Exhibit 10.1

 

SECURITIES EXCHANGE AGREEMENT

 

This SECURITIES EXCHANGE AGREEMENT (the “Agreement”), is made effective as of
this 28th day of October 2013, by and among THE PAWS PET COMPANY, INC., an
Illinois corporation (“PAWS”), having its principal place of business at 855 El
Camino Real, Suite 13A-184, Palo Alto, California 94301 and PHARMACY DEVELOPMENT
CORP., a California corporation (“PDC”), having its principal place of business
at 18013 Sky Park Circle, Suite D, Irvine, CA 92614 (collectively referred to
hereinafter as the “Parties”).

 

RECITALS

 

WHEREAS, PDC owns one hundred percent (100%) of the issued and outstanding
equity interests of Mesa Pharmacy, Inc. (“MESA”) (the “MESA Shares”); and

 

WHEREAS, PDC wishes to exchange the MESA Shares for PAWS’ Series D Convertible
Preferred Stock having the rights, preferences, privileges and restrictions
which are set forth in the Certificate of Designation attached as Exhibit A
hereto (the “PAWS Shares”) and PAWS wishes to issue and exchange the PAWS Shares
for the MESA Shares, whereupon MESA will become a wholly-owned subsidiary of
PAWS, all on the terms and conditions set forth herein; and

 

WHEREAS, PDC is obligated to pay monthly interest on multiple notes (the “PDC
Notes”) as detailed in Exhibit B hereto any Agreement must include provision for
the payment of interest owed on the PDC Notes unless and until PAWS is able to
pay off the PDC Notes or exchange the PDC Notes for other debt or equity of
PAWS.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy are hereby acknowledged, PAWS and PDC agree as follows:

 

ARTICLE I

EXCHANGE OF SECURITIES

 

1.1 Exchange of Securities. Subject to the terms and conditions set forth in
this Agreement, at Closing (as hereinafter defined), PDC shall assign, transfer,
convey and deliver the MESA Shares to PAWS in exchange for which PAWS shall
issue and deliver five hundred thousand (500,000) PAWS Series D Shares to PDC.
The voting privilege attached to the Series D Shares shall not be effective
until and unless the requirements of Section 3.2 below are fulfilled.

 

1.2 Closing Date. Subject to the prior approval of the respective boards of
directors of both PAWS and PDC, the closing of the transactions contemplated by
this Agreement (the “Closing”) shall occur, automatically, on the earlier of the
issuance, by the California State Board of Pharmacy, of a permanent Community
Pharmacy Site Permit (“Site Permit”) regarding PAWS as the new owner of MESA or
earlier by mutual agreement of the Parties. In the event that PAWS is unable to
obtain a Site Permit, for any reason, this transaction will automatically cancel
and the consideration exchanged in this Section 1.1 will be returned to the
respective parties.

 

1.3 Deliveries by PDC. At the Closing, or as soon as is practicable thereafter,
but in no event later than thirty (30) days following the Closing, PDC shall
deliver to PAWS:

 

 (a)Certificates evidencing the MESA Shares, duly endorsed for transfer; and

 

(b)A fully executed Royalty Agreement, a sample of which is attached hereto as
Exhibit C.

 

(c)Such other documents as may be necessary to effect the consummation of the
transactions contemplated by this Agreement.

 

1.4 Deliveries by PAWS. At the Closing, or as soon as is practicable thereafter,
but in no event later than thirty (30) days following the Closing, PAWS shall
deliver to PDC:

 

(a)Certificates evidencing the PAWS Shares registered in the name of PDC; and

 

(b)Such other documents as may be necessary to effect the consummation of the
transactions contemplated by this Agreement.

 

Page 1 of 10

 

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE PARTIES

 

2.1 Representations and Warranties of PAWS. PAWS hereby represents and warrants
to PDC as follows:

 

(a)Organization and Qualification. PAWS is a corporation, duly incorporated,
validly existing and in good standing under the laws of the State of Illinois,
with the requisite corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted. PAWS is duly
qualified to do business as a foreign corporation in each jurisdiction which the
character of its business requires such qualification, except where the failure
to be so qualified could not, individually or in the aggregate reasonably be
expected to have or result in a material adverse effect on the business,
prospects, operations or condition (financial or otherwise) of PAWS (a “PAWS
Material Adverse Effect”).

