exv10w2






Exhibit 10.2




     EXECUTION COPY



MERGER




AGREEMENT



by



and



among



VCA ANTECH, INC.,



SNOW MERGER ACQUISITION, INC.,



and



PET DRX CORPORATION



Dated as of June 2, 2010



 









 





TABLE OF CONTENTS




	 	 	 	 	 

	ARTICLE I. DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	ARTICLE II. THE MERGER
	 	 	9	 
	Section 2.1. Merger
	 	 	9	 
	Section 2.2. Closing
	 	 	9	 
	Section 2.3. Closing Statement
	 	 	9	 
	Section 2.4. Payments and Deliveries at the Merger Closing
	 	 	9	 
	Section 2.5. Taking of Necessary Action; Further Action
	 	 	10	 
	Section 2.6. Effect of the Merger
	 	 	10	 
	Section 2.7. Charter and Bylaws
	 	 	10	 
	Section 2.8. Directors and Officers
	 	 	10	 
	Section 2.9. Effect on Capital Stock
	 	 	11	 
	Section 2.10. Surrender of Certificates
	 	 	12	 
	Section 2.11. Stock Options and Warrants
	 	 	14	 
	Section 2.12. Shares of Dissenting Stockholders
	 	 	15	 
	 
	 	 	 	 
	ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
	 	 	15	 
	Section 3.1. Entity Status
	 	 	15	 
	Section 3.2. Power and Authority; Enforceability
	 	 	16	 
	Section 3.3. No Violation
	 	 	16	 
	Section 3.4. Consents
	 	 	16	 
	Section 3.5. Sufficient Funds
	 	 	16	 
	 
	 	 	 	 
	ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	16	 
	Section 4.1. Corporate Status
	 	 	17	 
	Section 4.2. Power and Authority; Enforceability
	 	 	17	 
	Section 4.3. No Violation
	 	 	17	 
	Section 4.4. Capitalization
	 	 	17	 
	 
	 	 	 	 
	ARTICLE V. COVENANTS
	 	 	18	 
	Section 5.1. General
	 	 	18	 
	Section 5.2. Information Statement
	 	 	18	 
	 
	 	 	 	 
	ARTICLE VI. CLOSING CONDITIONS
	 	 	19	 
	Section 6.1. General Conditions
	 	 	19	 
	Section 6.2. Conditions Precedent to Obligation of Parent and Merger Sub
	 	 	20	 
	 
	 	 	 	 
	ARTICLE VII. TERMINATION
	 	 	20	 
	Section 7.1. Termination of Agreement
	 	 	20	 
	Section 7.2. Effect of Termination
	 	 	21	 
	 
	 	 	 	 
	ARTICLE VIII. MISCELLANEOUS
	 	 	21	 
	Section 8.1. Entire Agreement
	 	 	21	 
	Section 8.2. Successors
	 	 	21	 
	Section 8.3. Assignments
	 	 	21	 
	Section 8.4. Notices
	 	 	21	 
	Section 8.5. Submission to Jurisdiction; Process Agent
	 	 	22	 
	Section 8.6. Time
	 	 	23	 






i









 






	 	 	 	 	 

	Section 8.7. Counterparts
	 	 	23	 
	Section 8.8. Headings
	 	 	23	 
	Section 8.9. Governing Law
	 	 	23	 
	Section 8.10. Amendments and Waivers
	 	 	23	 
	Section 8.11. Severability
	 	 	23	 
	Section 8.12. Expenses
	 	 	23	 
	Section 8.13. Construction
	 	 	24	 
	Section 8.14. Remedies
	 	 	24	 
	Section 8.15. Electronic Signatures
	 	 	24	 






ii









 






	 	 	 	 	 

	Exhibits
	 	 	 	 
	Exhibit A Sample Computation of Adjusted Net Working Capital  
	 	 	 	 
	Exhibit B Form of Closing Statement
	 	 	 	 
	Exhibit C Form of Merger Certificate
	 	 	 	 
	Exhibit D Form of Company’s Officers’ Certificate
	 	 	 	 
	Exhibit E Form of Company’s Secretary’s Certificate
	 	 	 	 
	Exhibit F Form of Parent’s Secretary’s Certificate
	 	 	 	 
	Exhibit G Letter of Transmittal
	 	 	 	 
	Exhibit H Form of Press Release
	 	 	 	 
	 
	 	 	 	 
	Schedules
	 	 	 	 
	Schedule A Management Bonuses
	 	 	 	 
	Schedule B Company Subsidiaries
	 	 	 	 






iii









 






MERGER AGREEMENT




     This Merger Agreement (this “Agreement”), dated as of June 2, 2010, is by and among (i) Snow
Merger Acquisition, Inc., a Delaware corporation (“Merger Sub”), (ii) VCA Antech, Inc., a Delaware
corporation (“Parent”), and (iii) Pet DRx Corporation, a Delaware corporation (“Company”).



BACKGROUND:




     A. The Company and Parent jointly desire that Parent acquire the Company through the statutory
merger of Merger Sub with and into the Company (the “Merger”), in accordance with this Agreement’s
terms and conditions.



     B. Pursuant to the Merger all of the Company’s issued and outstanding shares of common stock,
par value $0.0001 per share (the “Company Common Stock”) will be converted into the right to
receive cash.



     C. Concurrently with entering into this Agreement, Parent, Merger Sub, the Company and certain
stockholders (the “Sellers”)of the Company are executing and delivering a Stock Purchase Agreement
(the “Stock Purchase Agreement”) pursuant to which Merger Sub will acquire all Company Common Stock
and options and warrants exercisable into shares of Company Common Stock beneficially owned by the
Sellers (the “Equity Purchase”) prior to the consummation of the Merger, all in accordance with the
terms and conditions of the Stock Purchase Agreement.



     D. The board of directors of the Company has (i) determined that the transactions contemplated
by this Agreement and the Stock Purchase Agreement are fair to, and in the best interests of, the
Company and its Stockholders, (ii) has approved and adopted this Agreement and the Stock Purchase
Agreement and the Transactions (as defined herein) contemplated hereby and thereby and (iii) has
recommended the approval and adoption of this Agreement and the Merger by the Stockholders of the
Company.



     E. Concurrently with the execution of this Agreement, stockholders owning a majority of the
issued and outstanding shares of Company Common Stock have executed a written consent approving the
adoption of this Agreement, and the consummation of the Merger and the other Transactions
contemplated herein (the “Stockholder Consent”).



AGREEMENT:




     NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and of
the representations, warranties, and covenants contained herein, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:



ARTICLE I.

DEFINITIONS




     “2009 Financial Statements” means the audited consolidated balance sheets of the Acquired
Entities as of December 31, 2009, audited consolidated statements of income, changes



1









 




in stockholders’ equity and cash flows for the Acquired Entities for the fiscal year ended
December 31, 2009, including the notes thereto, with the report thereon of Singerlewak LLP
independent certified public accountants all as filed with the SEC as part of the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2009.




     “Acquired Entities” means the Company and each of the Company Subsidiaries.



     “Acquisition Proposal” means any offer or proposal (other than an offer or proposal by Parent
or an Affiliate of Parent) for (i) a merger, acquisition consolidation, purchase or similar
transaction involving any equity security of the Company or (ii) the acquisition (other than an
acquisition by Parent or an Affiliate of Parent) of all or substantially all of the assets of the
Company.



     “Action” means any action, appeal, petition, plea, charge, complaint, claim, suit, demand,
litigation, arbitration, mediation, hearing, inquiry, investigation or similar event, occurrence,
or proceeding.



     “Adjusted Current Assets” means the net book value of all of the assets of the Acquired
Entities as of 12:01 a.m. (PST) on the Equity Closing Date, that would be classified as “current
assets” under GAAP, the net book value of which shall be determined using the same accounting
methods, policies, practices, principles and procedures with consistent classifications that were
used in the preparation of the 2009 Financial Statements: which assets shall include, but not be
limited to, the following: (i) cash (including certificates of deposit) and cash equivalents (net
of any restricted cash), (ii) trade accounts receivable (net of doubtful accounts); (iii) prepaids
(iv) inventory and (v) other current assets.



