AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of March 20, 2014, by
and among The PAWS Pet Company, Inc., an Illinois corporation (“Parent”), PDC
INC, a Nevada corporation and a wholly owned subsidiary of Parent (“Merger
Sub”), and Pharmacy Development Corp., a California corporation (the “Company”).

 

RECITALS

 

WHEREAS, Parent and Company entered into that certain First Amended Securities
Exchange Agreement dated December 31, 2013 for the sale of Mesa Pharmacy, Inc.
from Company to Parent; and

 

WHEREAS, Parent and Company have mutually determined that the First Amended
Securities Exchange Agreement be amended, superseded and replaced in favor of
the merger transaction herein; and

 

WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company each have approved, and in the case of the Company and Merger Sub deem
it advisable and in the best interests of their respective shareholders to
consummate, the acquisition of the Company by Parent by means of a merger of
Company with and into the Merger Sub upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and outstanding
share of the Company’s Common Stock (such issued and outstanding shares of the
Company’s Common Stock, collectively, the “Shares”), other than Dissenting
Shares, will be converted into the right to receive the Merger Consideration.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth in this
Agreement, the receipt and sufficiency of which are hereby acknowledged, upon
the terms and subject to the conditions of this Agreement, the parties to this
Agreement agree as follows:

 

ARTICLE I. THE MERGER

 

Section 1.01 The Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with Nevada Law, at the Effective Time, the Company
will be merged with and into the Merger Sub (the “Merger”), the separate
corporate existence of Company will cease, and the Merger Sub will continue as
the surviving corporation. The Company as the surviving corporation after the
Merger is referred to in this Agreement as the “Surviving Corporation.”

 

Section 1.02 Closing. The closing of the Merger (the “Closing”) shall take place
at 10:00 a.m. on the Business Day after the satisfaction or waiver of all of the
conditions (other than any condition that by its nature cannot be satisfied
until the Closing, but subject to satisfaction of any such condition) set forth
in Article VII (the “Closing Date”), at the offices of Company, unless another
date or place is agreed to in writing by the parties to this Agreement.

 

Section 1.03 Effective Time. The parties to this Agreement shall cause the
Merger to be consummated by filing a certificate of merger (the “Certificate of
Merger”) on the Closing Date (or on such other date as Parent and the Company
may agree in writing) with the Secretary of State of the States of California
and Nevada, in such form as required by, and executed in accordance with, the
relevant provisions of applicable law (the date and time of the filing of the
Certificate of Merger being the “Effective Time”).

 

Section 1.04 Effect of the Merger. The Merger shall have the effects set forth
in the applicable provisions of Nevada Law. Without limiting the generality of
the foregoing and subject thereto, at the Effective Time, all the property,
rights, privileges, immunities, powers, franchises and authority of the Company
and Merger Sub shall vest in the Surviving Corporation and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.

 

Page 1 of 16

 

  

Section 1.05 Articles of Incorporation and Code of Regulations of the Surviving
Corporation. At the Effective Time, the articles of incorporation and code of
regulations of the Merger Sub, as in effect immediately prior to the Effective
Time, shall be the articles of incorporation and code of regulations of the
Surviving Corporation until thereafter amended as provided therein or by
applicable Law (and subject to Section 6.07 hereof).

 

Section 1.06 Directors and Officers of the Surviving Corporation. The directors
of Company immediately before the Effective Time will be the initial directors
of the Surviving Corporation and the officers of the Company immediately before
the Effective Time will be the initial officers of the Surviving Corporation, in
each case until their successors are duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
articles of incorporation and the code of regulations of the Surviving
Corporation.

 

Section 1.07 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation, its right, title or interest in, to or under any of the rights,
properties or assets of either of the Company or Merger Sub vested in or to be
vested in the Surviving Corporation as a result of, or in connection with, the
Merger or otherwise to carry out this Agreement, the officers and directors of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of either the Company or Merger Sub, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of each of such corporations or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out this Agreement.

 

Section 1.08 Amendment, Replacement and Supercision of Agreements. Parent and
Company hereby agree that the First Amended Securities Exchange Agreement dated
December 31, 2013 between the parties, and the related Royalty Agreement dated
therewith, are hereby amended, replaced and superseded without liability to
either party.

 

ARTICLE II. EFFECT OF THE MERGER ON CAPITAL STOCK

 

Section 2.01 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub, the Company or
the holders of Shares or securities of Parent or Merger Sub:

 

(a) Each Share issued and outstanding immediately before the Effective Time
(other than any Dissenting Shares) will be cancelled and extinguished and be
converted into the right to receive 500,000 shares of Series D Preferred Stock
of Parent (the “Merger Consideration”), upon surrender of either certificates
formerly representing such Shares (“Certificates”) or any book-entry Shares
(“Book-Entry Shares”) in the manner provided in Section 2.02. All such Shares,
when so converted, will no longer be outstanding and will be automatically
cancelled, retired and cease to exist. Each holder of Certificates or Book-Entry
Shares will cease to have any rights with respect to such Shares, except the
right to receive the Merger Consideration for such Shares upon the surrender of
such Certificate or Book-Entry Share in accordance with Section 2.02, without
interest.

 

(b) Each share of common stock, par value $0.001 per share, of Merger Sub issued
and outstanding immediately before the Effective Time will thereafter represent
one validly issued, fully paid and nonassessable share of common stock, par
value $0.001 per share, of the Surviving Corporation.

 

(c) Each Company convertible promissory note (“Notes”) shall be exchanged for a
like Parent convertible promissory note, convertible into shares of Parent
Series D Preferred Stock on the terms in Section 2.01(a) into one (1) share of
Parent Series D Preferred Stock for each One Hundred Dollars ($100.00) of
principal and interest converted in accordance with the terms of the Notes. All
such Notes, when so exchanged, will no longer be outstanding and will be
automatically cancelled, retired and cease to exist.

