration, whether
pursuant to the Award Agreement or otherwise.
6.2.3 POSSIBLE EARLY TERMINATION OF AWARDS. If any Option has been
fully accelerated pursuant to Section 6.2.2 but is not
exercised prior to (a) a dissolution of the Company, or (b) a
reorganization event described in Section 6.2.1 that the
Company does not survive, or (c) the consummation of a
reorganization event described in Section 6.2.1 that results
in an Event approved by the Board, and no provision has been
made for the survival, substitution, exchange or other
settlement of such Award, such Award shall thereupon
terminate.
6.3 TERMINATION OF EMPLOYMENT.
6.3.1 OPTIONS.
(a) Any Option, to the extent not exercised, will terminate and
become null and void upon a termination of employment of a
Participant, except as set forth in this Section or otherwise
expressly provided in the Award Agreement. All Options shall
be subject to earlier termination under Section 2.3, and any
and all rights under an Option, to the extent not exercised or
vested, will expire immediately
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upon a termination of employment of a Participant for Cause.
The Board will be the sole judge of Cause.
(b) Unless otherwise expressly provided in the Award Agreement, a
Participant will have the following time periods to exercise
Options to the extent they were exercisable on the date of the
Participant's termination of employment:
(i) If the Participant's employment terminates by any
reason other than death, Total Disability or Cause,
the Participant will have 90 days after the date of
termination of employment to exercise any Option;
(ii) If the Participant's employment terminates for Cause,
all Options shall terminate or lapse immediately upon
the Participant's termination of employment;
(iii) If the Participant's employment terminates by reason
of Total Disability, or if the Participant suffers a
Total Disability within 90 days after a termination
of employment described in Section 6.3.1(b)(i), the
Participant or the Participant's Personal
Representative, as the case may be, may exercise, at
any time within 180 days after the date of Total
Disability (or, if earlier, termination of
employment) any Option; or
(iv) If the Participant dies while employed by the
Company, or within 90 days after a termination of
employment under Section 6.3.1(b)(i) or 6.3.1(b)(iii)
above, the Participant's Beneficiary may exercise, at
any time within 180 days after the date of the
Participant's death (or, if earlier, termination of
employment) any Option.
6.3.2 STOCK APPRECIATION RIGHTS. Each Stock Appreciation Right
granted concurrently with an Award will have the same
termination provisions and exercisability periods as the
related Award. The termination provisions and exercisability
periods of any Stock Appreciation Right granted independent of
an Award will be established by the Board.
6.3.3 RESTRICTED STOCK AWARDS AND PERFORMANCE SHARE AWARDS. If a
Participant's employment terminates for any reason, (a) Shares
subject to the Participant's Restricted Stock Award will be
treated in accordance with the related Award Agreement to the
extent such Shares have not become vested on the date of
termination of employment; and (b) Shares subject to the
Participant's Performance Share Award will be forfeited in
accordance with the related Award Agreement to the extent such
Shares have not been issued or become issuable on that date.
6.3.4 ADJUSTMENTS TO EXERCISABLE PORTION. Notwithstanding the
foregoing, if a Participant's employment or services with the
Company terminates for any reason other than for Cause, the
Board may increase the portion of a Participant's Award
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exercisable to the Participant, or the Participant's
Beneficiary or Personal Representative, as the case may be,
upon such terms as the Board determines.
6.3.5 EFFECT OF CESSATION OF SUBSIDIARY STATUS. If an entity ceases
to be a Subsidiary, such action will be deemed for purposes of
this Plan to be a termination of services or employment of
each Eligible Person of that entity who does not continue as
an Eligible Person of the Company or another Subsidiary.
6.4 GOVERNMENT REGULATIONS. This Plan, the granting of Awards, the issuance
or transfer of Shares, and the payment of money, pursuant thereto are
subject to all applicable federal and state laws, rules and regulations
and to such approvals by any regulatory or governmental agency
(including, but not limited to, "no action" positions of the
Commission) that may, in the judgment of the Board, be necessary or
advisable. Without limiting the generality of the foregoing, no Awards
may be granted, no Shares will be issued, and no cash payments may be
made by the Company, pursuant to any such Award, unless and until, in
each such case, all legal requirements applicable to the issuance or
payment have been complied with. In connection with any stock issuance
or transfer, the person acquiring the Shares must, if requested, give
assurances satisfactory to the Board in respect of such matters as the
Board deems desirable to assure compliance with all applicable legal
requirements. A Participant will not be entitled to the privilege of
stock ownership as to any Shares not actually issued to such
Participant.
6.5 TAXES.
6.5.1 WITHHOLDING OBLIGATION. Upon any exercise, vesting, or payment
of any Award or, if required under the Code, upon the
disposition by a Participant or other person of Shares
acquired pursuant to the exercise of an ISO prior to
satisfaction of the holding period requirements of Section 422
of the Code, the Company has the right at its option to
require payment by cashier's check payable to the Company of,
or to deduct from amounts payable in cash, the amount of any
taxes that the Company may be required to withhold with
respect to such transactions. If a tax is required to be
withheld in connection with the issuance or transfer of
Shares, the Participant may elect, with Board approval, to
have the Company reduce the number of such Shares issued or
transferred by the number of Shares (valued at Fair Market
Value) necessary to accomplish such withholding.
6.5.2 TAX WITHHOLDING LOANS. The Board may permit a loan from the
Company to a Participant in the amount of any taxes that the
Company may be required to withhold, for a term, at a rate of
interest and pursuant to such other terms established by the
Board.
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6.6 AMENDMENT, TERMINATION AND SUSPENSION.
6.6.1 AMENDMENT, TERMINATION AND SUSPENSION. The Board may, at any
time, terminate or, from time to time, amend, modify or
suspend this Plan or any part hereof. In addition, the Board
may, from time to time, amend or modify any provision of this
Plan and, with the consent of the Participant, make such
modifications of the terms of such Participant's Award as it
deems advisable. Upon the occurrence of an Event, however, the
Board may modify the terms of any Participant's Award with or
without the consent of the Participant. The Board, with the
consent of the Participant, also may amend the terms of any
Option or Stock Appreciation Right to provide that the
Purchase Price of the Shares remaining subject to the original
Award be reestablished at a price in compliance with the other
Sections of this Plan and in no event less than 100% of the
Fair Market Value of the Shares on the effective date of the
amendment. No modification of any other term of any Award that
is amended in accordance with the foregoing shall be required,
although the Board may make such further modifications of any
such Award as are not inconsistent with this Plan. No Awards
may be granted during any suspension of this Plan or after its
termination.