     “Adjusted Current Liabilities” means all of the liabilities of the Acquired Entities as of
12:01 a.m. (PST) on the Equity Closing Date that would be classified as “current liabilities” under
GAAP, the net book value of which shall be determined using the same accounting methods, policies,
practices, principles and procedures with consistent classifications that were used in the
preparation of the 2009 Financial Statements, which liabilities shall include, but not be limited
to, the following: (i) accounts payable and other accrued liabilities; (ii) accrued payroll,
accrued vacation and other compensation expenses (including flexible time off (FTO), bonuses (other
than those set forth on Schedule A), flexible spending accounts (FSA/DECAP), 401(k)
withholding, health insurance reserve, and current payroll tax obligations), (iii) accrued taxes
(including, but not limited to, income, sales and property taxes), (iv) all Severance Obligations
in excess of $2,800,000, (v) the Dispute Letter Accrual, and (vi) accrued expenses and other
current liabilities. Notwithstanding the foregoing, Adjusted Current Liabilities shall not include
(w) the current portion of any Debt of the Acquired Entities, (x) any accrued and unpaid interest
and any other accrued payment obligations with respect to Debt included in Company Debt (y) the
Closing Costs, and (z) the Information Statement Fees.



     “Adjusted Net Working Capital” means Adjusted Current Assets minus Adjusted Current
Liabilities. Attached hereto as Exhibit A is a sample computation of Adjusted Net Working
Capital.



2









 





     “Affiliate” or “Affiliated” with respect to any specified Person, means a Person that,
directly or indirectly, through one or more intermediaries, controls or is controlled by, or is
under common control with, such specified Person.



     “Aggregate Transaction Consideration” means (i) $41,250,000, minus (ii) the Company
Debt, minus (iii) all Closing Costs in excess of $2,000,000, minus (iv) the
Purchase Price Adjustment (if any).



     “Breach” means (i) any breach, inaccuracy, failure to perform, failure to comply, conflict
with, failure to notify when there is an obligation to provide notice, default, or violation or
(ii) any other act, omission, event, occurrence or condition the existence of which would (A)
permit any Person to accelerate any obligation or terminate, cancel, or modify any right or
obligation or (B) require the payment of money or other consideration.



     “Business Day” means a day on which banks are ordinarily open for transaction of normal
banking business in Los Angeles, California.



     “Closing Costs” means the sum of (i) the dollar amount of all out-of-pocket costs, fees and
expenses of investment bankers, financial advisors, legal counsel and accountants incurred or
payable by the Acquired Entities in connection with the negotiation, execution and consummation of
the Transactions through the Equity Closing, plus (ii) the management bonuses set forth on
Schedule A hereto, plus (iii) fifty percent (50%) of the premium for the D&O Tail Policy.
For clarification purposes, if any such fees and expenses incurred through the Equity Closing are
contingent or payable only upon the consummation of the Merger, such expenses will constitute
Closing Costs hereunder notwithstanding that such fees or expenses may not be accrued under GAAP
until the Merger Closing. Closing Costs shall not include the Information Statement Fees.



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



     “Commercially Reasonable Best Efforts” means the efforts, time and costs that a prudent Person
desirous of achieving a result would use, expend, or incur in similar circumstances in an effort to
achieve such result as expeditiously as possible subject to then existing commercial realities.



     “Commitment” means (i) options, warrants, convertible securities, exchangeable securities,
subscription rights, conversion rights, exchange rights, or other Contracts that could require a
Person to issue any of its Equity Interests or sell any Equity Interests it owns in another Person,
(ii) any other securities convertible into, exchangeable or exercisable for, or representing the
right to subscribe for any Equity Interests of a Person or owned by a Person, (iii) statutory
preemptive rights or preemptive rights granted under a Person’s Organizational Documents, and (iv)
stock appreciation rights, phantom stock, profit participation, or other similar rights with
respect to a Person.



     “Company Debt” means the dollar amount of all Debt of the Acquired Entities outstanding as of
the Equity Closing Date, which shall be set forth on the Closing Statement prepared pursuant to
Section 2.3 hereof, including all accrued and unpaid interest relating thereto as of the
Equity Closing Date, and any accrued late fees or other payment obligations with



3









 




respect thereto and any and all penalties, premiums, or other breakage costs incurred as a
result of payment of the Company Debt on the Equity Closing Date; provided that the Disputed
Earn-Out Notes shall not be deemed Company Debt for purposes of this Agreement.




     “Company Option” means an option, warrant or other right to purchase shares of Company Common
Stock.



     “Company Plans” means all plans and other arrangements that currently are in effect which
provide compensation or benefits to current or former officers, directors, consultants, employees
or leased employees of any Acquired Entity, including, without limitation, all “employee benefit
plans” as defined in Section 3(3) of ERISA, and all bonus, stock option, stock purchase, incentive,
phantom stock, deferred compensation, supplemental retirement, insurance, severance and other
similar fringe or employee benefit plans, and all employment, consulting or executive compensation
agreements covering any current or former officer, director, employee or consultant of any Acquired
Entity or the beneficiaries or dependents of any such current or former officer, director, employee
or consultant.



     “Company Subsidiaries” means each of the direct or indirect Subsidiaries of the Company as set
forth on Schedule C.



     “Consent” means any consent, approval, notification, waiver, amendment or other similar
action.



     “Contract” means any contract, agreement, arrangement, commitment, letter of intent,
memorandum of understanding, heads of agreement, promise, obligation, right, instrument, document,
or other similar understanding, whether written or oral.



     “D&O Tail Policy” means a six (6) year run-off director and officer liability insurance
policy, effective as of the Equity Closing, for the benefit of the directors and officers of the
Company prior to the Equity Closing Date



     “DGCL” means the General Corporation Law of the State of Delaware as in effect as of the date
hereof.



     “Damages” means all damages, losses, Liabilities, penalties, fines and expenses actually
incurred and paid (including reasonable fees and expenses of outside attorneys) and Taxes with
respect to the foregoing, but in any case excluding consequential, incidental and punitive damages,
losses, lost profits, and Liabilities.



     “Debt” means indebtedness for borrowed money, including any bank debt or notes payable
(including current portion), capitalized lease obligations, the deferred purchase price for assets
or business acquired (including, without limitation, the maximum dollar amount due and payable in
connection with any earn-out, escrow, holdback or contingent payment).



     “Deficit Working Capital” means the amount, if any, by which the Adjusted Net Working Capital
of the Company at the Equity Closing is less than the Target Working Capital.



4









 





     “Disputed Earn-Out Notes” means those two (2) Earn-Out Promissory Notes, dated December 31,
2006, each in the principal amount of $150,000 issued to Douglas E. Tomblin, DVM and Thomas J.
Bernhard, DVM, respectively, that are the subject of that certain litigation entitled Tomblin vs.
XLNT Veterinary Care, Inc., etc., et. al, Case #37-2009-00067537 (San Diego Superior Court).



     “Encumbrance” means any chose, encumbrance, security interest, lien, easement, encroachment,
covenant, condition, preemptive purchase right or option, adverse claim or restriction.



     “Equity Closing” means the closing of the Equity Purchase.



     “Equity Closing Date” means the date of the closing of the Equity Purchase.



     “Equity Interest” means (b) with respect to a corporation, any and all shares of capital
stock, (b) with respect to a partnership, limited liability company, trust or similar Person, any
and all units, interests or other partnership/limited liability company interests, and (c) any
other direct equity ownership or participation in a Person.



     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.



     “Excess Closing Costs” means the amount, if any, by which the Closing Costs exceed $2,000,000.



     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.



     “GAAP” means United States generally accepted accounting principles as in effect as of the
date hereof.



     “Governmental Body” means any legislature, agency, bureau, department, commission, court,
political subdivision, tribunal or other instrumentality of government whether local, state,
federal or foreign.



     “Information Statement Fees” means the reasonable fees of outside legal counsel to the Special
Committee of the Board of Directors of the Company incurred in connection with the preparation and
filing of the Information Statement, as well as responding to any issues, questions and inquiries
raised or initiated by the SEC through the date that the Information Statement is mailed to the
Company’s shareholders in an amount estimated to be $150,000 and which shall will not exceed
$200,000.