 

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Section 2.02 Payment; Surrender of Shares; Stock Transfer Books.

 

(a) Before the Effective Time, the Surviving Corporation shall act as agent for
the holders of Shares in connection with the Merger to receive the Merger
Consideration to make the payments contemplated by Section 2.01(a). When and as
needed, Parent shall deposit, or cause to be deposited, in trust with the
Company the share certificates for the aggregate Merger Consideration to which
such holders shall be entitled at the Effective Time pursuant to Section
2.01(a).

 

(b) As soon as reasonably practicable after the Effective Time and in any event
not later than three Business Days following the Effective Time, the Surviving
Corporation shall mail to each holder of record of Certificates or Book-Entry
Shares whose Shares were converted into the right to receive the Merger
Consideration pursuant to Section 2.01(a) (i) a letter of transmittal and (ii)
instructions for surrendering Certificates or Book-Entry Shares in exchange for
the Merger Consideration. Each holder of Certificates or Book-Entry Shares may
thereafter until the first anniversary of the Effective Time surrender such
Certificates or Book-Entry Shares to the Surviving Corporation under cover of
the letter of transmittal, as agent for such holder. Upon delivery of a valid
letter of transmittal and the surrender of Certificates or Book-Entry Shares on
or before the first anniversary of the Effective Time, the Surviving Corporation
shall issue to the holder of such Certificates or Book-Entry Shares, in exchange
for the Certificates or Book-Entry Shares, a stock certificate in an amount
equal to the pro rata Merger Consideration. Until so surrendered, Certificates
(other than Certificates representing Dissenting Shares) or Book-Entry Shares
will represent solely the right to receive the aggregate Merger Consideration
relating to the Shares represented by such Certificates or Book-Entry Shares.

 

(c) At the Effective Time, the stock transfer books of the Company will be
closed and there will not be any further registration of transfers of any shares
of the Company’s capital stock thereafter on the records of the Company. From
and after the Effective Time, the holders of Certificates and Book-Entry Shares
will cease to have any rights with respect to any Shares, except as otherwise
provided for in this Agreement or by applicable Law. If, after the Effective
Time, Certificates (other than Certificates representing Dissenting Shares) or
Book-Entry Shares are presented to the Surviving Corporation, they will be
cancelled and exchanged for Merger Consideration as provided in this Article II.
No interest will accrue or be paid on any cash payable upon the surrender of
Certificates or Book-Entry Shares which immediately before the Effective Time
represented the Shares.

 

(d) Promptly following the date which is one year after the Effective Time, the
Surviving Corporation will be entitled to deliver to Parent the remaining stock
certificates, and any Certificates or other documents, in its possession
relating to the transactions contemplated by this Agreement (the
“Transactions”), which had been made available to the Paying Agent and which
have not been disbursed to holders of Certificates or Book-Entry Shares or
previously delivered to the Surviving Corporation, and thereafter such holders
will be entitled to look to the Surviving Corporation (subject to abandoned
property, escheat or similar Laws) only as general creditors of the Surviving
Corporation with respect to the Merger Consideration payable upon due surrender
of their Certificates or Book-Entry Shares, without any interest on such Merger
Consideration. Notwithstanding the foregoing, none of Parent or the Surviving
Corporation will be liable to any holder of Certificates or Book-Entry Shares
for Merger Consideration delivered to a Governmental Entity pursuant to any
applicable abandoned property, escheat or similar Law.

 

Section 2.03 Dissenting Shares.

 

(a) Notwithstanding any provision of this Agreement to the contrary, any Shares
held by a holder who has demanded and perfected his, her or its demand for
appraisal of his, her or its Shares in accordance with California Law, and as of
the Effective Time has neither effectively withdrawn nor lost his, her or its
right to such appraisal (“Dissenting Shares”), will not be converted into or
represent a right to receive cash pursuant to Section 2.01(a), but the holder of
the Dissenting Shares will be entitled to only such rights as are granted to
holders of Dissenting Shares by California Law.

 

(b) Notwithstanding the provisions of Section 2.03(a), if any holder of Shares
who demands appraisal of his, her or its Shares under California Law effectively
withdraws or loses (through failure to perfect or otherwise) his, her or its
right to appraisal, then as of the Effective Time or the occurrence of such
event, whichever later occurs, such holder’s Shares will automatically be
converted into and represent only the right to receive the Merger Consideration
as provided in Section 2.01(a), without interest thereon, upon surrender of
Certificates or Book-Entry Shares representing such Shares pursuant to Section
2.02.

 

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(c) The Company shall give Parent prompt notice of any written demands for
appraisal or payment of the fair value of any Shares, withdrawals of such
demands, and any other instruments served pursuant to California Law received by
the Company. The Company shall not voluntarily make any payment with respect to
any demands for appraisal and shall not, except with the prior written consent
of Parent, settle or offer to settle any such demands.

 

Section 2.04 Adjustments. If, during the period between the date hereof and the
Effective Time, any change in the Shares shall occur, by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, or any stock dividend thereon with a record date during
such period, but excluding any change that results from any exercise of Options,
the Merger Consideration, and any other amounts payable pursuant to this
Agreement, shall be appropriately adjusted.

 

Section 2.05 Lost Certificates. If any Certificates shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificates to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificates, the
Paying Agent will pay, in exchange for such lost, stolen or destroyed
Certificates, the Merger Consideration to be paid in respect of the Shares
represented by such Certificates, as contemplated by this Article II.

 

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to Parent and Merger Sub, subject to the
exceptions with respect to particular representations and warranties disclosed
in the letter from the Company, dated the date hereof, addressed to Parent and
Merger Sub (the “Company Disclosure Letter”) as follows:

 

Section 3.01 Organization.

