DOGS INTERNATIONAL
LETTER OF INTENT WITH PETSUNITED
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<TYPE>EX-10
<SEQUENCE>3
<FILENAME>ex10.htm
<DESCRIPTION>LETTER OF INTENT WITH PETSUNITED
<TEXT>
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<p ALIGN="CENTER" style="word-spacing: 0; line-height: 100%; margin: 0">August
18, 2003</p>
<p ALIGN="CENTER" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p style="word-spacing: 0; line-height: 100%; margin: 0">Carlo Tabibi</p>
<p style="word-spacing: 0; line-height: 100%; margin: 0">Managing Member</p>
<p style="word-spacing: 0; line-height: 100%; margin: 0">Pets United LLC</p>
<p style="word-spacing: 0; line-height: 100%; margin: 0">1 Maplewood Drive</p>
<p style="word-spacing: 0; line-height: 100%; margin: 0">Hazelton, Pennsylvania
18202</p>
<b>
<p style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
RE: <u>Acquisition of 100% Membership Interest in Pets United LLC</p>
</u></b>
<p style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p style="word-spacing: 0; line-height: 100%; margin: 0">Gentleman:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">This
letter of intent (&quot;LOI&quot;) outlines the proposal by which <u>Dogs
International</u>, a Nevada corporation with a place of business at 408 South
Daytona, Flagler Beach, Florida, 32136 (&quot;DOGN&quot;) desires to acquire the
100% membership interest of <u>Pets United LLC</u>, a Limited Liability Company
formed under the laws of the State of Pennsylvania (&quot;Pets United&quot;),
with principal place of business at 1 Maplewood Drive, Hazleton, PA 18202-9798
whereby DOGN will issue shares of its preferred stock (&quot;Preferred
Stock&quot;) in exchange for 100% of the membership interest and operational
control of Pets United LLC, with assets mainly consisting of <u>The Dog's
Outfitter</u> and <u>Allpets.com</u> , which are operating divisions of Pets
United, (collectively referred to as the &quot;Acquirees&quot;) this letter will
constitute an expression of the parties mutual intention to consummate this
transaction on the terms and subject to the conditions described below.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">This
letter (including related discussions and communications) neither constitutes a
legally binding agreement nor creates any rights or interests in favor of the
parties, it being understood that any rights and obligations which the parties
may have, to each other, remain to be set forth in the definitive acquisition
agreement (&quot;Acquisition Agreement&quot;) described below, into which this
letter and all prior discussions shall merge; provided, however, that the
parties respective obligations under paragraphs 16 &amp; 17 shall be binding
upon the parties, respectively, upon execution of this letter.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">DOGN is
a development stage company currently engaged in building/acquiring a chain of
upscale pet care facilities under the name &quot;Bed &amp; Biscuit Inn<font size="1">TM</font>&quot;.
DOGN's common stock has been registered under Section 15(d) of the Securities
Exchange Act of 1934 (&quot;Exchange Act&quot;) and is listed for trading on the
National Association of Securities Dealers (&quot;NASD&quot;) Over-the-Counter
Bulletin Board (&quot;OTC:BB&quot;) under the symbol &quot;DOGN&quot;.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">The
membership interests of Pets United, operational control and all assets,
including all intellectual property, owned or used in the business of the
Acquirees are hereinafter referred to as the &quot;Assets&quot;.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">The Dog's
Outfitter operates a distribution center in Hazleton, Pennsylvania that includes
a call center, a catalog design department, and a warehouse operation that
stocks more than 14,000 SKU's. The Dog's Outfitter operations, which employs
approximately 35 individuals, are&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">supported
by a sophisticated management information system and a communications platform
that integrates order entry, order payment, fulfillment, tracking, and customer
care with inventory/mailing list management, accounting and financial reporting,
and marketing analysis.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Allpets.com
is a premier online and catalog retailer providing valuable information,
education, and pet products to both the consumer and business markets.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">1. <b><u>Parties;
Structure</u>.</b> The initial transaction will take the form of an asset
acquisition wherein the purchaser in the acquisition (the
&quot;Acquisition&quot;) will be newly formed wholly-owned subsidiary of DOGN,
hereinafter &quot;Newco&quot;, which will acquire 100% of the membership
interest in Pets United and the Acquirees. The Assets of the Acquirees and the
membership interest of Pets United shall remain as the sole assets of Newco.