6.6.2 SHAREHOLDER APPROVAL. If an amendment would materially (a)
increase the benefits accruing to Participants, (b) increase
the aggregate number of Shares that may be issued or (c)
modify the requirements of eligibility for participation in
this Plan, the amendment shall be approved by the Board and,
to the extent then required by applicable law, by the
shareholders of the Company.
6.6.3 EFFECT ON OUTSTANDING AWARDS. Awards issued before the
effective date of any amendment, suspension or termination of
this Plan will not without specific action of the Board and
the consent of the Participant, in any way modify, amend,
alter or impair any rights or obligations under any such
Award. Except, upon the occurrence of an Event, the Board may
modify the terms of any Participant's Award with or without
the consent of the Participant.
6.7 AMOUNT OFFERED AND SOLD. Both the number of securities offered and sold
and the Aggregate Offering Price (defined below) of securities offered
and sold shall be limited to the maximum amounts defined in Sections
6.7.2 and 6.7.3 below.
6.7.1 DEFINITION OF AGGREGATE OFFERING PRICE. "Aggregate Offering
Price", as defined by Rule 701(b)(4)(i) under the Securities
Act of 1933 and used in this Plan, means the sum of all cash,
property, notes, cancellation of debt or other consideration
to be received by the issuer for the issuance of the
securities. Non-cash consideration should be valued in
reference to bona fide sales of that consideration within a
reasonable time, or, in the absence of sales, on the fair
value as determined by an accepted standard.
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6.7.2 CALCULATED RESTRICTION. The amount of securities offered and
sold in reliance on Rule 701 under the Securities Act of 1933
shall not exceed the greater of $500,000 or the amount
determined by paragraph (a) or (b) below:
(a) The Aggregate Offering Price of securities of the
Company subject to outstanding offers in reliance on
Rule 701, plus securities sold in the preceding 12
months in reliance on Rule 701, shall not exceed 15%
of the total assets of the Company, measured at the
end of its previous fiscal year; or
(b) The number of securities of the Company subject to
outstanding offers in reliance on Rule 701, plus
securities sold in the preceding 12 months in
reliance on Rule 701, shall not exceed 15% of the
outstanding securities of that class. The outstanding
securities of a class shall include securities
issuable pursuant to the exercise of outstanding
options, warrants, rights and convertibles unless
such options, warrants, rights and convertibles were
issued under Rule 701. If the securities offered or
sold under Rule 701 are convertible securities, then
the number of securities subject to outstanding
offers and sold shall be deemed to be the shares into
which such securities may be converted.
6.7.3 TWELVE-MONTH RESTRICTION. The Aggregate Offering Price of
securities of the Company subject to outstanding offers in
reliance on Rule 701 under the Securities Act of 1933, plus
securities sold in the preceding 12 months in reliance on Rule
701, shall in no event exceed $5,000,000.
6.8 EFFECTIVE DATE OF PLAN. This Plan will be effective upon its approval
by the Board, subject to approval by the shareholders of the Company
within twelve months from the date of such Board approval.
6.9 TERM OF PLAN. Unless previously terminated by the Board, this Plan will
terminate at the close of business on June 30, 2010 and no Awards will
be granted under it thereafter.
6.10 GOVERNING LAW. This Plan and all documents related hereto shall be
governed by, and construed in accordance with, the laws of the State of
Arkansas. If any provision is held by a court of competent jurisdiction
to be invalid and unenforceable, the remaining provisions of this Plan
will continue to be fully effective. It is the intent of the Company
that this Plan and the Awards satisfy and be interpreted in a manner
that satisfies the applicable requirements of Section 1361, et. seq.,
of the Code and regulations promulgated thereunder at any time that the
Company has elected to be taxed as an S-Corporation thereunder. If any
provision of this Plan or of any Award Agreement would otherwise
frustrate or conflict with the intent expressed above, that provision
to the extent possible shall be interpreted and deemed amended to avoid
such conflict.
6.11 COPY OF PLAN. The Company will provide each Participant with a copy of
the Plan.
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6.12 DISCLOSURE REQUIREMENTS.
6.12.1 GENERAL OBLIGATIONS. In general, if the Company issues
securities under the Plan pursuant to the Arkansas exemption
from registration under Arkansas __________________________,
the Company will provide its financial statements to all
individuals holding securities under the Plan at least on an
annual basis. This requirement may be waived if the issuance
of securities under the Plan is limited to key employees whose
duties in connection with the issuer assure them access to
equivalent information.
6.12.2 OBLIGATIONS IN PRIVATE PLACEMENTS. If the Company issues
securities under the Plan pursuant to the federal exemption
from registration under Rule 506 of the Securities Act of 1933
to any purchaser who is not an Accredited Investor, then all
purchasers in the offering must receive, at a reasonable time
prior to the sale of securities, both the non-financial
statement information as well as the financial statement
information required by Rule 502(b)(2) under the Securities
Act of 1933.
6.13 NOTICE OF OFFER OR SALE. The Company will file with any necessary state
or federal agencies the proper notice before making any offers or sales
under this Plan.
6.14 PROHIBITION ON ADVERTISING. The offer and sale of a security under the
Plan must not be accomplished by the publication of any advertisement,
though the circulation to offerees of private placement memoranda is
permitted provided that the information is not disseminated to the
public.
7. DEFINITIONS
"ACCREDITED INVESTOR" is defined in Rule 501(a) of Regulation D adopted
by the Securities and Exchange Commission under the Securities Act of 1933 (17
CFR Sec. 230.501(a)).
"AGGREGATE OFFERING PRICE" is defined in Section 6.7.1.
"AWARD" means any Option, Stock Appreciation Right, Restricted Stock
Award, or Performance Share Award granted under this Plan.
"AWARD AGREEMENT" means a written agreement, approved by the Board,
setting forth the terms of an Award. Award Agreements for ISOs shall include any
terms and conditions required for "incentive stock options" under Section 422 of
the Code.
"AWARD DATE" means the date upon which the Board took the action
granting an Award or such later date set by the Board.
"AWARD SHARES" means _________________________________________________.
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"BENEFICIARY" means the person(s) or trust(s) entitled by will or the
laws of descent and distribution to receive the benefits specified under this
Plan if a Participant dies. If the Company is an S-Corporation, the
Participant's Beneficiary must be a person eligible to be an S-Corporation
shareholder pursuant to Section 1361 of the Code.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means that the Board, acting in good faith, determines that the
Participant has: (a) committed a material breach of the Participant's duties and
responsibilities (other than as a result of incapacity due to a Total
Disability); (b) been convicted of a felony, or entered a plea of guilty or nolo
contendere with respect to such a crime; (c) violated any fiduciary duty or duty
of loyalty owed to the Company; (d) been generally incompetent or grossly
negligent in the discharge of the Participant's duties and responsibilities; (e)
engaged or is engaging in immoderate use of alcoholic beverages or narcotics or
other substance abuse; or (f) violated any of the Company's established
employment policies in effect from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Common Stock of the Company.