 

(b)Authorization; Enforcement. PAWS has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by this
Agreement and otherwise to carry out its obligations hereunder. The execution
and delivery of this Agreement by PAWS and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of PAWS and no further action is required by PAWS or its
shareholders. This Agreement has been duly executed by PAWS and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of PAWS enforceable against PAWS in accordance with its terms. PAWS
is not in violation of any of the provisions of its certificate of incorporation
or bylaws.

 

(c)Capitalization. The number of authorized, issued and outstanding shares of
capital stock of PAWS is set forth on Schedule 2.1(c). No shares of capital
stock of PAWS are entitled to preemptive or similar rights, nor is any holder of
capital stock of PAWS entitled to statutory preemptive or similar rights arising
out of any agreement or understanding with PAWS. Except as set forth in any
document filed by PAWS under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) (the “SEC Documents”) or on Schedule 2.1(c) hereto, there
are no outstanding options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to securities, rights or
obligations convertible into or exchangeable for, or giving any Person (as
hereinafter defined) any right to subscribe for or acquire any shares of capital
stock of PAWS, or contracts, commitments, understandings, or arrangements by
which PAWS is or may become bound to issue additional shares of capital stock of
PAWS, or securities or rights convertible or exchangeable into shares of capital
stock of PAWS.

 

(d)Issuance of the PAWS Shares. The PAWS Shares are duly authorized, and, when
issued and paid for in accordance with the terms hereof, shall be duly and
validly issued, fully paid and non-assessable, free and clear of all liens,
encumbrances and rights of first refusal of any kind (collectively, “Liens”).

 

(e)No Conflicts. The execution, delivery and performance of this Agreement by
PAWS and the consummation by PAWS of the transactions contemplated hereby do not
and will not (i) conflict with or violate any provision of PAWS’ certificate of
incorporation or bylaws (each as amended through the date hereof); (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time,
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without notice,
lapse of time, or both) of, any agreement, credit facility, indenture or
instrument (evidencing a PAWS’ debt or otherwise) to which PAWS is a party or by
which any property or asset of PAWS is bound or affected; or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which PAWS is
subject (including federal and state securities laws and regulations), or by
which any property or asset of PAWS is bound or affected, except in the case of
each of clauses (ii) and (iii), as could not, individually or in the aggregate,
reasonably be expected to have or result in a PAWS Material Adverse Effect. The
business of PAWS is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations that,
individually or in the aggregate, could reasonably be expected to not have or
result in a PAWS Material Adverse Effect.

 

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(f)Filings, Consents and Approvals. PAWS is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other U.S. or foreign federal, state, local or
other governmental authority or other person in connection with the execution,
delivery and performance by PAWS of this Agreement other than filings which may
be required under federal and state securities laws.

 

(g)Litigation; Proceedings. Except as set forth in the SEC Documents, there is
no action, suit, notice of violation, proceeding or investigation pending or, to
the knowledge of PAWS, threatened against or affecting PAWS or any of its
properties before or by any court, governmental or administrative agency, or
regulatory authority (U.S. federal, state, county, local or foreign) that (i)
adversely affects or challenges the legality, validity or enforceability of this
Agreement or (ii) could, individually or in the aggregate, reasonably be
expected to have or result in a PAWS Material Adverse Effect.

 

(h)No Default or Violation. Except as set forth in the SEC Documents or on
Schedule 2.1(h) hereto, PAWS (i) is not in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by PAWS), nor has PAWS received written
notice of a claim that it is in default under or is in violation of any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound, (ii) is
not in violation of any order of any court, arbitrator or governmental body, or
(iii) is not in violation of any statute, rule or regulation of any governmental
authority, except as could not, individually or in the aggregate, reasonably be
expected to have or result in a PAWS Material Adverse Effect.

 

(i)Private Offering. Assuming the accuracy of the representations and warranties
of PDC set forth in Section 2.3 of this Agreement, the offer, issuance and sale
of the PAWS Shares to PDC as contemplated hereby is exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”).
Neither PAWS nor any person acting on PAWS’ behalf has taken any action that
could subject the issuance of the PAWS Shares to the registration requirements
of the Securities Act.