     “In-the-Money Company Option” means each Company Option that has an exercise price less than
the quotient obtained by dividing (i) the Aggregate Transaction Consideration by (ii) the sum of
(x) the number of shares of Company Common Stock issued and outstanding immediately prior to the
Equity Closing (excluding any shares of Company Common Stock held as treasury shares), and (y) the
number of shares of Company Common Stock issuable upon exercise of all Company Options issued and
outstanding immediately prior to the Equity Closing determined pursuant to an iterative process
beginning with all Company Options issued and outstanding immediately prior to the Equity Closing
and continuing through successive iterations



5









 




that exclude those Company Options with the then highest exercise price per share that is
greater than the result obtained pursuant to clauses (i) and (ii) above in the immediately
preceding iteration until such time as the exercise price per share with respect to each remaining
outstanding Company Options is less than the result obtained pursuant to clauses (i) and (ii) above
in the immediately preceding iteration




     “Law” means any applicable statute, rule, regulation, administrative requirement, code or
ordinance of any Governmental Body, each as amended and now in effect.



     “Liability” or “Liable” means any liability or obligation, whether known or unknown, asserted
or unasserted, direct or indirect, matured or unmatured, absolute or contingent, accrued or
unaccrued, latent or patent, liquidated or unliquidated, or due or to become due.



     “Merger Expiration Date” means December 31, 2010; provided, however, that the same shall be
extended for successive periods of one calendar month each in the event any Governmental Body
continues to be engaged in any review or evaluation of the Transactions until such time as such
review or evaluation is completed plus one calendar month thereafter, provided, further however
that in no event shall the Merger Expiration Date be later than June 30, 2011.



     “Organizational Documents” means the articles of incorporation, certificate of incorporation,
charter, bylaws, articles of formation, regulations, operating agreement, certificate of limited
partnership, partnership agreement, and all other similar documents, instruments or certificates
executed, adopted, or filed in connection with the creation, formation, or organization of a
Person, including any amendments thereto.



     “Parties” means the Parent, Merger Sub, and the Company.



     “Permit” means any permit, license, certificate, approval, consent, notice, waiver, franchise,
registration, filing, accreditation, entitlement, or other similar authorization required by any
Law or Governmental Body.



     “Per Share Merger Consideration” means (i) the Aggregate Transaction Consideration
plus the aggregate consideration paid or payable upon exercise of all issued and
outstanding In-the-Money Company Options, divided by (ii) the sum of the number of shares
of Company Common Stock issued and outstanding immediately prior to the Equity Closing plus
the aggregate number of shares of Company Common Stock issuable upon exercise of all In-the-Money
Company Options issued and outstanding immediately prior to the Equity Closing.



     “Person” means any individual, partnership, limited liability company, corporation,
association, joint stock company, trust, entity, joint venture, labor organization, unincorporated
organization, or Governmental Body.



     “Purchase Price Adjustment” means the amount of the Deficit Working Capital, if any.



     “Representatives” means Persons acting on behalf of another Person, including such Person’s
officers, directors, employees, representatives, agents, independent accountants, investment
bankers and counsel.



6









 





     “SEC” means the United States Securities and Exchange Commission.



     “Securities Act” means the Securities Act of 1933, as amended.



     “Severance Obligations” means all severance and other similar payments (including without
limitation, COBRA benefits) paid or payable to employees of the Acquired Entities in connection
with the consummation of the Transactions, and including all Taxes paid or payable relating
thereto.



     “Subsidiary” means, with respect to any Person: (i) any corporation of which more than ten
percent (10%) of the total voting power of all classes of the Equity Interests entitled (without
regard to the occurrence of any contingency) to vote in the election of directors is owned by such
Person directly or through one or more other Subsidiaries of such Person and (ii) any Person other
than a corporation of which at least ten percent (10%) of the Equity Interests (however designated)
entitled (without regard to the occurrence of any contingency) to vote in the election of the
governing body, partners, managers or others that will control the management of such entity are
owned by such Person directly or through one or more other Subsidiaries of such Person.



     “Target Working Capital” means negative $750,000.



     “Tax” means (i) any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs, ad valorem, duties, capital stock, franchise, profits, withholding, social
security, unemployment, disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether disputed or not,
including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any
other Person, and (ii) any obligations under any Contracts with respect to any Tax described in
clause (i) above.



     “Termination Date” means the date on which this Agreement is terminated pursuant to
Section 7.1.



     “Transaction Documents” means this Agreement, the Stock Purchase Agreement, the Limited
Releases (as defined in the Stock Purchase Agreement), the Proxies (as defined in the Stock
Purchase Agreement) and each of the other documents, instruments and agreements to be executed,
delivered, and performed in connection herewith and therewith, together with any exhibits or
schedules constituting a part thereof.



     “Transactions” means all of the transactions contemplated by the Transaction Documents,
including: (i) the sale of the shares of Company Common Stock, and Company Options pursuant to the
terms of the Stock Purchase Agreement to Merger Sub; (ii) the Merger; (iii) the execution,
delivery, and performance of all of the documents, instruments and agreements to be executed,
delivered, and performed in connection herewith; and (iv) the performance by Parent, Merger Sub,
the Sellers (as defined in the Stock Purchase Agreement) and the Company of their respective
covenants and obligations (pre- and post-closing, as applicable) under the Transaction Documents.



7









 





     The following additional terms are defined in the sections of the Agreement set forth across
from such terms as set below:



	 	 	 
	Defined Term	 	Location of Definition
	 	 	 
	Agreement

	 	Preamble
	Asset Sale Transaction

	 	Error! Reference source not found.
	Closing Statement

	 	Section 2.3
	Company

	 	Preamble
	Company Common Stock

	 	Recitals
	Company Disclosure Schedule

	 	ARTICLE IV
	Company Stock Certificate

	 	Section 2.9(c)
	Converted Option Holder

	 	Section 2.11(d)
	Converted Option Merger Consideration

	 	Section 2.11(b)
	Converted Options

	 	Section 2.11(b)
	Dispute Letter

	 	Error! Reference source not found.

of the

Company Disclosure Schedule
	Dispute Letter Accrual

	 	Error! Reference source not found.

of the

Company Disclosure Schedule
	Dissenting Shares

	 	Section 2.12
	Effective Time

	 	Section 2.4
	Equity Purchase

	 	Recitals
	Information Statement

	 	Section 5.2(a)
	Merger

	 	Recitals
	Merger Certificate

	 	Section 2.4
	Merger Closing

	 	Section 2.2
	Merger Closing Date

	 	Section 2.2
	Merger Sub

	 	Preamble
	Parent

	 	Preamble
	Paying Agent

	 	Section 2.10(a)
	Preferred Stock

	 	Section 4.4
	Stockholder Consent

	 	Recitals
	Stockholders

	 	Section 2.10(a)
	Stock Purchase Agreement

	 	Recitals
	Surviving Corporation

	 	Section 2.1







8











 





ARTICLE II.

THE MERGER




     Section 2.1. Merger. On the terms and subject to the conditions set forth in this Agreement,
at the Effective Time, in accordance with this Agreement and the DGCL, Merger Sub will be merged
with and into the Company, Merger Sub’s separate corporate existence will cease, and the Company
will continue as the surviving corporation and as a wholly owned Subsidiary of Parent. The Company
as the surviving corporation after the Merger is sometimes referred to herein as the “Surviving
Corporation,” and references to the Company herein shall, for periods after the Effective Time, be
deemed to be references to the Surviving Corporation.



     Section 2.2. Closing. The closing of the Merger (the “Merger Closing”) will take place,
following the satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the Merger (other than conditions with respect to actions the respective Parties will
satisfy at the Merger Closing itself), at the offices of Akin Gump Strauss Hauer & Feld LLP,
Century Tower Plaza, 2029 Century Park East, Suite 2400, Los Angeles, California, commencing at
9:00 a.m. (PST) on the later to occur of (i) the 1st day of the month following the
satisfaction or waiver of all conditions to the obligations of the Parties to consummate the Merger
(other than conditions with respect to actions the respective Parties will satisfy at the Merger
Closing itself), and (ii) the twenty-first (21st) day after delivery of the Information Statement
to the Company’s Stockholders, or such other date as the Parties may mutually determine (the
“Merger Closing Date”).