"COMPANY" means PET QUARTERS, INC., an Arkansas corporation, and its
successors, and, only where the context so warrants, its Subsidiaries.
"ELIGIBLE PERSON" means (a) an officer of the Company, (b) an employee
of the Company, (c) a director of the Company, (d) a general partner of the
Company, or (e) a consultant or advisor to the Company provided that bona fide
services shall be rendered by such consultants and advisors and such services
are not in connection with the offer and sale of securities in a capital-raising
transaction. Service as an Eligible Person shall be considered employment for
all purposes of this Plan; provided, however. that only individuals who satisfy
clause (a) of this definition may be granted ISOs under this Plan.
"EVENT" means approval by the shareholders of the Company of any of the
following:
(a) The dissolution or liquidation of the Company;
(b) An agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities other than Subsidiaries, as
a result of which less than 50% of the outstanding voting
securities of the surviving or resulting entity are, or are to
be, owned by former shareholders of the Company;
(c) The sale of substantially all of the Company's business assets
to a person or entity that not a Subsidiary; or
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(d) A person or entity that is not a stockholder of the Company on
the date this Plan is adopted by the Board acquiring directly
or indirectly 50% or more of the Company's outstanding voting
securities.
"EXERCISE AGREEMENT" means a written agreement, approved by the Board,
setting forth the terms for exercise of an Award.
"FAIR MARKET VALUE" on any date shall mean the fair market value of a
Share as determined by the Board in good faith. Any determination as to fair
market value made pursuant to this Plan shall be determined without regard to
any restriction other than a restriction that, by its terms, will never lapse,
and shall be conclusive and binding on all persons.
"ISO" means an option designated as an incentive stock option within
the meaning of Section 422 of the Code, the award of which contains such
provisions as are necessary to comply with that Section.
"MARKET PRICE" means, if the Shares are publicly traded, the average of
the daily closing prices per Share for the 30 consecutive trading days before
the date in question. The closing price for each day will be the last sales
price regular way or, if no such sale takes place on such day, the average of
the closing bid and ask prices regular way on the principal United States
trading market on which the Shares are listed or admitted to trading. If the
Shares are not listed or admitted to trading on a recognized United States
trading market, the Market Price will be the price per Share implied from the
Company's most recent issuances of Common Stock for securities convertible into
or exchangeable for Common Stock, if any such issuance has occurred in the six
(6) months prior to the date in question. If no such issuance has occurred, the
Market Price will be the fair market value per Share, on an enterprise theory of
valuation, determined by the Company's Board of Directors acting in good faith
with advice from a recognized valuation expert.
"NQSO" means an option designated as or deemed by Section 2.1 or 2.6 to
be a nonqualified stock option.
"NOTE" means a promissory note approved by the Board evidencing a loan
from the Company to the Eligible Person of an amount equal to the Purchase Price
of an Award. Any Note shall be subject to the following terms: (a) the principal
of the Note shall not exceed the amount required to be paid to the Company upon
the exercise or receipt of such Award, and the note shall be delivered directly
to the Company in consideration of such exercise or receipt; (b) the term of
Note, including extensions, shall not exceed five (5) years; (c) the Note shall
provide for recourse to the Participant; (d) the Note shall bear interest at a
rate determined by the Board, but not less than the interest rate necessary to
avoid the imputation of interest under the Code; (e) the unpaid principal
balance of the Note shall become due and payable on the tenth day after the
termination of employment or service of the Participant; (f) if required by the
Board or by applicable law, the Note shall be secured by a pledge of any Shares
or Awards financed thereby (and other collateral if required by the Board); and
(g) the terms shall conform with applicable rules and regulations of the Federal
Reserve Board as then in effect.
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"OPTION" means an option to purchase Shares under this Plan. An Option
shall be designated by the Board as an NQSO or an ISO.
"PARTICIPANT" means an Eligible Person who has been granted an Award.
"PERFORMANCE SHARE AWARD" means an Award made pursuant to Section 5.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon Total
Disability or incompetence of a Participant, has lawfully acquired on behalf of
the Participant the power to exercise the rights and receive the benefits
specified in this Plan. If the Company is an S-Corporation, the Participant's
Personal Representative must be a person eligible to be an S-Corporation
shareholder pursuant to Section 1361 of the Code.
"PURCHASE PRICE" means the exercise price, if any, payable by the
Participant to the Company upon exercise of an Award in accordance with the
applicable Award Agreement and Exercise Agreement; provided, however, that such
exercise price shall not be less than the minimum lawful consideration required
under applicable state law.
"RESTRICTED STOCK" means Shares awarded to a Participant, subject to
payment of such consideration, if any, and such conditions on vesting and
transfer and such other restrictions as are established in or pursuant to this
Plan, for so long as such Shares remain unvested under the terms of the
applicable Award Agreement.
"RESTRICTED STOCK AWARD" means an Award of Restricted Stock made
pursuant to Section 4.
"RETIREMENT" means retirement from employment by, or providing services
to, the Company or any Subsidiary and, in the case of employees, at the
Company's normal retirement age and in accordance with the retirement policies
of the Company then in effect.
"SHARES" means shares of the Company's Common Stock.
"SIGNIFICANT HOLDER" means any person who, on the Award Date, owns, or
who is deemed to own under Section 424(d) of the Code, outstanding Shares
possessing more than 10% of the total combined voting power of all classes of
stock of the Company.
"STOCK APPRECIATION RIGHT" means a right to receive a number of Shares
or an amount of cash, or a combination of Shares and cash, determined as
provided in Section 3.3. Any Stock Appreciation Right granted in connection with
an ISO shall contain such terms as may be required to comply with the Code.
"SUBSIDIARY" means any corporation or other entity a majority or more
of the outstanding voting stock or voting power of which is beneficially owned
directly or indirectly by the Company.
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"TOTAL DISABILITY" means a "Permanent and total disability" within the
meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions, or conditions as the Board may include.
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THIS AGREEMENT AND THE UNDERLYING SHARES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY BLUE
SKY LAWS. THIS AGREEMENT MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS THE PROPOSED TRANSACTION DOES NOT REQUIRE REGISTRATION OR QUALIFICATION
UNDER APPLICABLE SECURITIES LAWS.