Upon Closing of the Acquisition, the securities of Newco shall be deposited with
a to be determined escrow agent until such time as the current members
(&quot;Members&quot;) of Pets United have received at least Six Million
($6,000,000) in cash consideration plus the total amount funded by the Members
to cover the Negative Cash Flow Payments pursuant to Section 2(b) of this LOI
(collectively referred to herein as the &quot;Liquidity Factor&quot;), as
specified in Paragraph 2 below. When the Members have received the Liquidity
Factor, the escrow agent shall release the securities of Newco to DOGN.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">2. <b><u>Consideration</u>.</p>
</b><b><u></u></b>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">a.&nbsp;&nbsp;&nbsp;&nbsp;
<i><b>Purchase Price</b></i>. The initial purchase price &quot;Initial Purchase
Price&quot; shall be Eleven Million Nine Hundred Ninety Thousand Dollars
($11,990,000) plus the total amount of the Negative Cash Flow Payments, which
shall be paid as follows:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">i.&nbsp;&nbsp;&nbsp;&nbsp;
Cash and <i><u>Preferred Stock</u></i>. At Closing, in exchange for the Assets,
DOGN will (a) pay, in cash, to the Members an amount equal to $100,000, and (b)
issue to the Members shares of its 3% Series C Preferred Convertible and
Redeemable Stock (the &quot;Series C Preferred Stock&quot;) in an amount equal
to 11,990,000 divided by the lesser of 3.33 and the thirty (30) day average
closing price of DOGN's common stock as quoted on the OTC:BB for the thirty days
immediately prior to the Closing (collectively, the &quot;Initial Purchase
Price&quot;). Thereafter, within 10 days of written notice from the Members
documenting the funding by the Members of any Negative Cash Flow Payments
pursuant to Section 2(b), DOGN shall issue to the Members additional shares of
its Series C Preferred Stock in an amount equal to the amount so funded divided
by the lesser of 3.33 and the thirty (30) day average closing price of DOGN's
common stock as quoted on the OTC:BB for the thirty days immediately prior to
the applicable funding date (the &quot;Subsequent Purchase Price&quot;). The
Initial Purchase Price and the Subsequent Purchase Price are sometimes
hereinafter collectively referred to as the &quot;Series C Purchase Price&quot;.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">ii.&nbsp;&nbsp;&nbsp;&nbsp;<i>
<u>Rights, Preferences, and Liquidity of Preferred Stock</u>.</i> The Series C
Preferred Stock, (the &quot;Preferred Shares&quot;) being issued in
consideration for the Assets shall have the following rights and preferences and
liquidity requirements:</p>
<i><u></u></i>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(1) <b>Designation</b>.
The Preferred Shares are designated as DOGN's 3% Series C Preferred Stock.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(2) <b>Dividend
Provisions</b>. The holders of the Preferred Shares will be entitled to a
preferred dividend at the rate of 3% per annum. Dividends on the Preferred
Shares will be cumulative and shall be paid in additional Preferred Shares at a
per share price equal to the lesser of $3.33 and the thirty (30) day average
closing price of DOGN's common stock as quoted on the OTC:BB for the thirty days
immediately prior to the applicable funding date, except the dividends will be
issued as restricted stock. Dividends shall be paid semi-annually.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(3) <b>Liquidation
Preference</b>. In the event of any liquidation, dissolution or winding up of
DOGN, either voluntary or involuntary, subject to the rights of series of
preferred stock that may from time to time come into existence, the holders of
Preferred Shares shall be entitled to receive, prior and in preference to any
distribution of any of the assets of DOGN to the holders of Common Stock or any
series of preferred stock in existence as of the date of Closing by reason of
their ownership thereof, an amount per share equal to the sum of (i) $4.06 for
each outstanding Preferred Share (as adjusted for any stock dividends,
combinations or splits with respect to such shares) (the &quot;Liquidation
Price&quot;) and (ii) an amount equal to 3% of the Liquidation Price for each 12
months that has passed since the date of issuance of any Preferred Share plus
any accrued or declared but unpaid dividends on such share (such amount (of
declared but unpaid dividends) being referred to herein as the
&quot;Premium&quot;).</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(4) <b>Redemption</b>.