     Section 2.3. Closing Statement. At least ten (10) days prior to the expected Equity Closing
Date, the Company shall prepare and deliver to Parent a written statement, dated as of the date of
delivery, setting forth the Company’s good faith estimate of the Company Debt, the Closing Costs
and the Purchase Price Adjustment as of the Equity Closing Date, prepared in reasonable detail as
requested by Parent (the “Closing Statement”) in the form of Exhibit B. The Closing
Statement shall be subject to review by Parent and Parent shall give notice of any exceptions
regarding the Closing Statement no later than two (2) days prior to the Equity Closing Date and in
the absence of any such notice the Closing Statement as delivered by the Company shall be
conclusive and binding upon the Parties for purposes of the Merger Closing. Parent and the Company
shall negotiate in good faith to resolve any exceptions Parent may have to the Closing Statement,
but in the absence of such agreement the Closing Statement, as modified by Parent, shall be
conclusive and binding upon the Parties for purposes of the Merger Closing unless the difference
between the Closing Statement submitted by the Company and the Closing Statement as modified by
Parent is greater than $25,000, in which case the mid-point between the two positions shall be used
for purposes of the Merger Closing. In reviewing the Closing Statement, Parent shall have the
right to discuss such matters with the Company and its Representatives and to review the work
papers, schedules, memoranda, and other documents, including third party payoff schedules the
Company and its Representatives prepared or reviewed in determining each of the items set forth on
the Closing Statement.



     Section 2.4. Payments and Deliveries at the Merger Closing. On the Merger Closing Date, the
Parties will cause the Merger to be consummated by filing with the Secretary of State of the State
of Delaware a Certificate of Merger (or like instrument) substantially in the form of Exhibit C
(the “Merger Certificate”), in accordance with the DGCL. The Parties shall



9









 




file such other documents with the Secretary of State of the State of Delaware as may be required
by the provisions of the DGCL and as are necessary to cause the Merger to become effective. The
date and time the Merger becomes effective will be as specified in the Merger Certificate or as
otherwise provide in accordance with the DGCL and is referred to as the “Effective Time.” In
addition at the Merger Closing:




          (a) The Company will deliver to Parent:



               (i) An officer’s certificate, substantially in the form of Exhibit D, duly executed on
the Company’s behalf, as to whether each condition to be satisfied by the Company specified in
Section 6.1 and Section 6.2 has been satisfied as of the Merger Closing Date.



               (ii) A secretary’s certificate, substantially in the form of Exhibit E, duly executed
on the Company’s behalf.



          (b) Parent will deliver to the Company:



               (i) A secretary’s certificate, substantially in the form of Exhibit F, duly executed
on Parent’s behalf.



          (c) The Parties shall also deliver to each other any agreements, closing certificates and
other documents and instruments required to be delivered pursuant to this Agreement.



     Section 2.5. Taking of Necessary Action; Further Action. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the purposes of this Agreement
and to vest the Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers, and franchises of the Company and the Company Subsidiaries,
the officers and directors of the Company, Parent, and Merger Sub are fully authorized in the name
of their respective corporations or otherwise to take, and the Company and Parent will cause them
to take, all such lawful and necessary action.



     Section 2.6. Effect of the Merger. At the Effective Time, the effect of the Merger will be as
provided in this Agreement and the DGCL. At the Effective Time all of the Company’s and Merger
Sub’s property, rights, privileges, powers, and franchises will vest in the Surviving Corporation,
and all debts, liabilities, duties and obligations of the Company and Merger Sub will become the
Surviving Corporation’s debts, liabilities, duties and obligations.



     Section 2.7. Charter and Bylaws. Unless Parent otherwise determines, at the Effective Time,
the Merger Sub’s certificate of incorporation will be the Surviving Corporation’s certificate of
incorporation until thereafter amended as provided by Law and such certificate of incorporation.
The Merger Sub’s bylaws, as in effect immediately prior to the Effective Time, will be the
Surviving Corporation’s bylaws until thereafter amended.



     Section 2.8. Directors and Officers. Merger Sub’s directors and officers immediately prior to
the Effective Time will be the Surviving Corporation’s initial directors and officers.



10









 





     Section 2.9. Effect on Capital Stock. At the Effective Time, because of the Merger and without
any action on the part of Parent, Merger Sub, or the Company:



          (a) Cancellation of Parent-Owned and Company-Owned Stock. Each share of Company
Common Stock or Company Option that Merger Sub, Parent, the Company or any direct or indirect
wholly-owned Subsidiary of Merger Sub, Parent or the Company owns, or holds in treasury,
immediately prior to the Effective Time will be canceled and extinguished without conversion.



          (b) Common Stock of Merger Sub. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, each share of Merger Sub’s common stock
issued and outstanding immediately prior to the Effective Time will be converted into and exchanged
for one validly issued, fully paid, and nonassessable share of the Surviving Corporation’s common
stock. Each stock certificate of Merger Sub evidencing ownership of any such shares will from and
after the Effective Time evidence ownership of shares of the Surviving Corporation’s common stock.



          (c) Conversion of Company Common Stock. Subject to Section 2.12, each share of
Company Common Stock issued and outstanding immediately prior to the Effective Time will be
automatically converted into the right to receive an amount in cash equal to the Per Share Merger
Consideration, without interest, payable to the holder thereof, less any required withholding
taxes, upon surrender of the certificate formerly representing such shares of Company Common Stock
(“Company Stock Certificate”) in the manner provided in Section 2.10. All such shares of
Company Common Stock, when so converted, will no longer be outstanding and will automatically be
canceled and retired and will cease to exist, and the holder of a Company Stock Certificate that,
immediately prior to the Effective Time, represented outstanding shares of Company Common Stock
will cease to have any rights with respect thereto, except the right to receive, upon the surrender
of such Company Stock Certificate, the Per Share Merger Consideration without interest except as
provided in Section 2.12.



          (d) Rights Prior to Surrender, Stock Splits, etc. and Stock Transfer Books. Until
surrendered as contemplated by Section 2.10, each Company Stock Certificate will be deemed
at any time after the Effective Time to represent only the right to receive upon such surrender the
amounts provided for in this Section 2.9, except as provided in Section 2.12. If
between the date hereof and the Effective Time the outstanding shares of Company Common Stock are
changed into a different number of shares or a different class, because of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange of shares, the
amounts provided for in this Section 2.9 with respect to such class of Company Common Stock
will be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares. After the Effective Time, the
Company’s stock transfer books will be closed and there will be no further transfers of shares of
Company Common Stock following the Effective Time. If, at or after the Effective Time, Company
Stock Certificates are presented to the Surviving Corporation, they will be canceled and exchanged
in accordance with this Agreement.



11









 





     Section 2.10. Surrender of Certificates.



          (a) Surrender of Certificates. At the Effective Time, the Surviving Corporation shall
irrevocably deposit or cause to be deposited with a paying agent appointed by Parent (the “Paying
Agent”), as agent for the holders of shares of Company Common Stock to be cancelled in accordance
with Section 2.9, cash in the aggregate amount required to pay the aggregate amount of the
Per Share Merger Consideration payable on the shares of Company Common Stock outstanding
immediately prior to the Effective Time. Pending distribution pursuant to Section 2.10(b)
of the cash deposited with the Paying Agent, such cash shall be held in trust for the benefit of
the holders of shares of Company Common Stock converted pursuant to the Merger and such cash shall
not be used for any other purposes. Promptly after the Effective Time, the Surviving Corporation
shall cause the Paying Agent to mail to each Person who was, at the Effective Time, a holder of
record of shares of Company Common Stock entitled to receive the Per Share Merger Consideration
payable on shares of Company Common Stock pursuant to Section 2.9 hereof (the
“Stockholders”), a form of letter of transmittal in the form of Exhibit G attached hereto
and instructions for use in effecting the surrender of shares of Company Common Stock pursuant to
such letter of transmittal. Upon surrender to the Paying Agent of a Company Stock Certificate,
together with such letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, and such other documents as may be required pursuant to such
instructions, the holder of such Company Stock Certificate shall be entitled to receive in exchange
therefor the Per Share Merger Consideration payable on shares of Company Common Stock for each
share of Company Common Stock formerly evidenced by such Company Stock Certificate and such Company
Stock Certificate shall thereupon be cancelled. No interest shall accrue or be paid on the Per
Share Merger Consideration payable upon the surrender of any Company Stock Certificate for the
benefit of the holder of such Company Stock Certificate and any required withholding taxes on the
Per Share Merger Consideration payable on shares of Company Common Stock may be withheld by Parent,
the Surviving Corporation, or the Paying Agent. All interest accrued in respect of the cash
deposited with the Paying Agent shall accrue to the benefit of and be paid to the Surviving
Corporation.