 

(a) Each of the Company and its Subsidiaries is a corporation, partnership or
other entity duly organized, validly existing and in good standing under the
Laws of the jurisdiction of its incorporation or organization and has all
requisite corporate or other power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as now being conducted, except (other than with respect to the Company’s due
organization, valid existence and good standing) where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.

 

(b) The Company and each of its Subsidiaries is duly qualified or licensed to do
business, and is in good standing, in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

 

Section 3.02 Authorization; Validity of Agreement; Company Action.

 

(a) The Company has full corporate power and authority to execute and deliver
this Agreement and to consummate the Transactions. The execution, delivery and
performance by the Company of this Agreement, and the consummation by it of the
Transactions, have been duly and validly authorized by the Board of Directors of
the Company (the “Company Board”), and no other corporate action on the part of
the Company is necessary to authorize the execution and delivery by the Company
of this Agreement and the consummation by it of the Transactions, except that
the consummation of the Merger requires Shareholder Approval. This Agreement has
been duly executed and delivered by the Company and, assuming due and valid
authorization, execution and delivery of this Agreement by Parent and Merger
Sub, is a valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, reorganization, insolvency, moratorium or
other similar Laws, now or hereafter in effect, affecting creditors’ rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.

 

Page 4 of 16

 

  

(b) Assuming the accuracy of the representation and warranty in Section 4.04,
the affirmative vote of the holders of a majority of the outstanding Shares to
adopt this Agreement (the “Shareholder Approval”) is the only vote or consent of
the holders of any class or series of the Company’s capital stock, or any of
them, that is necessary in connection with the consummation of the Merger.

 

(c) At a meeting duly called and held, the Company Board (i) determined that
this Agreement and the Transactions are fair to and in the best interests of the
Company’s shareholders and declared this Agreement advisable, (ii) approved this
Agreement and the Transactions, (iii) directed that the adoption of this
Agreement be submitted to a vote of the Company’s shareholders and (iv) resolved
(subject to Section 5.02) to recommend to the Company’s shareholders that they
adopt this Agreement (such recommendation, the “Company Recommendation”).

 

Section 3.03 Consents and Approvals; No Violations.

 

(a) Except for (i) the filing of the Certificate of Merger and the (ii) the
Shareholder Approval no consents or approvals of, or filings, declarations or
registrations with, any national, supranational, federal, state or local court,
administrative or regulatory agency or commission or other governmental
authority or instrumentality, domestic or foreign (each a “Governmental Entity”)
are necessary for the consummation by the Company of the Transactions, other
than such other consents, approvals, filings, declarations or registrations
that, if not obtained, made or given, would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.

 

(b) Neither the execution and delivery of this Agreement by the Company nor the
consummation by the Company of the Transactions, nor compliance by the Company
with any of the terms or provisions hereof, will (i) conflict with or violate
any provision of the Company’s Articles of Incorporation or its Bylaws or any of
the similar organizational documents of any of its Subsidiaries or (ii) assuming
that the authorizations, consents and approvals referred to in Section 3.03(a)
are duly obtained, (x) violate any Order or Law applicable to the Company or any
of its Subsidiaries or any of their respective properties or assets, or (y)
violate, conflict with, result in the loss of any material benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right to
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Encumbrance upon any of the respective properties
or assets of the Company or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Company
or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except, in the case of
clause (ii) above, for such violations, conflicts, breaches, defaults, losses,
terminations of rights thereof, accelerations or Encumbrance creations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect.

 

Section 3.04 Capitalization.

 

(a) The authorized capital stock of the Company shall be set forth on Exhibit
3.04, to be delivered within four (4) business days of the Closing Date and
shall include the following:

 

(i)The total number of shares of preferred stock, no par value, designated as
Series A Convertible Preferred stock (the “PDC Preferred A Stock”), authorized
and outstanding; and     (ii)The total number of shares of Common Stock, no par
value (the “Common Stock”), authorized and outstanding as of the Closing Date;
and     (iii)The total number of warrants, if any, to purchase Common Stock or
PDC Preferred A Stock that are, or will be, outstanding as of the Closing Date;
and     (iv)The total number of shares, if any, of Common Stock or PDC Preferred
A Stock that are issuable upon the conversion of the Notes as of the Closing
Date.

 

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(b) All of the outstanding Shares of Common Stock and/or PDC Preferred A Stock
that are or which may be issued pursuant to the conversion of PDC Preferred A
Stock, warrants and/or Notes will be, when issued, duly authorized, validly
issued, fully paid and non-assessable.

 

(c) All of the outstanding shares of capital stock and other Rights of each of
the Company’s Subsidiaries are owned beneficially and of record by the Company
or a wholly owned Subsidiary of the Company, and all such shares and Rights have
been validly issued and are fully paid and nonassessable and are owned by either
the Company or a wholly owned Subsidiary of the Company free and clear of any
Encumbrances.

 

(d) There are no voting trusts or other agreements or understandings to which
the Company or any of its Subsidiaries is a party, or of which the Company has
Knowledge, with respect to the voting of the capital stock and other Rights of
the Company or any of its Subsidiaries.

 

Section 3.05 Taxes.

 

(a) The Company and each of its Subsidiaries has timely filed all material Tax
Returns that it was required to file and has timely paid all Taxes shown thereon
as due and owing and all other Taxes required to be paid by it. All such Tax
Returns were correct and complete in all material respects.

 

(b) No audit or other proceeding with respect to any material Taxes due from the
Company or any of its Subsidiaries, or any material Tax Return of the Company or
any of its Subsidiaries, is pending or threatened in writing by any Governmental
Entity. Each assessed deficiency resulting from any audit or examination
relating to Taxes by any Governmental Entity has been timely paid and there is
no assessed deficiency, refund litigation, proposed adjustment or matter in
controversy with respect to any Taxes due and owing by the Company or any of its
Subsidiaries.