STOCK OPTION AGREEMENT
Vesting Schedule:
Exercise Price Per Share: $ Shares on ________ __, 2000
Shares on ________ __, 2001
Number of Shares: Shares on ________ __, 2002
Shares on ________ __, 2003
Expiration Date: Shares on ________ __, 2004
Shares on ________ __, 2005
Pet Quarters, Inc. (the "Company") and the individual identified below
(the "Participant"), enter into this [ ] NONQUALIFIED STOCK OPTION AGREEMENT /
[ ] INCENTIVE STOCK OPTION AGREEMENT (consisting of seven pages and three
Exhibits) as of _______________ ___, ____ (the "AGREEMENT"). Participant
acknowledges receipt of the Pet Quarters, Inc. Employee Equity Participation
Incentive Plan (the "PLAN") pursuant to which this Agreement has been executed.
PET QUARTERS, INC. PARTICIPANT
By:
--------------------------------- ------------------------------------
Name: Name:
------------------------------- -------------------------------
(printed) (printed)
Title:
------------------------------
ARTICLE 1
DEFINED TERMS
Capitalized terms used herein and not otherwise defined herein shall
have the meaning assigned to such terms in the Plan.
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ARTICLE 2
OPTION GRANT, EXERCISE AND REPLACEMENT
2.1 GRANT. This Agreement evidences the Company's grant to the Participant
of the right and option to purchase, on the terms and conditions set
forth herein and in the Plan (this "Option"), all or any part of the
Shares listed on page one at the exercise price per share set forth on
page one (the "Exercise Price"), exercisable as set forth herein, prior
to the close of business on the [expiration date listed on page one]
[the earlier of the termination date of the plan or the day before the
tenth anniversary of the Award Date] [five years] (the "Expiration
Date"). The Exercise Price equals the Fair Market Value of the
Company's Common Stock as of the Award Date. If the Incentive Stock
Option box is checked on page one, it is the intent of the Company that
this Option constitute an incentive stock option within the meaning of
Section 422 of the Code.
2.2 EXERCISABILITY. Subject to the Plan, this Option shall become
exercisable in cumulative installments at the times set forth in the
vesting schedule on page one. This Option shall only be exercisable in
respect of whole Shares, and fractional Share interests shall be
disregarded. At least 100 Shares must be purchased at one time unless
the number purchased is the total number at the time available for
purchase under this Option.
2.3 METHOD OF EXERCISE.
2.3.1 CASH. Exercise of this Option for cash requires delivery to
the Secretary of the Company of (a) a Subscription Form in the
form of Exhibit A, (b) an executed Exercise Agreement in the
form of Exhibit C (the "Exercise Agreement"), (c) this Option,
and (d) payment made in accordance with and in a form
permitted by the Plan for the full Purchase Price of the
Shares to be purchased, subject to such further limitations
and rules or procedures as the Board may from time to time
establish as to any non-cash payment and as to the tax
withholding requirements of the Plan. In addition, the
Participant (or the Participant's Beneficiary or Personal
Representative) shall furnish any written statements required
by this Agreement or the Plan.
2.3.2 CASHLESS EXERCISE. This Option can also be exercised, in whole
or in part, in a "cashless" exercise, upon delivery to the
Company of (a) a Cashless Exercise Form in the form of Exhibit
B, (b) an executed Exercise Agreement in the form of Exhibit
C, (c) this Option, and (d) any payments required under the
Plan or by the Board. In a cashless exercise, the right to
purchase each Share may be exchanged for that number of Shares
of Common Stock determined by multiplying the number one (1)
by a fraction, the numerator of which will be the difference
between (y) the then current Market Price and (z) the Exercise
Price, and the denominator of which will be the then current
Market Price.
2.4 ISSUANCE OF SHARES. Upon the exercise of this Option, the Company will
immediately issue the Shares purchased to the person exercising this
Option, and promptly deliver to such person a certificate or
certificates representing such Shares. If this Option is
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exercised in part, the Company will promptly deliver to the person
exercising this Option a new Option Agreement identical to this Option
Agreement, dated the date hereof, but evidencing the right to purchase
only the remaining Shares. The Company will pay all expenses, transfer
taxes and other charges payable in connection with its issuance and
delivery of such document.
2.5 CONTINUING RIGHT TO PURCHASE CUMULATIVELY. If the Participant does not
in any year purchase all or any part of the Shares to which the
Participant is entitled, then the Participant has the right
cumulatively thereafter to purchase any Shares not so purchased and
such right shall continue until this Option terminates or expires.
2.6 LOSS OF OPTION. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option,
and upon receipt of an indemnity satisfactory to the Company or, in the
case of any such mutilation, upon surrender of this Option, the Company
will deliver a new, identical Option.
ARTICLE 3
CONSIDERATION TO THE COMPANY
In consideration of the granting of this Option by the Company, the
Participant agrees to render faithful and efficient services to the Company,
with such duties and responsibilities as the Company shall from time to time
prescribe. Nothing contained in this Agreement or in any other documents related
to the Plan shall confer upon the Participant any night to continue performing
services for the Company or constitute any contract of employment, or interfere
in any way with the right of the Company to reduce such person's compensation or
other benefits or to terminate the services of the Participant, with or without
Cause.
ARTICLE 4
TERMINATION
4.1 TERMINATION OF OPTION UPON TERMINATION OF SERVICES. This Option and all
other rights hereunder, to the extent not exercised, will terminate and
become null and void upon the termination of Participant's services for
the Company, except that:
4.1.1 REASON OTHER THAN DEATH, TOTAL DISABILITY OR FOR CAUSE. If the
Participant's services for the Company terminate for any
reason other than death, Total Disability or for Cause, the
Participant has 90 days after the date of termination to
exercise this Option to the extent this Option was exercisable
on the date of termination.
4.1.2 FOR CAUSE. If the Participant's services for the Company are
terminated for Cause, this Option shall lapse immediately upon
the Participant's termination of services for the Company.
4.1.3 TOTAL DISABILITY. If the Participant's services for the
Company are terminated as a result of a Total Disability, or
if the Participant suffers a Total Disability within
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90 days of any termination of services under this SECTION 4.1,
the Participant or the Participant's Personal Representative,
as the case may be, shall have 180 days from the date of Total
Disability (or, if earlier, the date of termination of
Participant's services) to exercise this Option to the extent
this Option was exercisable on such date.
4.1.4 DEATH. If the Participant dies while in the service of the
Company, or within 90 days after any termination of services
described in this SECTION 4.1, then this Option may be
exercised within a period of 180 days after the Participant's
date of death (or, if earlier, the date of termination of
Participant's services), by the Participant's Beneficiary to
the extent this Option was exercisable on the such date.
