-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PMSjFyspNfMp0kPLtCxucRzHQbvvUpZHTYzxjgzK9qRQdPG5uLQylyHWK8dOIK6i /fTfXjNWZUA67Et6kDM2Vg== 0000904454-09-000020.txt : 20090130 0000904454-09-000020.hdr.sgml : 20090130 20090130172334 ACCESSION NUMBER: 0000904454-09-000020 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20090130 DATE AS OF CHANGE: 20090130 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: Pet DRx CORP CENTRAL INDEX KEY: 0001331931 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 562517815 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-81685 FILM NUMBER: 09559350 BUSINESS ADDRESS: STREET 1: 215 CENTERVIEW DRIVE STREET 2: SUITE 360 CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 703-448-7688 MAIL ADDRESS: STREET 1: 215 CENTERVIEW DRIVE STREET 2: SUITE 360 CITY: BRENTWOOD STATE: TN ZIP: 37027 FORMER COMPANY: FORMER CONFORMED NAME: Echo Healthcare Acquisition Corp. DATE OF NAME CHANGE: 20050630 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Claudius IV, LLC CENTRAL INDEX KEY: 0001425527 IRS NUMBER: 800036714 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 680 WASHINGTON BLVD CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 203 653 6473 MAIL ADDRESS: STREET 1: 680 WASHINGTON BLVD CITY: STAMFORD STATE: CT ZIP: 06901 SC 13D/A 1 s13da_013009-petdrx.htm AMD TO SCHED 13D FOR PETDRX BY CLAUDIUS IV

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

SCHEDULE 13D

(Rule 13d-101)

 

 

INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT

TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO

RULE 13d-2(a)

 

 

(Amendment No. 1)1

 

 

Pet DRx Corporation

 

(Name of Issuer)

 

Common Stock, $.0001 par value

 

(Title of Class of Securities)

 

715813101

 

(CUSIP Number)

 

 

 

Zubeen Shroff

Merrill A. Ulmer, Esq.

 

Galen Partners

Ropes & Gray LLP

 

680 Washington Boulevard, 11th Fl.

1211 Avenue of the Americas

 

Stamford, CT 06901

New York, NY 10036

 

Tel. (212) 218-4990

Tel. (212) 596-9500

 

(Name, Address and Telephone Number of Person

Authorized to Receive Notices and Communications)

 

January 21, 2009

(Date of Event Which Requires Filing of This Statement)

 

If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box o.

_________________________

remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act.

1)

Name of Reporting Person:                                                              Claudius IV, L.L.C.

I.R.S. Identification No. of Above Person, if an Entity:               80-0036714

2)

Check the Appropriate Box if a Member of a Group

(a)          [ X ]
(b)          [     ]

3)

SEC Use Only

 

4)

Source of Funds

 

Not Applicable

5)

Check Box if Disclosure of Legal Proceedings
Is Required Pursuant to Item 2(d) or 2(e)

Not Applicable

6)

Citizenship or Place of Organization

 

Delaware

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person
With

7)

Sole Voting Power

 

8,992,926 shares of

Common Stock*

8)

Shared Voting Power

 

-0-

9)

Sole Dispositive Power

 

8,992,926 shares of

Common Stock*

10)

Shared Dispositive Power

 

-0-

11)

Aggregate Amount Beneficially Owned By Each Reporting Person

8,992,926 shares of

Common Stock*

12)

Check Box if the Aggregate Amount in Row (11)
Excludes Certain Shares

[ ]

13)

Percent of Class Represented by Amount in Row (11)

 

32.4%

14)

Type of Reporting Person

 

OO

 

* includes shares issuable upon exercise of warrants and conversion of notes

1)

Name of Reporting Person:                                                              Galen Partners IV, L.P.