 

(c) Neither the Company nor any of its Subsidiaries has agreed to any extension
or waiver of the statute of limitations applicable to any material Tax Return,
or agreed to any extension of time with respect to a material Tax assessment or
deficiency, which period (after giving effect to such extension or waiver) has
not yet expired.

 

(d) Neither the Company nor any of its Subsidiaries is a party to any material
Tax allocation or sharing agreement.

 

(e) The Company and each of its Subsidiaries has withheld and remitted all
material Taxes required to have been withheld and remitted under applicable Law
in connection with any amounts paid or owing to any employee, independent
contractor, creditor, shareholder, member or other party.

 

(f) There are no Encumbrances for unpaid Taxes on the assets of the Company or
any of its Subsidiaries, except Encumbrances for current Taxes not yet due and
payable.

 

(g) Neither the Company nor any of its Subsidiaries (i) has been a member of an
affiliated group of corporations within the meaning of Section 1504 of the Code
(other than a group the common parent of which is the Company) or (ii) has any
liability for Taxes of any Person (other than the Company and its Subsidiaries)
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local or foreign Law), as a transferee or successor, by contract or otherwise.

 

ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

Parent and Merger Sub, jointly and severally, represent and warrant to the
Company”), and except as set forth in the Company SEC Documents filed and
publicly available prior to the date of this Agreement, as follows:

 

Section 4.01 Organization. Each of Parent and Merger Sub is a corporation duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate or other power and authority and all necessary governmental approvals
to own, lease and operate its properties and to carry on its business as now
being conducted, except (other than with respect to Parent’s or Merger Sub’s due
organization, valid existence and good standing) where the failure to be so
organized, existing and in good standing or to have such power, authority and
governmental approvals would not reasonably be expected to have a material
adverse effect on the ability of Parent and Merger Sub to consummate the Merger
and the other Transactions. Parent owns all of the issued and outstanding
capital stock of the Merger Sub.

 

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Section 4.02 Authorization; Validity of Agreement; Necessary Action. Each of
Parent and Merger Sub has full corporate power and authority to execute and
deliver this Agreement and to consummate the Transactions. The execution,
delivery and performance by Parent and Merger Sub of this Agreement, and the
consummation by it of the Transactions have been duly and validly authorized by
the respective boards of directors of Parent and Merger Sub and by Parent as the
sole shareholder of Merger Sub, and no other corporate action on the part of
Parent or Merger Sub is necessary to authorize the execution, delivery and
performance by Parent and Merger Sub of this Agreement and the consummation of
the Transactions. This Agreement has been duly executed and delivered by Parent
and Merger Sub and, assuming due and valid authorization, execution and delivery
of this Agreement by the Company, is a valid and binding obligation of each of
Parent and Merger Sub enforceable against each of them in accordance with its
terms, except that (a) such enforcement may be subject to applicable bankruptcy,
reorganization, insolvency, moratorium or other similar Laws, now or hereafter
in effect, affecting creditors’ rights generally and (b) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.

 

Section 4.03 Consents and Approvals; No Violations.

 

(a) Except for filings, permits, authorizations, consents and approvals as may
be required under, and other applicable requirements of, (A) the Exchange Act,
and (B) the Securities Act, no consents or approvals of, or filings,
declarations or registrations with, any Governmental Entity are necessary for
the consummation by Parent and Merger Sub of the Transactions, other than such
other consents, approvals, filings, declarations or registrations that, if not
obtained, made or given, would not reasonably be expected to have a material
adverse effect on the ability of Parent and Merger Sub to consummate the Merger
and the other Transactions.

 

(b) Neither the execution and delivery of this Agreement by Parent or Merger Sub
nor the consummation by Parent or Merger Sub of the Transactions, nor compliance
by Parent or Merger Sub with any of the terms or provisions hereof, will (i)
conflict with or violate any provision of the organizational documents of Parent
or Merger Sub or of any of their respective Subsidiaries or (ii) assuming that
any required authorizations, consents and approvals are duly obtained, (x)
violate any Order or Law applicable to Parent or Merger Sub or any of their
respective Subsidiaries or any of their respective properties or assets, or (y)
violate, conflict with, result in the loss of any material benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right to
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Encumbrance upon any of the respective properties
or assets of either Parent or Merger Sub or any of their respective Subsidiaries
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which either Parent or Merger Sub or any of their respective
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected, except, in the case of clause (ii) above,
for such violations, conflicts, breaches, defaults, losses, terminations of
rights thereof, accelerations or Encumbrance creations which would not
reasonably be expected to have a material adverse effect on the ability of
Parent and Merger Sub to consummate the Merger and the other Transactions.

 

Section 4.04 Litigation. As of the date of this Agreement, there are no Actions
pending or, to the Knowledge of Parent, threatened against Parent or Merger Sub
or, to the Knowledge of Parent, any officer, director or employee of Parent or
Merger Sub in such capacity, which would, individually or in the aggregate,
prevent or materially delay Parent or Merger Sub from performing its obligations
under this Agreement. Neither Parent nor Merger Sub is a party or subject to or
in default under any Order which would prevent or materially delay Parent or
Merger Sub from performing its obligations under this Agreement

 

Section 4.05 Shell Status. Parent is not and has never been a “shell company” as
defined by SEC Rule 12b-2.

 

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Section 4.06 Capitalization.

 

(a) The authorized capital stock of the Parent as of March 14, 2014 consists of:

 

(i)500 shares of Series A Convertible Preferred Stock, no par value (the
“Preferred A Stock”); and     (ii)80,000 shares of Series B Convertible
Preferred Stock, no par value (the “Preferred B Stock”); and     (iii)50,000
shares of Series C Convertible Preferred Stock, no par value (the “Preferred C
Stock”); and     (iv)500,000 shares of Series D Convertible Preferred Stock, no
par value (the “Preferred D Stock”); and     (v)350,000,000 shares of Common A
Stock, no par value (the “Common A Stock”).