 

(j)Brokers Fees. No fees or commissions will be payable by PAWS to any broker,
financial advisor or consultant, finder, placement agent, investment banker, or
bank with respect to the transactions contemplated by this Agreement.

 

(k)Solicitation Materials. Neither PAWS nor any person acting on PAWS’ behalf
has solicited PDC to acquire the PAWS Shares by means of any form of general
solicitation or advertising.

 

(l)Patents and Trademarks. PAWS owns, or has rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and rights (collectively, the “PAWS Intellectual Property
Rights”) that are necessary or material for use in connection with its business,
except where the failure to own or have the right to use a PAWS Intellectual
Property Right could not reasonably be expected to have or result in a PAWS
Material Adverse Effect. To the best knowledge of PAWS, all such Intellectual
Property Rights are enforceable and there is no existing infringement by another
person of any of the PAWS Intellectual Property Rights.

 

(m)Registration Rights; Rights of Participation. Except as set forth in the SEC
Documents, PAWS has not granted or agreed to grant to any person any rights
(including “piggy-back” registration rights) to have any securities of PAWS
registered with the Securities and Exchange Commission (the “SEC”) or any other
governmental authority and no person has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement.

 

(n)Regulatory Permits. PAWS possesses all certificates, authorizations and
permits issued by the appropriate U.S. federal, state or foreign regulatory
authorities necessary to conduct its business, except where the failure to
possess such permits, individually or in the aggregate, could reasonably be
expected to have or result in a PAWS Material Adverse Effect (“Material PAWS
Permits”), and PAWS has not received any notice of proceedings relating to the
revocation or modification of any Material PAWS Permit.

 

(o)Title. PAWS does not own any real property. PAWS has good and marketable
title to all personal property owned by them that is material to the business of
PAWS, in each case free and clear of all Liens, except for Liens that do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by PAWS. Any real property and
facilities held under lease by PAWS is held under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by
PAWS.

 

Page 3 of 10

 

 

(p)Warrant Liability. PAWS represents and warrants that under the terms of its
June 3, 2011 warrant (the “Socious Warrant”), held of record by Socious CG II,
LTD. (“Socious”) that PAWS has no liability to issue any number of new warrants
pursuant to the terms of the Socious Warrant (or any additional warrants that
have been previously issued or are currently issuable thereunder) exercisable
into a number of shares of Common Stock greater than ten million (10,000,000)
shares (the “Maximum Warrant Liability”).

 

(i)In the event that PAWS has a liability to issue new warrants pursuant to
Section 2 of the Socious Warrant exercisable into a number of shares of Common
Stock greater than the Maximum Warrant Liability, the Parties hereby agree that
they will use their best efforts to obtain a settlement with Socious, whereby
any such warrant liability will be reduced to a number of shares equal to or
less than the Maximum Warrant Liability.

 

(ii)In the event that PAWS has a liability to issue new warrants pursuant to
Section 2 of the Socious Warrant exercisable into a number of shares of Common
Stock greater than the Maximum Warrant Liability and the Parties are unable to
obtain a settlement as described in Section 2.1(p)(i) above, within one hundred
and eighty (180) days of the Closing, PDC, in its sole discretion, may terminate
this Agreement. In the event that PDC elects to terminate this Agreement
pursuant to this Section 2.1(p)(ii), the consideration exchanged pursuant to
Section 1.1 above shall be returned to their respective owners and any monies
advanced to PDC and or MESA shall be returned to PAWS within one hundred eighty
(180) days of the termination.

 

2.2 Representations and Warranties of PDC. PDC represents and warrants to PAWS
as follows:

 

(a)Organization and Qualification. PDC is a corporation duly organized, validly
existing and in good standing under the laws of the State of California with the
requisite corporate power and authority to own and use its properties and assets
and to carry on its business as currently conducted. PDC is not qualified to do
business as a foreign corporation in any jurisdiction, there being no
jurisdiction where the character of its business requires such qualification.