          (b) After surrender to the Paying Agent of any Company Stock Certificate or other instrument
which prior to the Effective Time shall have represented any share of Company Common Stock, the
Paying Agent shall, promptly distribute to the Person in whose name such Company Stock Certificate
or other instrument shall have been registered, a check representing the Per Share Merger
Consideration payable on shares of Company Common Stock that such Person has the right to receive
pursuant to the provisions of this Section 2.10. Until so surrendered and cancelled, each
such Company Stock Certificate or other instrument shall, after the Effective Time, be deemed to
represent only the right to receive the Per Share Merger Consideration payable on shares of Company
Common Stock, and until such surrender and cancellation, no cash shall be paid to the holder of
such outstanding Company Stock Certificate or other instrument in respect thereof. From and after
the Effective Time, the holders of shares of Company Common Stock outstanding immediately prior to
the Effective Time shall cease, except for Dissenting Shares and otherwise as required by law, to
have any rights with respect to such shares of Company Common Stock, other than the right to
receive the Per Share Merger Consideration payable on shares of Company Common Stock as provided in
this Agreement.



12









 





          (c) If payment is to be made to a Person other than the registered holder of the shares of
Company Common Stock represented by the Company Stock Certificate or other instrument so
surrendered in exchange therefor, it shall be a condition to such payment that the Company Stock
Certificate or other instrument so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the Person requesting such payment shall pay to the Paying Agent any
transfer or other taxes required as a result of such payment to a Person other than the registered
holder of such shares of Company Common Stock or establish to the satisfaction of the Paying Agent
that such tax has been paid or is not payable.



          (d) If any cash deposited with the Paying Agent for purposes of payment in exchange for the
shares of Company Common Stock remains unclaimed six (6) months after the Effective Time, such cash
shall be returned to the Surviving Corporation, upon demand, and any such holder who has not
converted the shares of Company Common Stock into the Per Share Merger Consideration payable on
shares of Company Common Stock pursuant to this Agreement prior to that time shall thereafter look
only to the Surviving Corporation for payment of the Per Share Merger Consideration payable on
shares of Company Common Stock. Notwithstanding the foregoing, the Surviving Corporation shall not
be liable to any holder of shares of Company Common Stock for any amount paid to a public official
pursuant to applicable unclaimed property laws. Any amounts remaining unclaimed by holders of
shares of Company Common Stock or Converted Options seven (7) years after the Effective Time (or
such earlier date immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity) shall, to the extent permitted by applicable Law,
become the property of the Surviving Corporation, free and clear of any claims or interest of any
Person previously entitled thereto.



          (e) Any portion of the Per Share Merger Consideration made available to the Paying Agent to
pay for shares of Company Common Stock for which dissenters’ rights have been perfected as provided
in Section 2.12 shall be returned to the Surviving Corporation upon demand.



          (f) In the event that any Company Stock Certificate or other instrument representing shares of
Company Common Stock shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such certificate or other instrument to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by such holder 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 Company Stock Certificate or other instrument, the
Paying Agent will issue in exchange for and in lieu of such lost, stolen or destroyed certificate
or other instrument representing shares of Company Common Stock, the applicable Per Share Merger
Consideration payable on shares of Company Common Stock, pursuant to this Agreement and the Merger,
without interest and less any required withholding taxes.



          (g) All Per Share Merger Consideration payable on shares of Company Common Stock will be
deemed to have been issued in full satisfaction of all rights pertaining to shares of Company
Common Stock.



13









 





     Section 2.11. Stock Options and Warrants.



          (a) Each Company Option that is not an In-the-Money Company Option shall be cancelled at the
Effective Time, without any payment or other consideration therefore.



          (b) All In-the-Money Company Options (the “Converted Options”), whether vested or not vested,
shall be cancelled at the Effective Time, and, in lieu thereof, shall be converted into the right
to receive, per share of Company Common Stock issuable upon exercise in full of such In-the-Money
Company Option, a cash payment equal to the excess of the Per Share Merger Consideration for shares
of Company Common Stock subject to the Converted Option, if such Converted Option were exercised in
full, over the aggregate exercise price payable upon exercise in full of such Converted Option, as
reduced by any required tax withholdings (collectively, the “Converted Option Merger
Consideration”).



          (c) Prior to the Effective Time, the Company shall take all steps necessary to make any
amendments to the terms of such stock option plans, individual option agreements or Options that
are necessary to give effect to the Transactions contemplated by this Agreement. At or prior to
the Effective Time, the Company shall take all reasonable and necessary action to facilitate the
timely exercise of rights and obligations to effectuate the provisions of this Section
2.11.



          (d) At the Effective Time, the Surviving Corporation shall deliver to the Paying Agent a list
of the names and addresses of the holders of the Converted Options (the “Converted Option Holders”)
and, with respect to each Converted Option, deposit or cause to be deposited with the Paying Agent
the aggregate amount of the Converted Option Merger Consideration payable on the Converted Options.
Promptly after the Effective Time, the Surviving Corporation shall cause the Paying Agent to mail
to each Converted Option Holder a letter of transmittal and instruction in the form of Exhibit
G attached hereto, for use in obtaining payment of the Converted Option Merger Consideration to
which such Converted Option Holder is entitled. Upon delivery to the Paying Agent such letter of
transmittal, duly completed and validly executed in accordance with the instructions thereto,
together with such option agreement, warrant or other instrument which prior to the Effective Time
shall have represented any Company Option, and such other documents as may be required pursuant to
such instructions, the Converted Option Holder shall be entitled to receive in exchange for the
Converted Option held the Converted Option Merger Consideration to which such Converted Option
Holder is entitled. No interest shall accrue or be paid on the Converted Option Merger
Consideration payable with respect to any Converted Option and any required withholding taxes on
the Converted Option Merger Consideration payable on the Converted Options may be withheld by
Parent, the Surviving Corporation, or the Paying Agent. All interest accrued in respect of the
cash deposited with the Paying Agent shall accrue to the benefit of and be paid to the Surviving
Corporation.



          (e) From and after the Effective Time, other than as expressly set forth in this Section
2.11 or any written agreement between the Company, the Parent and the holders of Company
Options outstanding immediately prior to the Effective Time, no holder of Company Options shall
have any rights with respect to such Company Options, other than to receive the



14









 




Converted Option Merger Consideration, if any payable thereon as provided herein. The
surrender of any Company Option, the delivery of any letter of transmittal, or the receipt of cash
in cancellation of such Company Option by the holder of such Company Option shall be deemed a
release of any and all rights the holder of such Company Option had or may have had in respect of
such Company Option except as expressly provided by this Agreement.




          (f) All Converted Option Merger Consideration payable on Converted Options will be deemed to
have been issued in full satisfaction of all rights pertaining to the Converted Options.