4.2 TERMINATION OF OPTION ON EXPIRATION DATE. Notwithstanding the
foregoing, in no event may this Option be exercised by anyone after the
Expiration Date.
4.3 TERMINATION OF OPTION ON CERTAIN EVENTS. The Board retains the right to
terminate this Option to the extent not previously exercised upon an
event or transaction in which the Company does not survive.
ARTICLE 5
RESTRICTIONS ON SHARES
5.1 LEGEND. Shares issued pursuant to this Option are subject to certain
restrictions on disposition under the Exercise Agreement, and a
repurchase right under the Exercise Agreement. The Shares will bear, in
addition to any other legends which may be required by the Plan, this
Agreement or applicable securities laws, a legend evidencing this
restriction on disposition and this repurchase right,
5.2 SECURITIES ACT LEGEND. Shares issued pursuant to this Option will bear,
in addition to any other legends which may be required by the Plan,
this Agreement or applicable securities laws, a legend similar to
legend on page one of this Agreement, to the extent necessary under
applicable Securities Laws.
ARTICLE 6
PRIVILEGES OF STOCK OWNERSHIP; NONDISTRIBUTIVE INTENT
6.1 RESTRICTION ON RIGHT. The Participant shall not be, nor have any of the
rights or privileges of, a shareholder of the Company in respect of the
Shares unless and until certificates representing such Shares are
issued by the Company to the Participant. Upon the issuance and
transfer of Shares to the Participant pursuant to the Exercise
Agreement, unless a registration statement is in effect under the
Securities Act of 1933, as amended, ("SECURITIES ACT") and applicable
state securities laws, relating to such issued and transferred Shares,
the Shares may be issued and transferred to the Participant only if he
or she represents and warrants in writing to the Company the items
covered in the Exercise Agreement. The Participant or any other person
then entitled to exercise this
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Option or portion thereof will indemnify the Company against and hold
it free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the Shares by
such person is contrary to the representations and agreement referred
to above.
6.2 STOP-TRANSFER. The Board may take whatever additional actions it deems
appropriate to insure the observance and performance of such
representations and agreement and to effect compliance with the
Securities Act and any other federal or state securities laws or
regulations. Without limiting the generality of the foregoing, the
Board may require an opinion of counsel acceptable to it to the effect
that any subsequent transfer of Shares acquired upon exercise of this
Option does not violate the Securities Act, and may issue stop-transfer
orders covering such Shares. No Shares shall be issued and transferred
unless and until there shall have been full compliance with any then
applicable regulatory requirements (including those of exchanges upon
which any Common Stock of the Company may be listed).
ARTICLE 7
MISCELLANEOUS
7.1 ASSIGNMENTS. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assignees. Except as otherwise
provided in the Plan, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or transferred by
either party without the prior written consent of the other.
7.2 NOTICES. Any notice to be given under the terms of this Agreement shall
be in writing and addressed to the Company at its principal off-ice to
the attention of the President and Chairman, and to the Participant at
the address given to the Company for payroll purposes, or at such other
address as either party may hereafter designate in writing (which may
be a facsimile). Notice will be deemed to have been given and received
when delivered to the address specified by the party to receive the
notice. Either party may, at any time by giving five (5) days' prior
written notice to the other, designate any other address in
substitution of the foregoing address.
7.3 PLAN. This Option and all rights of the Participant under this
Agreement are subject to, and the Participant agrees to be bound by,
all of the terms and conditions of the provisions of the Plan, all of
which are incorporated herein by this reference, to the extent such
provisions are applicable. In the event of a conflict or inconsistency
between the terms and conditions of this Agreement and of the Plan, the
terms and conditions of the Plan shall govern. Unless otherwise
expressly provided in other sections of this Agreement, provisions of
the Plan that confer discretionary authority on the Board do not (and
shall not be deemed to) create any rights in the Participant unless
such rights are expressly set forth herein or are otherwise in the sole
discretion of the Board so conferred by appropriate action of the Board
under the Plan after the date hereof.
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7.4 NOTICE OF DISPOSITION. The Participant agrees to notify the Company of
any intended sale or other disposition of any shares of Common Stock
received upon exercise of this Option.
7.5 INTERPRETATION. If any claim is made by the Participant relating to any
conflict, omission or ambiguity in this Agreement, no presumption or
burden of proof or persuasion will be implied because this Agreement
was prepared by or at the request of the Company or its counsel. The
Participant acknowledges that the Participant has had the opportunity
to consult with the Participant's own counsel prior to the execution
hereof.
7.6 AMENDMENTS. Except as otherwise provided in the Plan, any amendments to
this Agreement must be in writing and designated as an amendment, and
signed by both parties hereto.
7.7 SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement
shall not affect the validity or enforceability of any other of its
provisions. If one or more provisions hereof shall be declared invalid
or unenforceable, the remaining provisions shall remain in full force
and effect and shall be construed in the broadest possible manner to
effectuate the purposes hereof. The parties further agree to replace
such void or unenforceable provisions of this Agreement with valid and
enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable
provisions.
7.8 HEADLINES REFERENCES; EXHIBITS. The headings in this Agreement are only
for convenience and ease of reference and are not to be considered in
construction or interpretation of this Agreement, nor as evidence of
the intention of the parties hereto. All exhibits, schedules and
appendices attached to this Agreement are incorporated herein. Except
where otherwise indicated, all references in this Agreement to Sections
refer to Sections of this Agreement.
7.9 COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which shall be deemed an original, and when executed,
separately or together, all of such counterparts shall constitute a
single original instrument, effective in the same manner as if all
parties hereto had executed one and the same instrument.
7.10 ENTIRE AGREEMENT. This Agreement (together with its Exhibits and other
documents referred to herein) is the complete and exclusive statement
of agreement and understanding of the parties with respect to matters
in this Agreement and is a complete and exclusive statement of the
terms and conditions thereof. This Agreement replaces and supersedes
all prior written or oral agreements, statements, correspondence,
negotiations and understandings by and among the parties with respect
to the matters covered by it. No representation, statement, condition
or warranty not contained in this Agreement is binding on the parties.
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7.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arkansas, excluding that body
of law relating to conflict of laws.
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CONSENT OF SPOUSE
In consideration of the execution of the foregoing Stock Option
Agreement by Pet Quarters, Inc., I, ____________________________________, the
spouse of the Participant herein named, do hereby agree to be bound by all of
the terms and provisions thereof and of the Plan.