 

(b) The outstanding capital stock of the Parent are:

 

(i)No shares of Preferred A Stock are outstanding as of March 14, 2014; and    
(ii)78,615 shares of Preferred B Stock are outstanding as of March 14, 2014; and
    (iii)1,645 shares of Preferred C Stock are outstanding as of March 14, 2014;
and     (iv)500,000 shares of Preferred D Stock are outstanding as of March 14,
2014; and     (v)147,749,085 shares of Common A Stock are outstanding as of
March 14, 2014; and     (vi)33,585,280 warrants to purchase Common A Stock, at
an average price of $0.6723 are outstanding as of March 14, 2014;    
(vii)500,000 shares of Common A Stock are issuable upon the conversion of
outstanding notes.     (viii)260 shares of Preferred B Stock are issuable upon
the conversion of outstanding notes.

 

(c) The authorized capital stock of the Merger Sub consists of:

 

(i)One hundred and ten thousand (110,000) shares of Common Stock, $0.001 par
value (the “Merger Sub Common Stock”).

 

(d) The outstanding capital stock of the Merger Sub as of the March 18, 2014 is
NONE.

 

(e) All of the outstanding Shares of Common Stock are, and all shares of Common
Stock that may be issued pursuant to the conversion of Series A Preferred Stock
and Notes are, duly authorized, validly issued, fully paid and non-assessable.

 

Section 4.07 Liabilities. At the Closing, Parent shall have the liabilities set
forth on Exhibit 4.07, to be delivered within four (4) business days of the
Closing Date. Any changes to the number of Common A Stock that may occur as a
result of a conversion or conversions of liabilities into stock subsequent to
the execution of this Agreement, but prior to the Closing Date, shall be
disclosed on Exhibit 4.07 and will amend the number of shares outstanding in
Section 4.06(a)(v) accordingly.

 

ARTICLE V. COVENANTS

 

Section 5.01 Interim Operations of the Company. Except (A) as expressly
contemplated by this Agreement, (B) as required by applicable Law, or (C) as
consented to in writing by Parent after the date of this Agreement and prior to
the Effective Time, which consent, solely in the case of clauses (v), (vi) and
(vii) below, shall not be unreasonably withheld or delayed, the Company agrees
that:

 

(i)the Company and its Subsidiaries will conduct business only in the ordinary
course of business consistent with past practice;     (ii)the Company will not
amend its Articles of Incorporation or Second Amended and Bylaws and the
Company’s Subsidiaries will not amend their certificate of incorporation, bylaws
or other comparable charter or organizational documents;

 

Page 8 of 16

 

  

(iii)neither the Company nor any of its Subsidiaries will (A) declare, set aside
or pay any dividend or other distribution (including any constructive or deemed
distribution), whether payable in cash, stock or other property, with respect to
its capital stock, or otherwise make any payments to its shareholders in their
capacity as such, other than the Company’s ordinary course quarterly dividends
to holders of Shares in a per Share amount no greater than the Company’s most
recently declared dividend, with record and payment dates in accordance with the
Company’s customary dividend schedule; (B) issue, sell, grant, transfer, pledge,
dispose of or encumber or authorize or propose to issue, sell, grant, transfer,
pledge, dispose of or encumber any additional shares of capital stock or other
Rights of the Company or any of its Subsidiaries (including treasury stock),
other than in respect of the shares of the Company’s capital stock reserved for
issuance on the date of this Agreement and issued pursuant to the exercise of
Options outstanding on the date of this Agreement, (C) split, combine, subdivide
or reclassify the Shares or any other outstanding capital stock of the Company
or any of the Subsidiaries of the Company or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for any shares
of capital stock or other Rights of the Company or any of its Subsidiaries or
(D) redeem, purchase or otherwise acquire, directly or indirectly, any capital
stock or other Rights of the Company or any of its Subsidiaries;     (iv)neither
the Company nor any of its Subsidiaries will (A) incur or assume any long-term
Indebtedness, or except in the ordinary course of business, incur or assume any
short-term Indebtedness in amounts not consistent with past practice, (B)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other Person,
except in the ordinary course of business and consistent with past practice or
(C) make any loans, advances or capital contributions to, or investments in, any
other Person except in the ordinary course of business and consistent with past
practice;     (v)make any acquisition or investment in a business either by
purchase of stock or securities, merger or consolidation, contributions to
capital, loans, advances, property transfers, or purchases of any property or
assets of any other Person other than a direct or indirect wholly owned
Subsidiary of the Company, or otherwise make or authorize any capital
expenditure, other than capital expenditures contemplated by the Company’s
existing capital budget;

 

ARTICLE VI. ADDITIONAL AGREEMENTS

 

Section 6.01 Parent Articles. As soon as reasonably practicable after the date
of this Agreement and prior to the Effective Time, the Parent shall file with
the State of Illinois an amendment to its Articles of Incorporation authorizing
sufficient such shares for the Merger Consideration and conversion of the Notes
as exchanged.

 

Section 6.02 Company Shareholder Action.

 

(a) The Company shall take all actions in accordance with applicable Law, its
constituent documents to take shareholder action by written consent to approve
the adoption of this Agreement as soon as practicable following the date hereof.

 

(b) The Company shall provide notice to its shareholders pursuant to California
law of such shareholder action.

 

Section 6.03 Reasonable Best Efforts. Prior to the Closing, Parent, Merger Sub
and the Company shall use their respective reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under any applicable Laws to consummate and make
effective in the most expeditious manner possible the Transactions including (i)
the preparation and filing of all forms, registrations and notices required to
be filed to consummate the Transactions, (ii) the satisfaction of the other
parties’ conditions to consummating the Transactions, (iii) taking all
reasonable actions necessary to obtain (and cooperation with each other in
obtaining) any consent, authorization, Order or approval of, or any exemption
by, any third party, including any Governmental Entity required to be obtained
or made by Parent, Merger Sub, the Company or any of their respective
Subsidiaries in connection with the Transactions or the taking of any action
contemplated by the Transactions or by this Agreement, (iv) the execution and
delivery of any additional instruments necessary to consummate the Transactions
and to fully carry out the purposes of this Agreement.