DOGN may, at the option of the Board of Directors, redeem in whole or in part up
to that number of Preferred Shares with a valuation equal to the Liquidity
Factor (the &quot;Redeemable Shares&quot;), assuming such Preferred Shares have
not been converted to shares of Common Stock, by paying in cash in exchange for
Preferred Shares to be redeemed a sum equal to $4.10 per share (as adjusted for
any stock dividends, combinations or splits with respect to such shares) plus
all declared or accumulated but unpaid dividends on such shares (the
&quot;Redemption Price&quot;). DOGN shall provide each holder of Preferred
Shares five (5) days notice of its intention to redeem Preferred Shares, at such
time the holder shall have the right to convert their Preferred Shares in shares
of Common Stock, as stated in section (5) below. Any&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">redemption
effected pursuant to this section shall be made on a pro rata basis among the
holders of the Preferred Shares in proportion to the number of Preferred Shares
then held by them.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(5) <b>Conversion</b>.
The holders of the Preferred Shares shall have conversion rights as follows (the
&quot;Conversion Rights&quot;):</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(a) <u>Right
to Convert</u>. Each Preferred Share shall be convertible, at the option of the
holder thereof, at any time following the date of issuance of such share and on
or prior to the fifth (5<sup>th</sup>) day prior to the Redemption Date, if any,
as may have been fixed in any Redemption Notice with respect to the Preferred
Shares, at the office of DOGN or any transfer agent for such stock, into the
same number of fully paid nonassessable shares of Common Stock, a ratio of 1:1
(subject to adjustment for any stock dividends, combinations or splits with
respect to such shares and for anti-dilution as set forth in subsection 6
hereof) .</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(6) <b>Anti-Dilution
Protection. </b>The holders of the Preferred Shares shall have standard
weighted-average anti-dilution protection based on the applicable Series C
Purchase Price.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(7) <b>Voting
Rights</b>. The holder of Preferred Shares shall have voting rights, including
protective provisions voting as a separate class from the Common Stock for
certain matters such as the authorization and issuance of any new series of
preferred shares, or the sale of DOGN.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(8) <b>Liquidity
Protection</b>. In the event after two (2) years from Closing of the Acquisition
the Members have not received at least an amount equal to the Liquidity Factor
from either the redemption pursuant to paragraph (4) above or the sale of common
stock after conversion pursuant to paragraphs (5)(a) and (5)(b) above; then in
that event the Members have a right to require the redemption of the remaining
Redeemable Shares at the Redemption Price, and a right to a put option (the
&quot;Put Option&quot;) on any remaining common stock previously converted from
the Redeemable Shares (&quot;Converted Redeemable Shares&quot;). The Put Option
shall be at the Redemption Price; however, in no event shall the put option
exceed the Liquidity Factor.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">In the
event DOGN is unable or unwilling to redeem the remaining Redeemable Shares then
held by The Members or comply with the Put Option for the Converted Redeemable
Shares then held by The Members, or if the amount received in the aggregate by
The Members in connection with the redemption of the Redeemable Shares and sale
of the Converted Redeemable Shares does not at least equal the Liquidity factor,
then in that event The Members can elect to exchange&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">the
balance of the Redeemable Shares and the Converted Redeemable Shares then held
by The Members for a percentage interest in Newco, which is to hold the Assets,
on the following basis:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">The
amount actually received by The Members from the redemption of the Redeemable
Shares and the sale of the Converted Redeemable Shares divided by the Purchase
Price shall equal the percentage of the escrowed Newco shares that will be
released to DOGN, with the remaining escrowed Newco shares being issued in the
name of The Members. For illustration purposes only, if at the two-year
anniversary of the Closing Date, The Members have received, in the aggregate,
only $2 Million from the redemption of the Redeemable Shares and the sale of the
Converted Redeemable Shares and assuming that the Members have funded an
aggregate of $1 Million of the Negative Cash Flow Payments, then the following
percentage of escrowed Newco shares shall be released to DOGN:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="center" style="word-spacing: 0; line-height: 100%; margin: 0">$2,000,000
/ $12,990,00 = 15.40%</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">and the
remaining 84.60% of the escrowed Newco shares shall be issued in the name of The
Members.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">In the
event The Members, following two (2) years from Closing of the Acquisition, have
received in the aggregate less than $1 million, from the Redeemable Shares and