I.R.S. Identification No. of Above Person, if an Entity:               02-0545037

2)

Check the Appropriate Box if a Member of a Group

(a)          [ X ]
(b)          [     ]

3)

SEC Use Only

 

4)

Source of Funds

 

Not Applicable

5)

Check Box if Disclosure of Legal Proceedings
Is Required Pursuant to Item 2(d) or 2(e)

Not Applicable

6)

Citizenship or Place of Organization

 

Delaware

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person
With

7)

Sole Voting Power

 

8,992,926 shares of

Common Stock*

8)

Shared Voting Power

 

-0-

9)

Sole Dispositive Power

 

8,992,926 shares of

Common Stock*

10)

Shared Dispositive Power

 

-0-

11)

Aggregate Amount Beneficially Owned By Each Reporting Person

8,992,926 shares of

Common Stock*

12)

Check Box if the Aggregate Amount in Row (11)
Excludes Certain Shares

[ ]

13)

Percent of Class Represented by Amount in Row (11)

 

32.4%

14)

Type of Reporting Person

 

OO

 

*includes shares issuable upon exercise of warrants and conversion of notes

1)

Name of Reporting Person:                                                              Galen Partners International IV, L.P.

I.R.S. Identification No. of Above Person, if an Entity:               13-4221160

2)

Check the Appropriate Box if a Member of a Group

(a)          [ X ]
(b)          [     ]

3)

SEC Use Only

 

4)

Source of Funds

 

WC

5)

Check Box if Disclosure of Legal Proceedings
Is Required Pursuant to Item 2(d) or 2(e)

Not Applicable

6)

Citizenship or Place of Organization

 

Delaware

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person
With

7)

Sole Voting Power

 

661,854 shares of

Common Stock*

8)

Shared Voting Power

 

-0-

9)

Sole Dispositive Power

 

661,854 shares of

Common Stock*

10)

Shared Dispositive Power

 

-0-

11)

Aggregate Amount Beneficially Owned By Each Reporting Person

661,854 shares of

Common Stock*

12)

Check Box if the Aggregate Amount in Row (11)
Excludes Certain Shares

[ ]

13)

Percent of Class Represented by Amount in Row (11)

 

2.8%

14)

Type of Reporting Person

 

PN

 

*includes shares issuable upon exercise of warrants and conversion of notes

1)

Name of Reporting Person:                                                              Galen Employee Fund IV, L.P.

I.R.S. Identification No. of Above Person, if an Entity:               90-0009284

2)

Check the Appropriate Box if a Member of a Group

(a)          [ X ]
(b)          [     ]

3)

SEC Use Only

 

4)

Source of Funds

 

WC

5)

Check Box if Disclosure of Legal Proceedings
Is Required Pursuant to Item 2(d) or 2(e)

Not Applicable

6)

Citizenship or Place of Organization

 

Delaware

Number of
Shares
Beneficially
Owned by
Each
Reporting
Person
With

7)

Sole Voting Power

 

12,842 shares of

Common Stock*

8)

Shared Voting Power

 

-0-

9)

Sole Dispositive Power

 

12,842 shares of

Common Stock*

10)

Shared Dispositive Power

 

-0-

11)

Aggregate Amount Beneficially Owned By Each Reporting Person

12,842 shares of

Common Stock*

12)

Check Box if the Aggregate Amount in Row (11)
Excludes Certain Shares

[ ]

13)

Percent of Class Represented by Amount in Row (11)

 

less than 0.1%

14)

Type of Reporting Person

 

PN

 

*includes shares issuable upon exercise of warrants and conversion of notes

Amendment No. 1 to Schedule 13D  

 

Reference is hereby made to the statement on Schedule 13D filed with the Securities and Exchange Commission (the “Commission”) on February 12, 2008. Terms defined in the Schedule 13D are used herein as so defined.

 

 

The following items of the Schedule 13D are hereby amended as follows:

 

Item 3.