 

(b)Authorization; Enforcement. PDC has the requisite power and authority to
enter into and to consummate the transactions contemplated by this Agreement and
otherwise to carry out its respective obligations hereunder. The execution and
delivery of the Agreement by PDC and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of PDC and no further action is required by PDC or its shareholders. The
Agreement has been duly executed by PDC and, when delivered in accordance with
the terms thereof, will constitute the valid and binding obligations of PDC
enforceable against PDC in accordance with its terms. PDC is not in violation of
any of the provisions of its certificate of incorporation or bylaws.

 

(c)Capitalization. MESA has only the following classes of stock authorized:

 

(i)Common Stock: Ten Thousand (10,000) authorized, Ten Thousand (10,000) of
which are issued and outstanding and owned by PDC. MESA Common Stock shares are
not entitled to preemptive or similar rights, nor is any holder of MESA Common
Stock shares entitled to statutory preemptive or similar rights arising out of
any agreement or understanding with MESA. Any and all outstanding options,
warrants, rights to subscribe to, calls, or commitments of any character
whatsoever relating to securities, rights or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for or acquire
Common Stock shares or other membership interests in MESA or contracts,
commitments, understandings, or arrangements by which MESA is or may become
bound to issue additional Common Stock shares or other membership interests in
MESA, or securities or rights convertible or exchangeable into MESA Shares or
other membership interests in PDC are listed in Schedule 2.2(c) hereto.

 

(d)Title to Interests. MESA Shares are duly authorized, validly issued, fully
paid and non-assessable and are owned of record and beneficially by PDC, free
and clear of all Liens.

 

Page 4 of 10

 

 

(e)No Conflicts. The execution, delivery and performance of this Agreement by
PDC and the consummation by PDC of the transactions contemplated thereby do not
and will not (i) conflict with or violate any provision of MESA’s formation or
by-laws; (ii) conflict with, or constitute a default (or an event which with
notice or lapse of time, or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time, or both) of, any agreement, credit facility,
indenture or instrument (evidencing a debt or otherwise) to which PDC is a party
or by which any property or asset of PDC is bound or affected; or (iii) result
in a violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which PDC is
subject (including federal and state securities laws and regulations), or by
which any property or asset of PDC is bound or affected, except in the case of
each of clauses (ii) and (iii), as could not, individually or in the aggregate,
reasonably be expected to have or result in a material adverse effect on the
business, prospects, operations or condition (financial or otherwise) of MESA
(an “MESA Material Adverse Effect”). The business of MESA is not being conducted
in violation of any law, ordinance or regulation of any governmental authority,
except for violations that, individually or in the aggregate, could not
reasonably be expected to have or result in an MESA Material Adverse Effect.

 

(f)Filings, Consents and Approvals. PDC is not required to obtain any consent,
waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other or foreign federal, state, local or other
governmental authority or other person in connection with the execution,
delivery and performance by PDC of this Agreement other than as relates to the
Site License defined in Section 1.2 above.

 

(g)Litigation; Proceedings. Except as listed in listed in Schedule 2.2(g), there
is no action, suit, notice of violation, proceeding or investigation pending or,
to the knowledge of PDC, threatened against or affecting PDC or any of their
respective properties before or by any court, governmental or administrative
agency, or regulatory authority (U.S. federal, state, county, local or foreign)
that (i) adversely affects or challenges the legality, validity or
enforceability of the Agreement or the MESA Shares or (ii) could, individually
or in the aggregate, reasonably be expected to have or result in an PDC Material
Adverse Effect.

 

(h)No Default or Violation. Except as listed in listed in Schedule 2.2(h), PDC
is not (i) are in default under or in violation of (and no event has occurred
that has not been waived that, with notice or lapse of time or both, would
result in a default by), nor has PDC received notice of a claim that it or he is
in default under or is in violation of any indenture, loan or credit agreement
or any other agreement or instrument to which it, he or she is a party or by
which it, he or she or any of its, his or her properties is bound, (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is in violation of any statute, rule or regulation of any governmental
authority, except as could not, individually or in the aggregate, reasonably be
expected to have or result in an MESA Material Adverse Effect.