     Section 2.12. Shares of Dissenting Stockholders. Notwithstanding Section 2.9(c)
hereof, to the extent that holders of shares of Company Common Stock are entitled to appraisal
rights under Section 262 of the DGCL, shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time and held by a holder who has properly exercised and
perfected his or her demand for appraisal rights under the DGCL (the “Dissenting Shares”), shall
not be converted into the right to receive the Per Share Merger Consideration, but the holders of
such Dissenting Shares shall be entitled to receive such consideration as shall be determined
pursuant to DGCL (and at the Effective Time, such Dissenting Shares shall no longer be outstanding
and shall cease to have any rights with respect thereto, except the right to receive such
consideration as shall be determined pursuant to the DGCL); provided, however, that
if any such holder shall have failed to perfect or shall have effectively withdrawn or lost his or
her right to appraisal and payment under the DGCL, such holder’s shares of Company Common Stock
shall thereupon be deemed to have been converted as of the Effective Time into the right to receive
the Per Share Merger Consideration without any interest thereon and such shares shall not be deemed
to be Dissenting Shares. Any payments required to be made with respect to the Dissenting Shares
shall be made by the Surviving Corporation (and not the Company, Merger Sub Parent) and the
Aggregate Transaction Consideration shall be reduced, on a dollar for dollar basis, as if the
holder of such Dissenting Shares had not been a stockholder on the Merger Closing Date. The
Company will give Parent (a) prompt notice of any written demands for the exercise of dissenters or
appraisal rights, withdrawals of demands for the exercise of dissenters or appraisal rights and any
other instruments served under the DGCL, and (b) the opportunity to direct all negotiations and
proceedings with respect to demands for exercise of dissenters or appraisal rights under the DGCL.
The Company will not voluntarily make any payment with respect to any purchase demands and will
not, except with Parent’s prior written consent, settle or offer to settle any such demands.



ARTICLE III.

REPRESENTATIONS AND WARRANTIES

OF PARENT AND MERGER SUB




     Parent and Merger Sub represent and warrant to the Company as follows:



     Section 3.1. Entity Status. Each of Parent and Merger Sub is an entity duly created, formed
or organized, validly existing and in good standing under the Laws of the jurisdiction of its
creation, formation or organization.



15









 





     Section 3.2. Power and Authority; Enforceability. Parent and Merger Sub have the corporate
power and authority to execute and deliver this Agreement and each other Transaction Document to
which they are a party, and to perform and consummate the Transactions. Parent and Merger Sub have
taken all action necessary to authorize the execution and delivery of each other Transaction
Document to which they are a party, the performance of Parent’s and Merger Sub’s obligations
thereunder, and the consummation of the Transactions. This Agreement and each other Transaction
Document has been duly authorized, executed and delivered by Parent or Merger Sub, if Parent or
Merger Sub is a party thereto, and constitutes the legal, valid and binding obligation of Parent or
Merger Sub, if a party thereto, enforceable against Parent or Merger Sub, if a party thereto, in
accordance with its terms, in each case subject to applicable bankruptcy, insolvency and similar
laws affecting the enforceability of creditors’ rights generally, general principles of equity, the
discretion of courts in granting equitable remedies and matters of public policy.



     Section 3.3. No Violation. The execution and the delivery of the Transaction Documents to
which Parent or Merger Sub is a party and the performance and consummation of the Transactions by
Parent or Merger Sub do not and will not (with or without the passage of time or the giving of
notice) (i) Breach any Law to which Parent or Merger Sub is subject or any provision of Parent’s or
Merger Sub’s Organizational Documents, (ii) Breach in any material respect any material Contract to
which Parent or Merger Sub is a party or by which Parent or Merger Sub is bound, (iii) require any
Consent, except (A) any SEC and other filings required to be made by Parent or Merger Sub and (B)
any notifications or filings to any relevant state or federal regulatory agencies, or (iv) Breach
any resolution adopted by the board of directors or the stockholders of Parent or Merger Sub, or
(v) give any Governmental Body or other Person the right to challenge any of the Transactions or to
exercise any remedy or obtain any relief under any Law to which Parent or Merger Sub may be
subject.



     Section 3.4. Consents. No Consent of or filing with any Governmental Body or other Person is
required in connection with the execution or performance of this Agreement or the other Transaction
Documents by Parent or Merger Sub or the consummation by Parent or Merger Sub of the Transactions
except for such Consents or filings which have been obtained as of the date hereof or as to which
the failure to obtain or make would not adversely affect Parent’s or Merger Sub’s ability to
consummate the Transactions in any material respect.



     Section 3.5. Sufficient Funds. As of (i) the date hereof, and (ii) the Merger Closing Date,
Merger Sub has and will have sufficient funds to consummate the Transactions.



ARTICLE IV.

REPRESENTATIONS AND WARRANTIES

OF THE COMPANY




     Except as is provided in the disclosure letter delivered in connection with the execution and
delivery of the Stock Purchase Agreement by the Company (the “Company Disclosure Schedule”), the
Company represents and warrants to Parent and Merger Sub as follows:



16









 





     Section 4.1. Corporate Status. Each Acquired Entity is an entity duly created, formed or
organized, validly existing and in good standing under the Laws of the jurisdiction of its
creation, formation or organization.



     Section 4.2. Power and Authority; Enforceability. The Company has the corporate power and
authority to execute and deliver this Agreement, the Stock Purchase Agreement and each other
Transaction Document to which it is a party and to perform and consummate the Merger and the
Transactions. The Company has taken all action necessary to authorize the execution and delivery
of this Agreement, the Stock Purchase Agreement and each other Transaction Document to which it is
a party, the performance of its obligations hereunder and thereunder, and the consummation of the
Transactions. Without limiting the generality of the foregoing, the board of directors of the
Company, at a meeting duly called and held, unanimously adopted resolutions (a) determining that
the Merger is fair and in the best interests of the Company, the Stockholders of the Company and
the holders of Company Options, (b) approving and declaring advisable this Agreement, the Stock
Purchase Agreement and the Transaction Documents to which the Company is a party, the Merger and
the Transactions, (c) directing that this Agreement and the Merger be submitted to the Company’s
Stockholders for their adoption and approval, and (d) recommending that the Company’s Stockholders
vote or provide a written consent in favor of the adoption of this Agreement and the approval of
the Merger and the consummation of the Transactions. The Stockholder Consent has been obtained in
accordance with applicable Law and is the only vote or approval of the holders of any class or
series of capital stock of the Company and any Acquired Entity which is necessary to adopt this
Agreement, the Stock Purchase Agreement and approve and consummate the Merger and the Transactions.
This Agreement, the Stock Purchase Agreement and each other Transaction Document to which the
Company is a party has been duly authorized, executed and delivered by, the Company, and
constitutes the legal, valid and binding obligation of the Company, if a party thereto, and is
enforceable against the Company in accordance with its terms, in each case subject to applicable
bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights
generally, general principles of equity, the discretion of courts in granting equitable remedies
and matters of public policy.



     Section 4.3. No Violation. The execution and the delivery by the Company of this Agreement,
the Stock Purchase Agreement and the Transaction Documents to which the Company is a party and the
performance of the Company’s obligations thereunder, and consummation of the Transactions by the
Company will not (a) Breach any Law to which any Acquired Entity is subject or any provision of the
Organizational Documents of any Acquired Entity, (b) Breach any Contract identified on Section
5.18(a) of the Company Disclosure Schedule, or Permit listed on Section 5.13(b) of the
Company Disclosure Schedule, (c) other than as set forth on Section 5.3 of the Company
Disclosure Schedule, require any Consent, (d) Breach any resolution adopted by the board of
directors or the Stockholders of the Company, (e) give any Governmental Body or other Person the
right to challenge any of the Transactions or to exercise any remedy or obtain any relief under any
Law to which the Acquired Entities may be subject, or (f) result in the imposition or creation of
any Encumbrance upon or with respect to any of assets of the Acquired Entities.