DATED:
--------------------- ------------------------------------------
Signature of Spouse
------------------------------------------
Name (printed)
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EXHIBIT A
SUBSCRIPTION FORM
TO BE EXECUTED UPON EXERCISE OF OPTION FOR CASH
The undersigned exercises the right to purchase ______ Shares,
evidenced by (a) this Subscription Form, (b) the enclosed, executed Exercise
Agreement, (c) the enclosed Option, and (d) payment of the Purchase Price in
full ($__________________). Certificate(s) for such shares are to be issued and
delivered as set forth below.
HOLDER
-----------------------------------------
Name:
------------------------------------
Date:
------------------------------------
If the Holder is other than the Participant, specify Holder's status as
(1) Beneficiary or (2) Personal Representative.
-----------------------------------------
Status
Name to appear on the stock certificate:
Printed Name:
---------------------------------------------------
Address:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Social Security Number:
-----------------------------------------
(or Employer Identification Number, or other identifying number)
If the foregoing exercise is not for all of the Shares purchasable under this
Option, please register and deliver a new Option for the unexercised portion as
follows:
Printed Name:
---------------------------------------------------
Address:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Social Security Number:
-----------------------------------------
(or Employer Identification Number, or other identifying number)
A-1
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EXHIBIT B
CASHLESS EXERCISE FORM
The undersigned Holder exercises the right to purchase _______
___Shares, evidenced by (a) this Cashless Exercise Form, (b) the enclosed,
executed Exercise Agreement, (c) the enclosed Option, and (d) any payments
required under the Plan or by the Board. The undersigned Holder requests that
the Company exchange the Option for Shares as provided in Section 2.3.2 of the
Option. Certificate(s) for such shares are to be issued and delivered as set
forth below.
HOLDER
-----------------------------------------
Name:
------------------------------------
Date:
------------------------------------
If the Holder is other than the Participant, specify Holder's status as
(1) Beneficiary or (2) Personal Representative.
-----------------------------------------
Status
Name to appear on the stock certificate:
Printed Name:
---------------------------------------------------
Address:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Social Security Number:
-----------------------------------------
(or Employer Identification Number, or other identifying number)
If the foregoing exercise is not for all of the Shares purchasable under this
Option, please register and deliver a new Option for the unexercised portion as
follows:
Printed Name:
---------------------------------------------------
Address:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Social Security Number:
-----------------------------------------
(or Employer Identification Number, or other identifying number)
Calculation of Cashless Exercise:
M = Market Price (current):
------------------------
E = Exercise Price:
------------------------
X = Number of Shares to be issued for each right to purchase one
Share exchanged:
M-E
------ = ---------------------
M
Total number of Shares issuable:
-----------------------
Total number of Shares to be issued:
-----------------------
B-1
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EXHIBIT C
PET QUARTERS, INC.
EXERCISE AGREEMENT
This Exercise Agreement (this "AGREEMENT"), dated as of is made and
entered into by and between Pet Quarters, Inc., an Arkansas corporation (the
"COMPANY"), and _________________ (the "PURCHASER").
RECITALS
WHEREAS, under the Company's Pet Quarters, Inc. Employee Equity
Participation Incentive Plan (the "Plan"), the Purchaser holds an option (the
"OPTION") to purchase all. or any part of a designated amount of authorized but
unissued shares of common stock of the Company and in connection therewith, as
evidenced by that certain Stock Option Agreement dated as of _________________
(the "OPTION AGREEMENT") of which this Agreement is a part and incorporated
therein;
WHEREAS, the Purchaser desires to exercise the Option and purchase from
the Company and the Company wishes to issue and sell to the Purchaser shares of
its common stock, ("Common Stock"), in accordance with and subject to the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above premises and the
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF COMMON STOCK
1.1 COMMON STOCK. Upon the terms and conditions contained herein, the
Company hereby sells and issues to the Purchaser, and the Purchaser
purchases from the Company, at a purchase price of $ ____________ per
share, __________ shares of Common Stock (the "SHARES").
1.2 PAYMENT AND DELIVERY. The Company hereby delivers to the Purchaser
stock certificate(s) representing the Shares against delivery to the
Company by the Purchaser of consideration of ________________________
pursuant to either Section 2.3.1 or Section 2.3.2 of the Option
Agreement. The Company acknowledges receipt of such consideration.
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ARTICLE 2
INVESTMENT REPRESENTATIONS
The Purchaser acknowledges that the Shares are not being registered
under the Securities Act of 1933, as amended ("Act"), based, in part, on
reliance that the issuance of the Shares is exempt from registration under
Section 4(2) of the Act as not involving any public offering. The Purchaser
further acknowledges that the Company's reliance on such exemption is
predicated, in part, on the representations set forth below made by the
Purchaser to the Company:
2.1 FOR PURCHASER'S OWN ACCOUNT. The Purchaser is acquiring the Shares
solely for the Purchaser's own account, for investment purposes only,
and not with an intent to sell, or for resale in connection with any
distribution of all or any portion of the Shares within the meaning of
the Act;
2.2 RELATIONSHIP OR EXPERIENCE. Either (a) the Purchaser has a preexisting
business relationship with the Company or its officers or directors, or
(b) the Purchaser has sufficient business or financial experience, or
has relied upon the advice of the Purchaser's legal counsel, tax
advisors, and/or investment advisors, to have the capacity to protect
the Purchaser's interests in connection with the purchase of the
Shares;
2.3 RESTRICTED SECURITIES. The Purchaser understands that the Shares are
characterized as "restricted securities" under the federal securities
laws since the Shares are being acquired from the Company in a
transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances. The
Purchaser represents that the Purchaser is familiar with Rule 144
promulgated under the Act, as presently in effect, and understands the
resale limitations imposed thereby and by the Act; and
2.4 NO ORAL REPRESENTATION OR SOLICITATION. At no time was an oral
representation made to the Purchaser relating to the purchase of the
Shares nor was the Purchaser presented with or solicited by any
leaflet, public or promotional meeting, newspaper or magazine article,
radio or television advertisement or any other form of general
advertising relating to the purchase of the Shares.
ARTICLE 3
RESTRICTIONS ON SHARES
The Purchaser agrees not to transfer the Shares except in accordance
with the express terms of this Section 3 and unless the proposed transferee (a)
is not a direct or indirect competitor of the Company and (b) agrees with the
Company in writing to be bound by each of the following subsections of this
Section 3. Any attempted transfer in violation of this Section 3 shall be void
and of no effect.
3.1 COMPLIANCE WITH SECURITIES LAWS. Without in any way limiting the
representations set forth above, the Purchaser further agrees not to
make any disposition of all or any portion
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of the Shares, except in compliance with applicable state securities
laws and unless and until: (a) there is then in effect a registration
statement under the Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; (b)
such disposition is made in accordance with Rule 144 under the Act; or
(c) the Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and if
requested by the Company, the Purchaser shall have furnished the
Company with an opinion of counsel acceptable to Company counsel, that
such disposition will not require registration under the Act and will
be in compliance with applicable state securities laws.