 

(i)Financial Statements; Books and Records; Accounts Receivable.

 

(i)Within thirty (30) days of the Closing, PDC will deliver financial statements
of MESA that have been prepared and audited in accordance with GAAP for the
periods listed in Schedule 2.2(i) (the “MESA Financial Statements”). The MESA
Financial Statements shall comply in all material respects with the applicable
accounting requirements of the SEC.

 

(ii)The books and records of MESA are complete and correct in all material
respects and have been maintained in accordance with sound business practices
consistent with industry standards.

 

(j)Absence of Certain Changes. Since the date of the latest balance sheet
included in the PDC Financial Statements, PDC has been operated, in the ordinary
course and consistent with past practice and, in any event, there has not been:
(i) any material adverse change in the business, condition (financial or
otherwise), operations, results of operations or prospects of MESA; (ii) any
loss or, to the knowledge of PDC, threatened or contemplated loss, of business
of any customers or suppliers of MESA which, individually or in the aggregate,
could reasonably be expected to have an MESA Material Adverse Effect; (iii) any
loss, damage, condemnation or destruction to any of the properties of MESA
(whether or not covered by insurance); (iv) any borrowings by MESA other than
trade payables arising in the ordinary course of the business and consistent
with past practice; or (v) any sale, transfer or other disposition of any of the
assets other than in the ordinary course of the business and consistent with
past practice.

 

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(k)Contracts. Schedule 2.2(k) hereto sets forth a list of all contracts,
agreements, leases, licenses, permits, commitments and arrangements of MESA (the
“Contracts”). MESA is not alleged to be in default, nor to the knowledge of PDC
is there any basis for MESA or any other party, under any of the Contracts and
no event has occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice or both, would constitute such a default
or breach by PDC, or any other party thereto. All of the Contracts are in full
force and effect, will continue in full force and effect after the Closing
without breaching the terms thereof or resulting in the forfeiture or impairment
of any rights thereunder and without the consent, approval or act of, or making
of any filing with, any third party. The Contracts are valid and enforceable
against MESA and to the knowledge of PDC, the other parties thereto. PDC has not
received any notice of the intention of any party to terminate, or substantially
reduce the volume of its purchases, sales, products or advertisements under, any
Contract. PDC is not currently in discussions regarding any amendment,
modification, extension or termination of, and is not currently re-negotiating
Contracts.

 

(l)Employees. Schedule 2.2(1) hereto sets forth the name of each employee of
MESA and a description of their compensation. PDC does not maintain any employee
benefit plans.

 

(m)Taxes. MESA has filed all tax returns of any kind required to be filed and
has paid all taxes and other charges due or claimed to be due with respect to
its taxing authorities. There are no Liens for taxes upon any of MESA’s assets
and there are no claims asserted for taxes against MESA or PDC with respect to
any of MESA’s assets, except for taxes due but not yet payable.

 

(n)Brokers’ Fees. No fees or commissions will be payable by PDC to any broker,
financial advisor or consultant, finder, placement agent, investment banker, or
bank with respect to the transactions contemplated by this Agreement.

 

(o)Patents and Trademarks. MESA owns, or has rights to use, all patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and rights (collectively, the “MESA Intellectual Property
Rights”) that are necessary or material for use in connection with its business,
and the failure to own or have the right to use and any MESA Intellectual
Property Right, so could not reasonably be expected to have an MESA Material
Adverse Effect. To the best knowledge of PDC, all such MESA Intellectual
Property Rights are enforceable and there is no existing infringement by another
person of any of the MESA Intellectual Property Rights.

 

(p)Regulatory Permits. MESA possesses all certificates, authorizations and
permits issued by the appropriate U.S. federal, state or foreign regulatory
authorities necessary to conduct its business except where the failure to
possess such permits, individually or in the aggregate, could reasonably be
expected to have or result in an PDC Material Adverse Effect (“MESA Material
Permits”), and PDC has not received any notice of proceedings relating to the
revocation or modification of any MESA Material Permit.

 

(q)Title. MESA does not own any real property and is not a party to any leases
other than those listed in Schedule 2.2(q). PDC has good and marketable title to
all real or personal property owned by it in each case free and clear of all
liens, except for liens that do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by PDC.