     Section 4.4. Capitalization. The authorized capital stock of the Company consists of
90,000,000 shares of Company Common Stock, par value $0.0001 per share, and 10,000,000



17









 




shares of the Company’s preferred stock, par value $0.0001 per share (the “Preferred Stock”).
As of the close of business on the date of this Agreement, (i) 23,753,460 shares of Company Common
Stock were issued and outstanding, (ii) no shares of Preferred Stock were issued and outstanding,
and (iii) 1,361,574 shares of Company Common Stock were held as treasury shares. As of the close
of business on the date of this Agreement there were (A) 2,349,013 shares of Company Common Stock
authorized and reserved for future issuance under any Company Plans, (B) 17,589,147 shares of
Company Common Stock authorized and reserved for issuance upon conversion of convertible notes, and
(C) 19,578,275 shares of Company Common Stock authorized and reserved for issuance upon exercise of
Company Options. No Equity Interests or Commitments have been issued, reserved for issuance or are
outstanding, other than or pursuant to the Company Options and convertible notes referred to above
that are outstanding as of the date of this Agreement. Except as set forth on Section 5.4
of the Company Disclosure Schedule, there are no Contracts with respect to the voting or transfer
of the Company’s Equity Interests. Other than as set forth on Section 5.4 of the Company
Disclosure Schedule, no Commitments exist or are authorized with respect to the Equity Interests of
the Company and no Commitments will arise in connection with the Transactions.




ARTICLE V.

COVENANTS




     The Parties agree as follows with respect to the period between the execution of this
Agreement and the earlier of the Equity Closing and the Termination Date, unless otherwise stated:



     Section 5.1. General. Each Party will use its Commercially Reasonable Best Efforts to take all
actions and to do all things necessary, proper or advisable to consummate, make effective, and
comply with all of the terms of this Agreement and the Transactions including satisfaction of all
of the conditions to Equity Closing for which it is responsible or otherwise controls as set forth
in ARTICLE VI.



     Section 5.2. Information Statement.



          (a) Covenants of the Company with Respect to the Information Statement. The Company
shall prepare and shall cause to be filed with the SEC on the Equity Closing Date an information
statement (together with any amendments thereof or supplements thereto, the “Information
Statement”) in form and substance reasonably satisfactory to the Parent, relating to the adoption
and approval by written consent of this Agreement and the Merger. The Company shall use its
Commercially Reasonable Best Efforts to respond as promptly as reasonably practicable to any
comments of the SEC with respect to the Information Statement. The Company shall promptly notify
the Parent upon the receipt of any comments from the SEC or its staff or any request from the SEC
or its staff for amendments or supplements to the Information Statement. The Company shall consult
with the Parent prior to responding to any such comments or requests or filing any amendment or
supplement to the Information Statement and shall provide Parent with copies of all correspondence
between the Company and its Representatives on the one hand and the SEC and its staff on the other
hand. None of the information with respect to the Company or its Subsidiaries to be included in
the Information Statement will, at the time of the mailing of the Information Statement or any
amendments or



18









 




supplements thereto, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading. The Information
Statement will comply in all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated thereunder.




          (b) Covenants of the Parent with Respect to the Information Statement. None of the
information with respect to the Parent, Merger Sub or their respective subsidiaries specifically
provided in writing by the Parent or any person authorized to act on its behalf for inclusion in
the Information Statement will, at the time of the mailing of the Information Statement or any
amendments or supplements thereto, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not misleading.



          (c) Cooperation. The Company and the Parent shall cooperate and consult with each
other in preparation of the Information Statement. Without limiting the generality of the
foregoing, the Parent will furnish to the Company the information relating to it required by the
Exchange Act and the rules and regulations promulgated thereunder to be set forth in the
Information Statement. Notwithstanding anything to the contrary stated above, prior to filing and
mailing the Information Statement or responding to any comments of the SEC with respect thereto,
the party responsible for filing or mailing such document shall provide the other party an
opportunity to review and comment on such document or response and shall discuss with the other
party and include in such document or response, comments reasonably and promptly proposed by the
other party. The Company and the Parent shall use their Commercially Reasonable Best Efforts to
respond to any comments from the SEC within seven calendars days of receipt thereof.



          (d) Mailing of Information Statement; Amendments. Within five (5) days after the
Information Statement has been cleared by the SEC, the Company shall mail the Information Statement
to the holders of shares of Company Common Stock as of the date of the Written Consent. All
documents that each of the Company and the Parent is responsible for filing with the SEC in
connection with the Merger will comply as to form and substance in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of
NASDAQ.



ARTICLE VI.

CLOSING CONDITIONS




     Section 6.1. General Conditions. The obligations of the Parties to effect the Merger Closing
shall be subject to the satisfaction of the following conditions unless waived in writing by Parent
and the Company:



          (a) No Injunction. No Law or order, injunction, judgment, decree, ruling, assessment,
or award shall have been enacted, entered, issued or promulgated by any Governmental Body (and be
in effect) which prohibits the consummation of the Merger or any of the other Transactions.



19









 





          (b) Legal Proceedings. No Governmental Body shall have initiated proceedings to
restrain or prohibit the Merger or any of the other Transactions or force rescission, unless such
Governmental Body shall have withdrawn and abandoned any such proceedings prior to the time which
otherwise would have been the Merger Closing Date.



          (c) Regulatory Approval. All regulatory approvals or waivers required to consummate
the Transactions shall have been obtained and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired.



          (d) Equity Purchase Closing. The closing of the Equity Purchase shall have occurred
in accordance with the terms and conditions of the Stock Purchase Agreement.



     Section 6.2. Conditions Precedent to Obligation of Parent and Merger Sub. Parent’s and Merger
Sub’s obligation to consummate the Merger Closing is subject to the satisfaction on or prior to the
Merger Closing Date of each condition precedent listed below, any of which may be waived in writing
by Parent and/or Merger Sub.



          (a) Accuracy of Representations and Warranties of the Company. All representations
and warranties of the Company set forth in Section 4.4 shall have been accurate and
complete in all respects on the date when made and on the Merger Closing Date with the same effect
as if made on and as of the Merger Closing Date, without giving effect to any supplements to the
Company Disclosure Schedule.



ARTICLE VII.

TERMINATION




     Section 7.1. Termination of Agreement. The Parties may terminate this Agreement upon written
notice thereof to each of the other Parties hereto and the Transactions may be abandoned at any
time prior to the Merger Closing Date as provided below:



          (a) by the mutual written consent of Parent and the Company; or



          (b) by Parent if the Stock Purchase Agreement has been terminated or expired or if any Action
seeking to prohibit, restrain, invalidate or collect Damages as a result of the consummation of the
Equity Purchase, the Merger or the other Transactions is pending; or



          (c) by Parent if any of the conditions provided for in Section 6.1 or Section
6.2 of this Agreement has not been satisfied on or before the Merger Expiration Date or shall
have become incapable of satisfaction or fulfillment on or before the Merger Expiration Date (other
than as a result of a Breach of this Agreement by Parent) and Parent has not waived such
conditions; or



          (d) by the Company if any of the conditions provided for in Section 6.1 of this
Agreement has not been satisfied on or before the Merger Expiration Date or shall have become
incapable of satisfaction or fulfillment on or before the Merger Expiration Date (other than as a
result of a Breach of this Agreement by the Acquired Entities) and the Company has not waived such
conditions; or



20









 





          (e) by Parent, if prior to the Equity Closing Date the board of directors of the Company (i)
withdraws, modifies or changes its recommendation of this Agreement, the Stock Purchase Agreement
or the Merger in a manner adverse to Parent or shall have resolved pursuant to valid board action
to do any of the foregoing, or (ii) shall have recommended to the Stockholders of the Company any
Acquisition Proposal or resolved by valid board action to do so.



     Section 7.2. Effect of Termination. Except for the obligations under this ARTICLE VII
and ARTICLE VIII, if this Agreement is terminated under Section 7.1, then all
further obligations of the Parties under this Agreement will terminate. Except as otherwise set
forth herein, such termination shall be without liability of any Party to any other Party;
provided, however that notwithstanding the foregoing, such termination shall not relieve any Party
of Liability for any Breach of this Agreement which occurs prior to termination.



ARTICLE VIII.

MISCELLANEOUS




     Section 8.1. Entire Agreement. The Transaction Documents, together with the exhibits and
schedules hereto and the certificates, documents, instruments and writings that are delivered
pursuant hereto, constitute the entire agreement and understanding of the Parties in respect of the
subject matter contemplated thereby and supersede all prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they relate in any way to
the subject matter thereof or the Transactions. Except as expressly contemplated by ARTICLE
VII, there are no third party beneficiaries having rights under or with respect to this
Agreement.