 

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Section 6.04 Notification of Certain Matters. Subject to applicable Law, the
Company shall give prompt notice to Merger Sub and Parent, and Merger Sub and
Parent shall give prompt notice to the Company of (a) the occurrence or
non-occurrence of any event whose occurrence or non-occurrence would be
reasonably likely to cause either (i) any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Effective Time or (ii) any condition to
the Merger to be unsatisfied in any material respect at the Effective Time and
(b) any material failure of the Company, Merger Sub or Parent, as the case may
be, or any officer, director, employee, agent or representative of the Company,
Merger Sub or Parent as applicable, to comply with or satisfy any covenant or
agreement to be complied with or satisfied by it under this Agreement; provided,
however, that the delivery of any notice pursuant to this Section 6.04 shall not
limit or otherwise affect the remedies available under this Agreement to the
party receiving such notice.

 

ARTICLE VII. CONDITIONS

 

Section 7.01 Conditions to Each Party’s Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction on or prior to the Closing Date of the Shareholder Approval having
been obtained.

 

Section 7.02 Conditions to Obligations of Parent and Merger Sub. The obligation
of Parent and Merger Sub to effect the Merger is further subject to the
satisfaction, or waiver by Parent and Merger Sub, on or prior to the Closing
Date of the following conditions:

 

(a) Representations and Warranties.

 

(i)The representations and warranties of the Company contained in this Agreement
shall be true and correct at and as of the date of this Agreement and at and as
of the Closing (without regard to any qualifications therein as to materiality
or Material Adverse Effect), as though made at and as of such time (or, if made
as of a specific date, at and as of such date), except, in each case, for such
failures to be true and correct as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.     (ii)The
representations and warranties of the Company contained in Article III of this
Agreement shall be true and correct in all respects (except, in the case of
Section 3.04(a), for de minimis inaccuracies therein) at and as of the date of
this Agreement and at and as of the Closing (without regard to any
qualifications therein as to materiality or Material Adverse Effect), as though
made at and as of such time (or, if made as of a specific date, at and as of
such date).

 

(b) Performance of Obligations of the Company. The Company shall have performed
or complied with in all material respects (or with respect to any covenant or
agreement qualified by materiality or Material Adverse Effect, in all respects)
the covenants and agreements contained in this Agreement to be performed or
complied with by it prior to or on the Closing Date.

 

 

(c) Officer’s Certificate. The Company shall have furnished Parent with a
certificate dated the Closing Date signed on its behalf by its chief executive
officer and chief financial officer to the effect that the conditions set forth
in Section 7.02(a) and Section 7.02(b) have been satisfied.

 

Section 7.03 Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to the satisfaction, or waiver
by the Company, on or prior to the Closing Date of the following conditions:

 

(a) Representations and Warranties.

 

Page 10 of 16

 

  

(i)The representations and warranties of the Company contained in this Agreement
shall be true and correct at and as of the date of this Agreement and at and as
of the Closing (without regard to any qualifications therein as to materiality
or Material Adverse Effect), as though made at and as of such time (or, if made
as of a specific date, at and as of such date), except, in each case, for such
failures to be true and correct as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.     (ii)The
representations and warranties of the Company contained in Article IV of this
Agreement shall be true and correct in all respects (except, in the case of
Section 4.06, for de minimis inaccuracies therein) at and as of the date of this
Agreement and at and as of the Closing (without regard to any qualifications
therein as to materiality or Material Adverse Effect), as though made at and as
of such time (or, if made as of a specific date, at and as of such date).

 

(b) Performance of Obligations of Parent and Merger Sub. Each of Parent and
Merger Sub shall have performed or complied with in all material respects (or
with respect to any covenant or agreement qualified by materiality or material
adverse effect, in all respects) the covenants and agreements contained in this
Agreement to be performed or complied with by it prior to or on the Closing
Date.

 

(c) Officer’s Certificate. Each of Parent and Merger Sub shall have furnished
the Company with a certificate dated the Closing Date signed on its behalf by
its chief executive officer (or chief legal officer in the case of Parent) and
chief financial officer to the effect that the conditions set forth in Section
7.03(a) and Section 7.03(b) have been satisfied.

 

Section 7.04 Indemnification. Survival. All of the provisions of this Agreement
shall survive the Closing indefinitely, except that the representations and
warranties of the Company, on the one hand, and the representations and
warranties of Parent and Merger Sub on the other hand, shall survive until the
first anniversary of the Closing Date.

 

(a) Indemnity by the Company. The Company shall indemnify and hold PAWS and
Merger Sub and their respective directors, officers and employees harmless
against and in respect of any and all damages, losses, claims, penalties,
liabilities, costs and expenses (including, without limitation, all fines,
interest, reasonable and actual legal fees and expenses and amounts paid in
settlement), that arise from or relate or are attributable to (and without
giving effect to any tax benefit to the indemnified party) (a) any
misrepresentation or breach of any warranty by PDC in the Agreement or (b) any
breach of any covenant or agreement on the part of PDC pursuant to its
obligations under the Agreement.

 

(b) Indemnity by Parent and Merger Sub. PAWS and Merger Sub shall indemnify and
hold the Company and its directors, officers and employees harmless against and
in respect of any and all damages, losses, claims, penalties, liabilities, costs
and expenses (including, without limitation, all fines, interest, reasonable and
actual legal fees and expenses and amounts paid in settlement), that arise from
or relate or are attributable to (and without giving effect to any tax benefit
to the indemnified party) (a) any misrepresentation or breach of any warranty by
PAWS in the Agreements or (b) any breach of any covenant or agreement on the
part of PAWS pursuant to its obligations under the Agreement.