the sale of the Converted Redeemable Shares; 100% of the escrowed Newco shares
shall be released to The Members and DOGN shall have no ownership right in Newco.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">If the
percentage ZCap are to receive in Newco exceeds 50%, then management of Newco,
and thus the Assets, shall be turned over to The Members.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">The
intent of this provision is to provide The Members the ability to receive a
return of the Assets originally transferred to DOGN, or a portion thereof, based
upon a return of the consideration paid for such Assets as is available from the
Members.</p>
<blockquote>
  <blockquote>
    <blockquote>
      <blockquote>
        <blockquote>
          <blockquote>
            <blockquote>
              <blockquote>
                <blockquote>
                  <b><i><u>
                  </blockquote>
                  </blockquote>
                  </blockquote>
                </blockquote>
              </u>
            </blockquote>
          </blockquote>
        </blockquote>
      </blockquote>
    </blockquote>
    <p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">(b)
    Negative Cash Flow Payments.</i></b><i> </i>For a period of two years
  following the Closing (the &quot;Funding Period&quot;) the Members agree to
  fund up to $1 Million of the negative cash flow from existing operations of
  the Acquirees, (estimated to be $35,000 - $50,000 per month) (the
  &quot;Negative Cash Flow Payments&quot;). Once the Members fund an aggregate
  of $1 Million of the&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Negative
Cash Flow Payments, then for the remainder of the Funding Period, any additional
funding of the Negative Cash Flow Payment shall be shared by the Members and
DOGN on a pro rata basis as follows: DOGN shall fund that percentage of the
Negative Cash Flow Payments equal to the aggregate received by the Members as of
the funding date from the redemption of the Redeemable Shares and the sale of
the Converted Redeemable Shares divided by the Purchase Price.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<i><u>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Termination
of Funding Obligations</u>. The Members' obligation to fund the Negative Cash
Flow Payments shall terminate </i>on the earlier of; (i) expiration of the
Funding Period, and (ii) upon the combined net losses of the Acquirees business
being less than $10 per month for a period of nine (9) concurrent months.</p>
<b>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">3. <u>Management
of the Acquirees</u></b>.<i> </i>It is the intention of the parties herein that
the Members will retain management of Newco (including the election of directors
and appointment of officers), which shall hold as its sole assets the Assets,
for such period of time until the Members have received the minimum Liquidity
Factor as referenced in Paragraph 7 above.<font SIZE="2"> </font><font FACE="Times">In
connection therewith, all the escrowed Newco shares shall be subject to a voting
agreement pursuant to which the Members will exercise all voting rights in
respect of such shares until the Members receive the minimum Liquidity Factor or
the shares are released from escrow as described in Section 2(a)(ii)(7)</p>
</font>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">4. <b><u>Board
of Directors and Officers of DOGN</u>. </b>Upon completion of the Acquisition of
the Acquirees, and at each annual meeting of shareholders for the purpose of
electing directors, DOGN agrees to nominate one individual person (the
&quot;Member Nominee&quot;) to the board of directors of DOGN. However, should
the Member Nominee be unable or unwilling to serve on DOGN's board of directors
for that particular year, the Members shall be entitled to have two (2)
individual persons present at all DOGN board of directors' meetings for the
ensuing year and these individuals shall have access to all board meeting
minutes.</p>
<blockquote>
  <blockquote>
  </blockquote>
</blockquote>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">5. <b><u>Acquisition:
Preparation of Acquisition Agreement</u></b>. The parties would proceed in good
faith to negotiate the terms of a mutually acceptable Acquisition Agreement
containing such covenants, representations, warranties and conditions as are
customary in transactions of this type, but including the matters described
herein. The parties will use their best efforts to complete the Acquisition
Agreement and have the Acquisition Agreement approved by the parties Board of
Directors by October 1, 2003.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">6. <b><u>Tax
Consequences</u></b>. The Acquisition will be structured for Federal income tax
purposes to qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">7. <b><u>Audited
Financial Statements</u></b>. The Members shall cause, at their sole cost and
expense, the Acquirees to have their financial statements audited from
inception, prepared in accordance with GAAP and Item 310(c) of Regulation S-B,
prior to the Closing.</p>
<blockquote>
  <blockquote>
  </blockquote>
</blockquote>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">8. <b><u>Due
Diligence</u></b>. DOGN and its attorneys, accountants and other representatives
will have full access to the books, records and technology of the Acquirees to