     Section 8.2. Successors. All of the terms, agreements, covenants, representations, warranties,
and conditions of this Agreement are binding upon, and inure to the benefit of and are enforceable
by, the Parties and their respective successors.



     Section 8.3. Assignments. No Party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of Parent and the Company;
provided, however, that Parent may (a) assign any or all of its rights and interests hereunder to
one or more of its Affiliates and (b) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Parent nonetheless will remain responsible for
the performance of all of its obligations hereunder).



     Section 8.4. Notices. All notices, requests, demands, claims and other communications
hereunder will be in writing. Any notice, request, demand, claim or other communication hereunder
will be deemed duly given if (and then three (3) Business Days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient
as set forth below:


If to Parent, Merger Sub and after the Merger Closing to the Company:



VCA Antech, Inc.

12401 West Olympic Boulevard

Los Angeles, California 90064-1022




21









 







Attn: Chief Financial Officer

Tel: (310) 571-6505

Fax: (310) 571-6905



Copy to (which will not constitute notice):



Akin Gump Strauss Hauer & Feld LLP

Century Tower Plaza, 2029 Century Park East, Suite 2400

Los Angeles, CA 90067

Attn: Frank Reddick

Tel: (310) 229-1000

Fax: (310) 229-1001



If to the Company (prior to Merger Closing):



Pet DRx Corporation

215 Centerview Drive, Suite 360

Brentwood, Tennessee

Attn: Chief Executive Officer

Tel: (615) 369-1914

Fax: (404) 365-0107



Copy to (which will not constitute notice):



Bryan Cave LLP

1201 W. Peachtree Street, 14th Floor

Atlanta, Georgia 30309-3488

Attn: Rick Miller

Tel: (404) 572-6787

Fax: (404) 420-0787



Any Party may send any notice, request, demand, claim, or other communication hereunder to the
intended recipient at the address set forth above using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication will be deemed to have
been duly given unless and until it actually is received by the intended recipient. Any Party may
change the address to which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other Parties notice in the manner herein set forth.




     Section 8.5. Submission to Jurisdiction; Process Agent. Each Party submits to the jurisdiction
of any federal or state court located in Delaware, in any Action arising out of or relating to this
Agreement and agrees that all claims in respect of the Action may be heard and determined in any
such court. Each Party also agrees not to bring any Action arising out of or relating to this
Agreement in any other court. Each Party agrees that a final judgment in any Action so brought
will be conclusive and may be enforced by Action on the judgment or in any other manner provided at
Law or in equity. Each Party waives any defense of inconvenient forum to the maintenance of any
Action so brought and waives any bond, surety, or other security that might be required of any
other Party with respect thereto. Process in any such



22









 




action, suit or proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court.




     Section 8.6. Time. Time is of the essence in the performance of this Agreement.



     Section 8.7. Counterparts. This Agreement may be executed in two or more counterparts, each of
which will be deemed an original but all of which together will constitute one and the same
instrument.



     Section 8.8. Headings. The article and section headings contained in this Agreement are
inserted for convenience only and will not affect in any way the meaning or interpretation of this
Agreement.



     Section 8.9. Governing Law. This Agreement and the performance of the Transactions and
obligations of the Parties hereunder will be governed by and construed in accordance with the laws
of the State of Delaware, without giving effect to any choice of Law principles.



     Section 8.10. Amendments and Waivers. No amendment, modification, replacement, termination or
cancellation of any provision of this Agreement will be valid, unless the same will be in writing
and signed by Parent and the Company. Neither any failure nor any delay by any Party in exercising
any right, power or privilege under the Transaction Documents will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right, power or privilege
will preclude any other or further exercise of such right, power or privilege or the exercise of
any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no
claim or right arising out of this Agreement or any of the Transaction Documents can be discharged
by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other Party; (b) no waiver that may be given by a Party will be applicable
except in the specific instance for which it is given; and (c) no notice to or demand on one Party
will be deemed to be a waiver of any obligation of that Party or of the right of the Party giving
such notice or demand to take further action without notice or demand as provided in the
Transaction Documents.



     Section 8.11. Severability. The provisions of this Agreement will be deemed severable and the
invalidity or unenforceability of any provision will not affect the validity or enforceability of
the other provisions hereof; provided that if any provision of this Agreement, as applied to any
Party or to any circumstance, is adjudged by a Governmental Body, arbitrator or mediator not to be
enforceable in accordance with its terms, the Parties agree that the Governmental Body, arbitrator,
or mediator making such determination will have the power to modify the provision in a manner
consistent with its overall objectives such that it is enforceable, and/or to delete specific words
or phrases, and in its reduced or revised form, such provision will then be enforceable and will be
enforced.



     Section 8.12. Expenses. Except as otherwise expressly provided in this Agreement, each Party
will bear its own costs and expenses incurred in connection with the preparation, execution and
performance of this Agreement and the Transactions including all fees and expenses of agents,
Representatives, financial advisors, legal counsel and accountants.



23









 





     Section 8.13. Construction. The Parties have participated jointly in the negotiation and
drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the Parties and no presumption or burden of
proof will arise favoring or disfavoring any Party because of the authorship of any provision of
this Agreement. Any reference to any federal, state, local, or foreign Law will be deemed also to
refer to such Law as amended and all rules and regulations promulgated thereunder, unless the
context requires otherwise. The words “include,” “includes,” and “including” will be deemed to be
followed by “without limitation” unless preceded by a negative predicate. Pronouns in masculine,
feminine, and neuter genders will be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa, unless the context otherwise
requires. The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder,” and words of
similar import refer to this Agreement as a whole and not to any particular subdivision unless
expressly so limited. The Parties intend that each representation, warranty, and covenant
contained herein will have independent significance. If any Party has Breached any representation,
warranty, or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not Breached will not detract from or mitigate
the fact that the Party is in Breach of the first representation, warranty, or covenant.



     Section 8.14. Remedies. Except as expressly provided herein, the rights, obligations and
remedies created by this Agreement are cumulative and in addition to any other rights, obligations,
or remedies otherwise available at Law or in equity. Except as expressly provided herein, nothing
herein will be considered an election of remedies.



     Section 8.15. Electronic Signatures.



          (a) Notwithstanding the Electronic Signatures in Global and National Commerce Act (15 U.S.C.
Sec. 7001 et. seq.), the Uniform Electronic Transactions Act, or any other Law relating to or
enabling the creation, execution, delivery, or recordation of any contract or signature by
electronic means, and notwithstanding any course of conduct engaged in by the Parties, no Party
will be deemed to have executed a Transaction Document or other document contemplated thereby
(including any amendment or other change thereto) unless and until such Party shall have executed
such Transaction Document or other document on paper by a handwritten original signature or any
other symbol executed or adopted by a Party with current intention to authenticate such Transaction
Document or such other document contemplated.



          (b) Delivery of a copy of a Transaction Document or such other document bearing an original
signature by facsimile transmission (whether directly from one facsimile device to another by means
of a dial-up connection or whether mediated by the worldwide web), by electronic mail in “portable
document format” (“.pdf”) form, or by any other electronic means intended to preserve the original
graphic and pictorial appearance of a document, will have the same effect as physical delivery of
the paper document bearing the original signature. “Originally signed” or “original signature”
means or refers to a signature that has not been mechanically or electronically reproduced.



[SIGNATURE PAGE FOLLOWS]




24









 








     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above
written.



	 	 	 	 	 
	 	PET DRX CORPORATION
 	 
	 	By:  	/s/
Gene E. Burleson 	 
	 	 	Name:  	Gene E.
Burleson 	 
	 	 	Title:  	Chief
Executive Officer 	 
	 
	 	VCA ANTECH, INC.
 	 
	 	By:  	/s/
Robert L. Antin 	 
	 	 	Name:  	Robert L. Antin 	 
	 	 	Title:  	President
& CEO 	 
	 
	 	SNOW MERGER ACQUISITION, INC.
 	 
	 	By:  	/s/
Robert L. Antin 	 
	 	 	Name:  	Robert L. Antin 	 
	 	 	Title:  	President
& CEO 	 
	 



Signature page to Merger Agreement