 

(r)Disclosure. No representation or warranty of PDC or the Holders contained in
this Agreement and no statement contained in any certificate, exhibit, schedule
or other document furnished to PAWS in connection with this Agreement contains
any untrue statement of a material fact, or omits to state a material fact
necessary to make the statements herein or therein not misleading.

 

2.3 Investment Representations and Warranties of the PDC. PDC represents and
warrants to PAWS as follows:

 

(a)Investment Intent. PDC is acquiring PAWS Shares for its own account. PDC is
acquiring PAWS Shares for investment purposes only and not with a view to or for
distributing or reselling the PAWS Shares or any part thereof or interest
therein, without prejudice, however, to PDC’s right at all times to sell or
otherwise dispose of all or any part of the PAWS Shares pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable state securities laws or under an exemption from such registration.

 

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(b)Status. PDC meets the definition of an “accredited investor” as defined in
Rule 501(a) of Regulation D under the Securities Act; or, in the event that PDC
is not an accredited investor, PDC represents and warrants that it has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the prospective investment, or PDC reasonably
believes that it comes within this description.

 

(c)Experience of PDC. PDC and/or its management has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
PAWS Shares, and has so evaluated the merits and risks of such investment.

 

(d)Ability of PDC to Bear Risk of Investment. PDC is able to bear the economic
risk of an investment in the PAWS Shares and, at the present time, is able to
afford a complete loss of such investment.

 

(e)Access to Information. PDC acknowledges that the it has been afforded (i) the
opportunity to ask such questions as he has deemed necessary of, and to receive
answers from, representatives of PAWS concerning the terms and conditions of the
issuance of the PAWS Shares and the merits and risks of investing in the PAWS
Shares; (ii) access to public information about PAWS and PAWS’ financial
condition, results of operations, business, properties, management and prospects
sufficient to enable PDC to evaluate its investment; and (iii) the opportunity
to obtain such additional information that PAWS possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the public information contained herein.

 

(f)General Solicitation. PDC is not acquiring the PAWS Shares as a result of or
subsequent to any advertisement, article, notice or other communication
regarding the PAWS Shares published in any newspaper, magazine or similar media,
published or broadcast over television or radio or presented at any seminar.

 

(g)Reliance. PDC understands and acknowledges that (i) the PAWS Shares are being
offered and sold to the Holders without registration under the Securities Act
and applicable state securities laws in a private placement that is exempt from
the registration provisions of the Securities Act and applicable state
securities laws and (ii) the availability of such exemption depends in part on,
and PAWS will rely upon the accuracy and truthfulness of, the foregoing
representations and the Holders hereby consents to such reliance.

 

ARTICLE III

OTHER AGREEMENTS OF THE PARTIES

 

3.1 Transfer Restrictions.

 

(a)The PAWS Shares may only be disposed of pursuant to an effective registration
statement under the Securities Act, or pursuant to an available exemption from
or in a transaction not subject to the registration requirements of the
Securities Act. In connection with any transfer of the PAWS Shares other than
pursuant to an effective registration statement, PAWS may require the transferor
thereof to provide to PAWS an opinion of counsel selected by the transferor, the
form and substance of which opinion shall be reasonably satisfactory to PAWS, to
the effect that such transfer does not require registration of such transferred
securities under the Securities Act and applicable state securities laws.

 

(b)PDC agrees to the imprinting, so long as is required under the Securities Act
and the rules and regulations thereunder, of an appropriate restrictive legend
on the certificates evidencing their respective Shares.

 

3.2 PDC hereby agrees to not distribute the PAWS Shares to its respective
holders until such time as a permanent Site Permit has been issued by the
California State Board of Pharmacy listing PAWS as the owner of MESA.SEC
Reporting Obligations. Pursuant to Regulation S-K promulgated pursuant to the
Securities Exchange Act of 1934, PAWS must file audited consolidated pro forma
financial statements within seventy-five (75) days of the Closing (the “PDC
Audit”). In the event that the audited consolidated pro forma financial
statements cannot be completed within the time frame specified in Regulation
S-K, this agreement shall automatically terminate, the consideration exchanged
pursuant to Section 1.1 above shall be returned to their respective owners and
any monies advanced to PDC shall be returned to PAWS within one hundred eighty
(180) days of the termination.