 

(c) Notice to Indemnitor; Right of Parties to Defend. Promptly after the
assertion of any claim by a third party or occurrence of any event which may
give rise to a claim for indemnification from an indemnifying party
(“Indemnitor”) under this Section 7.04, an indemnified party (“Indemnitee”)
shall notify the Indemnitor in writing of such claim. The Indemnitor shall have
the right to assume the control and defense of any such action (including, but
without limitation, tax audits), provided that the Indemnitee may participate in
the defense of such action subject to the Indemnitor’s reasonable direction and
at Indemnitee’s sole cost and expense. The party contesting any such claim shall
be furnished all reasonable assistance in connection therewith by the other
party and be given full access to all information relevant thereto. In no event
shall any such claim be settled without the Indemnitor’s consent.

 

ARTICLE VIII. TERMINATION

 

Section 8.01 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any
Shareholder Approval):

 

(a) by mutual written consent of Parent, Merger Sub and the Company;

 

(b) by either Parent or the Company if the Merger has not been consummated on or
before April 15, 2014.

 

Page 11 of 16

 

  

ARTICLE IX. MISCELLANEOUS

 

Section 9.01 Amendment and Waivers. Subject to applicable Law, and in accordance
with the immediately following sentence, this Agreement may be amended by the
parties hereto by action taken or authorized by or on behalf of their respective
boards of directors, at any time prior to the Closing Date, whether before or
after adoption of this Agreement by the shareholders of the Company and Merger
Sub. This Agreement may not be amended except by an instrument in writing signed
by the parties hereto. At any time prior to the Effective Time, any party hereto
may (i) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties by the other party contained herein or in any
document delivered pursuant hereto, and (iii) subject to the requirements of
applicable Law, waive compliance by the other party with any of the agreements
or conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.

 

Section 9.02 Non-survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive after the
Effective Time.

 

Section 9.03 Expenses. All fees, costs and expenses (including all legal,
accounting, broker, finder or investment banker fees) incurred in connection
with this Agreement and the Transactions are to be paid by the party incurring
such fees, costs and expenses.

 

Section 9.04 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and sent by
facsimile, by nationally recognized overnight courier service or by registered
mail and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section 9.04 prior to 5:00 p.m.
(Pacific Time) on a Business Day and a copy is sent on such Business Day by
nationally recognized overnight courier service, (ii) the Business Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in this Section 9.04 later than 5:00
p.m. (Pacific Time) on any date and earlier than 12 midnight (Pacific Time) on
the following date and a copy is sent no later than such date by nationally
recognized overnight courier service, (iii) when received, if sent by nationally
recognized overnight courier service (other than in the cases of clauses (i) and
(ii) above), or (iv) upon actual receipt by the party to whom such notice is
required to be given if sent by registered mail. The address for such notices
and communications shall be as follows:

 

  (a) if to Parent or Merger Sub, to:       855 El Camino Real, Suite 13A-184  
    Palo Alto, California 94301       Attn: CEO             with a copy to:    
        (b) If to the Company, to:       18013 Sky Park Circle, Suite D      
Irvine, California 92614       Attn: CEO       with a copy to:  

  

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Section 9.05 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which will
constitute one instrument.

 

Section 9.06 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the schedules and annexes to this Agreement, including the Company
Disclosure Letter) and the Confidentiality Agreement (a) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this
Agreement, and (b) except for the provisions in Section 6.07, solely to the
extent stated therein, is not intended to and shall not confer upon any Person
other than the parties to this Agreement and their permitted assigns any rights,
benefits or remedies of any nature whatsoever, other than (i) the right of the
holders of Shares of the Company to receive the Merger Consideration after the
Closing (a claim with respect to which may not be made unless and until the
Effective Time shall have occurred) and (ii) the right of a party to this
Agreement on behalf of its security holders to pursue damages in the event of
the other party’s willful and material breach of this Agreement. For the
avoidance of doubt, the rights granted pursuant to the foregoing clause (ii)
shall be enforceable only by the Company in its sole and absolute discretion, on
behalf of the holders of Shares of the Company.

 

Section 9.07 Severability. If any term or provision of this Agreement is held by
a court of competent jurisdiction or other Governmental Entity to be invalid,
void, unenforceable or against its regulatory policy, the remainder of the terms
and provisions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, so long as the economic and
legal substance of the Transactions, taken as a whole, are not affected in a
manner materially adverse to any party hereto.

 

Section 9.08 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Nevada without giving effect to the
principles of conflicts of law of the Laws of any state and, specifically, the
State of California.

 

Section 9.09 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned by any of the parties to
this Agreement (whether by operation of Law or otherwise) without the prior
written consent of the other parties, except that Merger Sub may assign, in its
sole discretion, any or all of its rights, interests and obligations hereunder
to any entity that is wholly owned, directly or indirectly, by Parent. Any
attempted assignment in violation of this Section 9.09 shall be void. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.

 

Section 9.10 Consent to Jurisdiction. Each of the parties hereto (i) consents to
submit itself to the personal jurisdiction of the state and federal courts of
the State of Nevada in the event that any dispute arises out of this Agreement
or any of the Transactions, (ii) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (iii) agrees that it will not bring any action relating to this
Agreement or any of the Transactions in any other court. Each of the parties
hereto irrevocably and unconditionally waives (and agrees not to plead or claim)
any objection to the laying of venue of any dispute arising out of this
Agreement or any of the Transactions in the state and federal courts of the
State of California, or that any such dispute brought in any such court has been
brought in an inconvenient forum.

 

Section 9.11 Specific Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
The parties accordingly agree that the parties will be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any federal court located in the
State of Nevada or a Nevada state court, this being in addition to any other
remedy to which they are entitled at law or in equity.