3.2 RIGHT OF FIRST REFUSAL.
3.2.1 OFFER TO COMPANY. The Purchaser's Shares (or any interest
therein) may not be offered for sale or sold or otherwise
transferred or disposed of, by operation of law or otherwise,
to any person or entity other than the Company unless the
Shares that the holder proposes to* sell or otherwise dispose
of (the "Offered Shares") are first offered to the Company as
follows: (a) the holder shall give written notice to the
Company, setting forth the name and address of the prospective
transferee, the number of Offered Shares, the offered price
and the proposed terms and conditions of the transaction; and
(b) the Company shall have thirty (30) days following receipt
of such notice to purchase all (but not less than all) of the
Offered Shares for such price and pursuant to such proposed
terms.
3.2.2 PERIOD FOR TRANSFER. If the Company elects not to purchase the
Offered Shares, the Offered Shares shall be released from the
restrictions created by this Section 3.2 for a period of
twenty (20) days, beginning immediately after the Company
provides written notice to the holder declining to purchase
the Offered Shares, or the expiration of the thirty (30) day
period, whichever is earlier, solely for the purpose of a bona
fide sale or other disposition to the proposed transferee, at
the price and upon the terms specified in the notice referred
to above. If, at the expiration of such twenty (20) day
period, the Offered Shares have not been so transferred, such
Shares shall then be subject to all of the provisions of this
Section 3.2 again and may not thereafter be sold, transferred
or otherwise disposed of, except in the manner and upon the
terms herein provided. Notwithstanding the foregoing, the
Purchaser may sell, convey or otherwise transfer or dispose of
any of such Shares to an executor, administrator, heir,
testamentary trustee or legatee of such shareholder, subject
to the limitations below.
3.2.3 TRANSFEREES BOUND. Any transferee of Shares originally issued
under this Agreement other than the Company, whether or not
such transferee is a permitted transferee, shall be subject to
the same restrictions as the transferor, and any attempted
disposition of such shares or any interest therein by
operation of law or otherwise to any other person without the
written agreement of the transferee to be bound by the
restrictions on transfer set forth in this Section 3 shall be
null and
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void. Each proposed transferee must agree in writing to be
bound by the restrictions on transfer of this Section 3 and
such other provisions as the Company may reasonably impose to
preserve its closely-held status.
3.3 LOCK-UP AGREEMENT. If at any time the Company proposes to register its
Common Stock under the Act in connection with an underwritten public
offering of the Company's Common Stock, the Purchaser agrees to enter
into a lock-up agreement with the underwriter or underwriters selected
for such underwriting by the Company restricting any offer, sale, offer
to sell, contract to sell, grant of any option to purchase or otherwise
sell, transfer, pledge, or dispose (collectively, a "Transfer") of any
of the shares of Common Stock of the Company or any securities
convertible into, or exchangeable or exercisable for, shares of the
Company's Common Stock for a period commencing as of 14 days prior to
and ending not more than one year after the effective date of a
registration statement covering such public offering of the Company's
securities. The Purchaser agrees and consents to the entry of
stop-transfer instructions with the Company's transfer agent against
the Transfer of the Company's securities beneficially owned by the
Purchaser.
ARTICLE 4
REPURCHASE RIGHT
4.1 REPURCHASE RIGHT. If the Purchaser shall cease to perform services for
the Company (whether as a result of Purchaser's death or Total
Disability or termination by the Company for any reason or cause
whatsoever), the Company shall have the night during a 180-day period
after such cessation or termination (the "CALL PERIOD") to repurchase,
and the Purchaser shall be obligated to sell the Shares at a price
equal to the Repurchase Price as defined in Section 4.2; provided,
however, that if the Purchaser purchases the shares after such
cessation or termination pursuant to the Option Agreement, then the
Call Period shall begin on the date such purchase is made (the date
hereof) and not on the date of such cessation or termination. The right
of the Company to repurchase and the obligation of the Purchaser to
sell the Shares to the Company shall terminate after the expiration of
the Call Period. If the Company does not exercise its night to
repurchase the Shares during the Call Period, then any transfer of the
Shares by the Purchaser shall continue to be subject to the provisions
of Section 3 hereof If the Company elects to exercise its right to
repurchase the Shares during the Call Period, such repurchase shall be
consummated no later than 10 days after the date on which the
Repurchase Price has been determined in accordance with Section 4.2
hereof. The Repurchase Price shall be paid at the closing by check or
by a promissory note of Company pursuant to Section 4.3 of this
Agreement against surrender by the Purchaser of a stock certificate
evidencing the Shares with duly endorsed stock powers.
4.2 DETERMINATION OF REPURCHASE PRICE. "REPURCHASE PRICE" means a price
determined to be the fair market value of the Shares, determined in
good faith by the Board taking into account such factors as it deems
relevant, including, but not limited to, the fact that the Shares are
illiquid and represent a minority interest in the Company.
Notwithstanding the foregoing, the Repurchase Price may be based on an
appraisal of the fair market value of
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the Shares (the "APPRAISED VALUE") to be repurchased if (a) the
Purchaser elects after reviewing the Repurchase Price as determined by
the Company's Board and (b) an appraisal of the value of the Company's
Common Stock has not been conducted within the last six months. If an
appraisal has been conducted within the last six months, the Appraised
Value shall be the value determined by such appraisal with any
necessary adjustment to reflect that the Shares are illiquid and
represent a minority interest in the Company. If the Purchaser elects
to have an appraisal and an appraisal has not been conducted within the
last six months, the Company shall designate an independent appraiser.
The Company and the Purchaser shall each bear one-half of all appraisal
costs. The Appraised Value shall constitute a conclusive determination
of the Repurchase Price binding on all parties notwithstanding a higher
or lower value determined by the Company's Board.
4.3 PAYMENT BY PROMISSORY NOTE. If the amount due to the Purchaser for the
purchase of the Shares pursuant to Section 3.2 or Section 4.1 exceeds
five percent of the Company's book value at the end of the month
immediately preceding the date of purchase, the Company may, in its
discretion, elect to pay such amount in three annual installments, the
first installment to be made within 30 days of the day of delivery of
certificates or other instruments representing the Shares so purchased
(the "First Delivery Date"), the second installment to be paid, with
interest accruing from the First Delivery Date at the prime rate of the
Company's primary bank lender as of the First Delivery Date, on the
first anniversary of the First Delivery Date (the "Second Delivery
Date"), and the third installment to be paid, with interest accruing
from the Second Delivery Date at the prime rate of the Company's
primary bank lender as of the Second Delivery Date, on the second
anniversary of First Delivery Date.