 

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3.3 Conversion of Debentures. If, within ninety (90) days of the Closing, PAWS
is unable to obtain an agreement to convert all of its convertible debentures
into any of, Common, Preferred Stock and/or cash settlement(s), PDC, in its sole
discretion, may terminate this Agreement. In the event that PDC elects to
terminate this Agreement the consideration exchanged pursuant to Section 1.1
above shall be returned to their respective owners and any monies advanced to
PDC and or MESA shall be returned to PAWS within one hundred eighty (180) days
of the termination.

 

3.4 Changes to Board of Directors. Upon completion of the PDC Audit and the
issuance of permanent Site Permit by the California State Board of Pharmacy,
listing PAWS as the owner of MESA the existing members of PAWS’ board of
directors (the “Board”) shall appoint three (3) individuals designated by the
PDC to the Board.

 

ARTICLE IV

INDEMNIFICATION

 

4.1 Survival. All of the provisions of this Agreement shall survive the Closing
indefinitely, except that the representations and warranties of PDC, on the one
hand, and the representations and warranties of PAWS on the other hand, shall
survive until the first anniversary of the Closing Date.

 

4.2 Indemnity by PDC. PDC shall indemnify and hold PAWS and PAWS’ 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.

 

4.3 Indemnity by PAWS. PAWS shall indemnify and hold PDC and PDC’s 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.

 

4.4 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 Article IV, 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 V

MISCELLANEOUS

 

5.1 Fees and Expenses. Each party to this Agreement shall pay the fees and
expenses of its or its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiations,
preparation, execution, delivery and performance of this Agreement.

 

5.2 Entire Agreement; Amendments. This Agreement, together with the exhibits and
schedules hereto, contains the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

 

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5.3 Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be delivered
(a) by hand; (b) by recognized overnight courier; or (c) by certified mail,
return receipt requested, postage-prepaid. All of the foregoing shall be deemed
given and effective on (x) receipt, if delivered by hand; (y) the next business
day after deposit, if sent by nationally recognized overnight courier; or (c)
the third (3rd) business day after deposit, if mailed. The address for such
notices and communications shall be as follows:

 

  If to PAWS: 855 El Camino Real, Suite 13A-184     Palo Alto, California 94301
Attn: CEO         If to PDC: 18013 Sky Park Circle, Suite D     Irvine,
California 92614
Attn: CEO

 

or such other address as maybe designated by party in writing hereafter, by
notice (given in the same manner).

 

5.4 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by all the
parties; or, in the case of a waiver, by the party against whom enforcement of
any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.

 

5.5 Headings. The headings herein are for convenience only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect ay of the
provisions hereof.

 

5.6 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. Neither
party may assign this Agreement or any of the rights or obligations hereunder
without the written consent of the other party, which consent shall not
unreasonably be withheld.

 

5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.

 

5.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of Nevada without regard to the
principles of conflicts of law thereof. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in Washoe
County, Nevada, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the interpretation or enforcement of this Agreement),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.

 

5.9 Attorneys’ Fees. In any suit, action or proceeding brought with respect to
interpretation or enforcement of this Agreement, the prevailing party shall be
entitled to recover attorneys’ fees and costs from the non-prevailing party at
both the trial and appellate levels.

 

5.10 Construction. In the construction of this Royalty Agreement, the rule of
construction that a document is to be construed most strictly against a party
who prepared the same shall not be applied, it being agreed that all parties
have participated in the preparation of the final form of this Royalty
Agreement.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile or .pdf transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

 

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5.12 Severability. In case any one or more of the provisions of this Agreement
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision that shall be a reasonable
substitute therefore, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized signatories as of the date first
indicated above.

 

  THE PAWS PET COMPANY, INC.       By: /s/ Dan Wiesel   Name: Daniel Wiesel  
Title: Chief Executive Officer         PHARMACY DEVELOPMENT CORP.         By:
/s/ Andrew Do   Name: Andrew Do   Title: Chief Executive Officer

 

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