complete its due diligence investigation of the Acquirees and their technology
and other properties prior to execution of the Acquisition Agreement.</p>
<blockquote>
  <blockquote>
  </blockquote>
</blockquote>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">9. <b><u>Representations
and Warranties</u></b>. The Acquisition Agreement would contain such
representations and warranties with respect to the business, property and
financial condition of the Acquirees as may reasonably be required by DOGN. In
turn, DOGN would provide the Members with certain representations and warranties
to the business, property and financial condition of DOGN as may reasonably be
required by the Members. These representations and warranties by both DOGN and
the Members would include, without limitation, matters such as the following:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">As to
the Acquirees:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">a. Pets
United, which is duly organized and validly existing under the laws of the State
of Pennsylvania and has all requisite corporate power and authority to own and
hold its properties and conduct the business in which it is engaged; holds all
material licenses, permits and other authorizations from governmental
authorities needed to conduct its business.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">b. The
Acquirees have good and marketable title to all of their assets, and title is
valid and proper.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">c. The
audited financial statements of the Acquirees from inception, are true, correct
and complete.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">As to
DOGN:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">a. DOGN
is duly organized and validly existing under the laws of the State of Nevada and
has all requisite corporate power and authority to own and hold its properties
and conduct the business in which it is engaged; holds all material licenses,
permits and other authorizations from governmental authorities needed to conduct
its business.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">b. DOGN
has good and marketable title to all of its assets, and title is valid and
proper.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">c. The
audited financial statements of DOGN as of and for the year ended December 31,
2002, and the unaudited financial statements of DOGN for the quarter ending
March 31, 2003 are true,&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">and
correct. Upon filing its June 30, 2003 quarterly unaudited financial statements,
DOGN will update its representation in the Acquisition Agreement to include a
representation that the June 30, 2003 unaudited financial statements are true
and correct.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">10. <b><u>Issuance
and Registration of Shares</u></b>. The shares issued in the Acquisition are
intended to be issued in reliance on an exemption from registration provided by
the Securities Act of 1933, under Section 3(a)(10) and are not intended to be
registered with the Securities and Exchange Commission. As a result of the
exemption provided by 3(a)(10) and the fairness hearing provided therein, the
Preferred Shares will be issued unrestricted and shall be immediately tradable
by the Members. However, in the event the fairness hearing is not consummated or
the Preferred Shares are issued upon reliance on another exemption from
registration, DOGN shall use its commercially reasonable best efforts to
register the Preferred Shares for resale as soon as practicable following
Closing.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">11. <b><u>Approvals</u></b>.
The Acquisition will be subject to each parties board of directors and by the
Members, if required to vote on the sale of the Assets pursuant to the Articles
and/or By-laws of Pets United. A vote by DOGN's shareholders is required to
consummate the Acquisition, however, DOGN shall use its commercially reasonable
best efforts to secure a majority consent of its shareholders prior to
completion of the Fairness Hearing.</p>
<blockquote>
  <blockquote>
  </blockquote>
</blockquote>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">12. <b><u>Conditions</u></b>.
The Acquisition Agreement will provide that the obligations of the respective
parties to complete the Acquisition would be subject to the following conditions
together with such other conditions as may reasonably be required by each party:</p>
<blockquote>
  <blockquote>
    <u>
    </blockquote>
  </u>
</blockquote>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Conditions
Prior to the Members Closing:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">a. The
Board of Directors of DOGN shall have approved the Acquisition.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">b.
There shall have been no material adverse change in the financial condition,
earnings or prospects of DOGN.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">c. The
Members shall complete such due diligence as is deemed by the Board of Directors
sufficient to complete the Acquisition.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Conditions
Prior to DOGN Closing:</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">a. The
Board of Directors and members, if necessary, of Pets United shall have approved
the Acquisition.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">b.