ARTICLE 5
COME ALONG; GO ALONG
If any shareholder(s) of the Company sell or exchange more than 50% of
the outstanding voting stock of the Company in a single or series of related
transactions, the Company shall use its best efforts to cause the purchaser of
such shares to acquire, and the Purchaser agrees to sell, the Shares for the
same price, terms and conditions that are applicable to the shares of such
controlling shareholder(s) to be transferred. Notwithstanding anything to the
contrary in this Section 5, the provisions hereof shall not apply to: (a) any
sale or other transfer of stock between shareholders of the Company; (b) any
repurchase by the Company of any shares of Common Stock; (c) any transfer of
shares of Common Stock to any inter vivos trust, or in connection with estate
planning or the death of any person; or (d) any sale pursuant to a public
offering.
ARTICLE 6
STOCK CERTIFICATE LEGENDS
6.1 LEGEND. The Purchaser understands and acknowledges that the certificate
evidencing the Shares (or evidencing any other securities issued with
respect thereto pursuant to any stock split, stock dividend, merger or
other form of reorganization or recapitalization)
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shall bear, in addition to any other legends which may be required by
the Plan, this Agreement, or applicable state securities laws, the
following legends:
"The sale, assignment, transfer, pledge or hypothecation of
the shares represented by this certificate or any interest therein is
subject to an agreement dated as of _____________, ______ (a signed
counterpart of which is on file at the office of the Company), that
includes restrictions on transfer, and the shares are subject to a
repurchase right in favor of Company and a right of first refusal, as
provided therein."
6.2 SECURITIES ACT LEGEND. Prior to registration under applicable federal
and state securities laws of the issuance of the Shares, all
certificates evidencing such Shares also shall bear the following
legend and/or any other appropriate or required legends under
applicable laws or Section 6.4 of the Plan:
"The shares represented by this certificate have not been
registered or qualified under the Securities Act of 1933, as amended,
(the "Act") or any state securities laws, have been acquired for
investment purposes only, and no sale or transfer of such shares shall
be valid or effective except (a) pursuant to a registration statement
under the Act and registration or qualification under applicable state
securities laws, each of which has become effective and is current with
respect to the shares being sold; or (b) pursuant to a specific
exemption from registration under the Act and applicable state
securities laws, but only upon prior written authorization of such sale
or transfer by counsel for, or other authorization by, Company."
ARTICLE 7
MISCELLANEOUS
7.1 TERMINATION UPON PUBLIC OFFERING-, TERMINATION UPON CHANGE IN CONTROL.
7.1.1 UPON PUBLIC OFFERING. Articles 2, 3, 4, 5, and 6 of this
Agreement shall terminate upon the closing of a bona fide
underwritten public offering of the Company's Common Stock
that results in net proceeds to the Company in excess of $10
million, or the filing of a registration statement on Form S-8
(or its equivalent) with respect to the Shares issued pursuant
to this Agreement.
7.1.2 UPON CHANGE OF CONTROL. Article 4 shall terminate upon a
Change of Control. "CHANGE OF Control" means either (a) an
acquisition of equity interests of the Company by any
acquiring person or entity, other than a shareholder of the
Company on the date the Plan was adopted, if the acquiring
person or entity would thereafter be the beneficial owner of
50% or more of the Common Stock or be entitled to elect more
than 50% of the Board; (b) a merger or consolidation of the
Company resulting in the holders of the Common Stock
immediately prior to such transaction holding less than 50% of
the total voting stock of the surviving company after such
transaction; or (c) a sale or exchange of all or more than 50%
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(by value) of the property and assets of the Company. Change
of Control does not include any merger or combination of the
Company with any or all of its affiliates or any other similar
restructuring.
7.2 CAPITALIZED TERMS. Capitalized terms not otherwise defined herein shall
have the meaning specified in the Plan.
7.3 ASSIGNMENTS. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned
by either party without the prior written consent of the other;
provided, however, the Company may assign its rights under Sections
3.2, 4.1, 4.2 and 4.3 to any person.
7.4 NOTICES. Any notice, demand, request or other communication herein
requested or permitted to be given shall be in writing and given in the
manner set forth in the Option Agreement.
7.5 INTERPRETATION. If any claim is made by the Participant relating to any
conflict, omission or ambiguity in this Agreement, no presumption or
burden of proof or persuasion will be implied because this Agreement
was prepared by or at the request of the Company or its counsel. The
Participant acknowledges that the Participant has had the opportunity
to consult with the Participant's own counsel prior to the execution
hereof.
7.6 AMENDMENTS. Any amendments to this Agreement must be in writing and
designated as an amendment, and signed by both parties hereto.
7.7 SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement
shall not affect the validity or enforceability of any other of its
provisions. If one or more provisions hereof shall be declared invalid
or unenforceable, the remaining provisions shall remain in full force
and effect and shall be construed in the broadest possible manner to
effectuate the purposes hereof. The parties further agree to replace
such void or unenforceable provisions of this Agreement with valid and
enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable
provisions.
7.8 HEADINGS, REFERENCES; EXHIBITS. The headings in this Agreement are only
for convenience and ease of reference and are not to be considered in
construction or interpretation of this Agreement, nor as evidence of
the intention of the parties hereto. All exhibits, schedules and
appendices attached to this Agreement are incorporated herein. Except
where otherwise indicated, all references in this Agreement to Sections
refer to Sections of this Agreement.
7.9 COUNTERPARTS. This Agreement may be executed in separate counterparts,
each of which shall be deemed an original, and when executed,
separately or together, all of such
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counterparts shall constitute a single original instrument, effective
in the same manner as if all parties hereto had executed one and the
same instrument.
7.10 ENTIRE AGREEMENT. This Agreement (together with its Exhibits and other
documents referred to herein) is the complete and exclusive statement
of agreement and understanding of the parties with respect to matters
in this Agreement and is a complete and exclusive statement of the
terms and conditions thereof. This Agreement replaces and supersedes
all prior written or oral agreements, statements, correspondence,
negotiations and understandings by and among the parties with respect
to the matters covered by it. No representation, statement, condition
or warranty not contained in this Agreement is binding on the parties.
7.11 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arkansas, excluding that body
of law relating to conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
PET QUARTERS, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
"PURCHASER"
Name:
------------------------------------
Address:
---------------------------------
---------------------------------
---------------------------------
Social Security Number:
------------------
FORM OF OWNERSHIP: [ ] individual [ ] community property
[ ] joint tenants [ ] tenants in common
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