 

Section 9.12 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS.

 

Page 13 of 16

 

  

ARTICLE X. DEFINITIONS; INTERPRETATION

 

Section 10.01 Certain Terms Defined. The following terms shall have the meanings
set forth below for purposes of this Agreement:

 

“Action” means any claim, action, suit, proceeding or investigation by or before
any Governmental Entity.

 

“Affiliates” has the meaning set forth in Rule 12b-2 of the Exchange Act.

 

“Business Day” means any day other than a Saturday, Sunday or a day on which
banks in New York, New York are authorized or obligated by Law or Order to
close.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“IRS” means the Internal Revenue Service.

 

“Knowledge” means (i) with respect to Parent, the actual knowledge (without
independent inquiry or investigation) of the officers of Parent and (ii) with
respect to the Company, the actual knowledge (without independent inquiry or
investigation) of the officers of the Company.

 

“Law” means any law, statute, code, ordinance, regulation or rule of any
Governmental Entity.

 

“Material Adverse Effect” means, with respect to the Company, a material adverse
effect on (i) the ability of the Company to consummate the Merger, or (ii) the
business, results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole, except to the extent such material adverse
effect under this clause (ii) results from (A) any changes in general United
States or global economic conditions, (B) any changes in conditions generally
affecting any of the industries in which the Company and its Subsidiaries
operate, except to the extent such changes in conditions have a disproportionate
effect on the Company and its Subsidiaries, taken as a whole, relative to others
in such industries, (C) any decline in the market price of the Common Stock, (D)
regulatory, legislative or political conditions or securities, credit, financial
or other capital markets conditions, in each case in the United States or any
foreign jurisdiction, except to the extent such conditions have a
disproportionate effect on the Company and its Subsidiaries, taken as a whole,
relative to others in the industries in which the Company and any of its
Subsidiaries operate, (E) any failure, in and of itself, by the Company to meet
any internal or published projections, forecasts, estimates or predictions in
respect of revenues, earnings or other financial or operating metrics for any
period (it being understood that the facts or occurrences giving rise to or
contributing to such failure may be deemed to constitute, or be taken into
account in determining whether there has been or will be a Material Adverse
Effect), (F) the execution and delivery of this Agreement or the public
announcement or pendency of the Merger or any of the other Transactions,
including the impact thereof on the relationships, contractual or otherwise, of
the Company or any of its Subsidiaries with employees, labor unions, customers,
suppliers or partners, (G) any change in applicable Law, regulation or GAAP (or
authoritative interpretations thereof), (H) geopolitical conditions, the
outbreak or escalation of hostilities, any acts of war, sabotage or terrorism,
or any escalation or worsening of any such acts of war, sabotage or terrorism
threatened or underway as of the date of this Agreement, except to the extent
such conditions or event have a disproportionate effect on the Company and its
Subsidiaries, taken as a whole, relative to others in the industries in which
the Company and any of its Subsidiaries operate, or (I) any hurricane, tornado,
flood, earthquake or other natural disaster, except to the extent such events
have a disproportionate effect on the Company and its Subsidiaries, taken as a
whole, relative to others in the industries in which the Company and any of its
Subsidiaries operate.

 

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“Order” means any order, judgment, ruling, injunction, assessment, award, decree
or writ of any Governmental Entity.

 

“Person” means a natural person, sole proprietorship, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated society or association, joint venture, Governmental Entity or
other legal entity or organization.

 

“Subsidiary” means, with respect to any party, any foreign or domestic
corporation or other entity, whether incorporated or unincorporated, of which
(a) such party or any other Subsidiary of such party is a general partner
(excluding such partnerships where such party or any Subsidiary of such party
does not have a majority of the voting interest in such partnership) or (b) at
least a majority of the securities or other equity interests having by their
terms ordinary voting power to elect a majority of the directors or others
performing similar functions with respect to such corporation or other entity is
directly or indirectly owned or controlled by such party or by any one or more
of such party’s Subsidiaries, or by such party and one or more of its
Subsidiaries.

 

“Tax” or “Taxes” means all taxes of any kind, including those on or measured by
or referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, value added, property or windfall profits taxes, customs,
duties or similar fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
imposed by any governmental authority, domestic or foreign.

 

“Tax Return” or “Tax Returns” means all federal, state, local and foreign tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended tax return related to Taxes.

 

Section 10.02 Other Definitional and Interpretative Provisions. The words
“hereof,” “herein” and “hereunder” and words of like import used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. Terms defined in the singular in this Agreement
shall also include the plural and vice versa. The captions and headings herein
are included for convenience of reference only and shall be ignored in the
construction or interpretation hereof. References to Articles, Sections,
Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this
Agreement unless otherwise specified. Whenever the words “include,” “includes”
or “including” are used in this Agreement, they shall be deemed to be followed
by the words “without limitation,” whether or not they are in fact followed by
those words or words of like import. The phrases “the date of this Agreement,”
“the date hereof” and phrases of similar import, unless the context otherwise
requires, shall be deemed to refer to the date set forth in the Preamble. The
word “extent” in the phrase “to the extent” shall mean the degree to which a
subject or other thing extends, and such phrase shall not mean simply “if”. The
word “will” shall be construed to have the same meaning as the word “shall”. The
term “or” is not exclusive. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. If any ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties hereto, and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement.

 

Page 15 of 16

 

 

IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement and Plan of Merger to be signed by their respective officers thereunto
duly authorized as of the date first written above.

 

  THE PAWS PET COMPANY, INC.         By:   Name: Daniel Wiesel   Title: Chief
Executive Officer         PDC INC         By:   Name: Daniel Wiesel   Title:
Chief Executive Officer         PHARMACY DEVELOPMENT CORP.         By:   Name:
Edward Kurtz   Title: Chief Operating Officer

 

Page 16 of 16