There shall have been no material adverse change in the financial condition,
earnings or prospects of the Acquirees.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">c. DOGN
shall complete such due diligence as is deemed by the Board of Directors
sufficient to complete the Acquisition.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">d. The
audited financial statements, prepared according to US GAAP, of the Acquirees
from inception shall be delivered and approved by DOGN.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">13. <b><u>Press
Releases</u></b>. The Parties will consult with each other prior to issuing any
press release or other public statement regarding the proposed transaction. It
is strictly understood by the Parties that the information contained herein is
confidential in nature and that no such public disclosure shall be made by
either party until such time as the definitive Acquisition Agreement is
executed.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">14. <b><u>Disclosure</u></b>.
DOGN and the Members agree to take all reasonable precautions to prevent any
trading in DOGN securities by their respective officers, directors, employees,
affiliates, agents or others having knowledge of the proposed Acquisition until
the proposed Acquisition has been closed. The parties understand and agree that
until a press release is issued, if ever, or other public disclosure has been
made by DOGN, neither party will disclose the fact that these negotiations are
taking place, except to professional advisors and to employees of DOGN and the
Members on a need-to know basis.</p>
<blockquote>
  <blockquote>
  </blockquote>
</blockquote>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">15. <b><u>Continuation
of Business</u></b>. From the date of this letter of intent until the expiration
of the Exclusive Period, the Members will continue to operate the businesses of
the Acquirees in the ordinary course and will not enter into any transaction or
agreement or take any action out of the ordinary course, including any
transaction or commitment greater than $100,000, any declaration of dividends,
grants of new stock options or issuance of new shares of stock or rights thereto
without first notifying DOGN.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">16. <b><u>Exclusive
Negotiations</u></b>. The Members agree that from the date of this letter until
the earlier to occur of the consummation of the Acquisition and sixty days, it
will not permit any of its agents or representatives to, solicit, initiate or
encourage inquiries or proposals, or provide any information or participate in
any negotiations leading to any proposal concerning any acquisition or purchase
of all or any substantial portion of the assets or shares of the Assets or any
Acquisition or consolidation of the Assets with any third party.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">17. <b><u>Expenses</u></b>.
Whether or not the parties enter into the Definitive Agreement, all costs and
expenses incurred in connection with this Letter of Intent and the proposed
Acquisition shall be paid by the party incurring such costs. If for any reason
the transaction is not consummated, neither party will have any claim against
the other with respect to such expenses.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">18. <b><u>Nature
of Negotiations</u></b>. The parties understand that the negotiations described
in this letter are merely preliminary acquisition negotiations. This letter does
not constitute a binding proposal or offer by DOGN, the Members or Pets United.
Any such proposal or offer, if made, </p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; border-bottom-style: solid; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">will be
subject to execution of definitive agreements containing conditions, including
but not limited to those referenced in this letter.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">19. <b><u>Effect
of this Letter</u></b>. Except for paragraphs 16 &amp; 17 of this letter, which
create binding obligations of DOGN, the Members and Pets United as indicated,
this letter creates no liability or obligation on the part of either the
Members, Pets United or DOGN. Neither party will have any obligation to
consummate the transactions contemplated by this letter unless and until
definitive agreements concerning the proposed transaction are executed by both
parties and the conditions set forth in the definitive agreement are satisfied.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">20. <b><u>Remedies</u></b>.
In the event of a breach of this letter agreement by either party, the other
party may be entitled to any remedy for such breach available at law or equity.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Please
indicate your agreement to and acceptance of this letter of intent by signing
and returning the enclosed copy of this letter to the undersigned before 5:00 pm
Pacific Standard Time on August 22, 2003. This offer will expire if not accepted
prior to that time.</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Very
truly yours,</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"><u>/s/
Rosemary Williams</p>
</u>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Rosemary
Williams, President</p>
<b>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Dogs
International, a Nevada corporation</p>
</b>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Agreed
and accepted as of August 20, 2003</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"><b>Pets
United LLC, a Pennsylvania</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Limited
Liability Company</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0"></p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">&nbsp;</p>
</b>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">By: <u>/s/
Carlo Tabibi</u>__________</p>
<p ALIGN="JUSTIFY" style="word-spacing: 0; line-height: 100%; margin: 0">Carlo
Tabibi, Managing Member</p>

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