Source and Amount of Funds or Other Consideration

 

 

Item 3 is hereby amended by adding the following thereto:

 

On January 21, 2009, the Issuer entered into a Purchase Agreement with the investors identified on the schedules thereto, including Partners, International and the Employee Fund (the "Purchase Agreement"), pursuant to which the Issuer agreed to issue and sell in a private placement an aggregate of up to $6,500,000 in original principal amount of its 12% senior secured convertible notes ("Notes"), together with warrants to purchase up to 15,000,000 shares of the Company’s common stock ("Warrants"). The Purchase Agreement is attached hereto as Exhibit A, and any description thereof is qualified in its entirety by reference thereto. Forms of the Notes and Warrants are Exhibits B and C, respectively, hereto, and are incorporated herein by reference to Exhibits 10.1 and 10.2, respectively, to the Issuer's Report on Form 8-K filed with the Commission on January 27, 2009, and any descriptions thereof are qualified in their entirety by reference thereto. Partners, International and the Employee Fund acquired an aggregate $2,000,000 principal amount of the Notes, together with 4,615,385 Warrants, for an aggregate purchase price of $2,000,000. The source of such funds was the working capital, or funds available for investment, of the Reporting Persons.

 

The Notes issued to Partners, International and the Employee Fund are convertible into an aggregate of 200,000 shares of the Company’s common stock based on an initial conversion price of $10.00 per share. The Notes bear interest at a rate of twelve percent per annum, which shall be paid by increasing their principal amount semiannually beginning on June 30, 2009. All amounts outstanding under the Notes will become due and payable on January 21, 2013. The holders of the Notes issued in the private placement may require the Issuer to redeem the notes at the outstanding principal amount plus the applicable premium (i) upon the occurrence of a "change of control" (as defined in the Notes) and (ii) if the Issuer fails, on or before October 31, 2009, to obtain stockholder approval of the issuance of Common Stock issuable under the Notes and Warrants.

 

After the stockholders approve the issuance of Common Stock issuable upon exercise of the Warrants, they will be exercisable at an initial exercise price of $0.10 per share. If the Issuer’s stockholders do not approve the issuance of common stock issuable under the Notes and Warrants on or before October 31, 2009, or if an "event of default" (as defined in the Notes) occurs prior to the date of such approval, then the holders of the Warrants have the right to force redemption at a price per Warrant equal to the average market price of the Common Stock for the five trading days ending October 31, 2009, less the applicable exercise price. The Warrants expire January 21, 2016.

 

Item 4.

Purpose of Transaction  

 

 

Item 4 is hereby amended by adding the following thereto:

 

The Issuer has agreed that for so long as the Reporting Persons hold at least $500,000 principal amount of Notes, they will have the right to appoint one board observer to attend meetings of the Issuer's board of directors.

 

Item 5.

Interest in Securities of the Issuer

 

 

Item 5 is hereby amended and restated to read in its entirety as follows:

The following information is based on 23,660,460 shares of Common Stock outstanding as of October 31, 2008, as reported in the Issuer's Quarterly Report on Form 10-Q for the period ended September 30, 2008 filed with the Commission on November 14, 2008. This information gives effect to the exercise of all Warrants and conversion of all Notes held by each Reporting Person, and includes Common Stock and warrants to purchase Common Stock that were held by the Reporting Persons prior to January 21, 2009.

 

 

(a)

 

 

Partners, International and Claudius

 

Partners directly beneficially owns 8,331,072 shares of Common Stock, or approximately 29.6% of the Common Stock outstanding. International directly beneficially owns 661,854 shares of Common Stock, or approximately 2.8% of the Common Stock outstanding. Claudius, as the general partner of Partners and International, may be deemed to beneficially own the securities owned by each such entity and therefore indirectly beneficially owns an aggregate 8,992,926 shares of Common Stock, or approximately 32.4% of the Common Stock outstanding.

 

Employee Fund

 

The Employee Fund directly beneficially owns 12,842 shares of Common Stock, or less than 0.1% of the Common Stock outstanding. Wesson Enterprises, Inc., as the general partner of the Employee Fund, may be deemed to indirectly beneficially own the securities owned by the Employee Fund.

 

Other Related Persons

 

Zubeen Shroff directly beneficially owns options to purchase Common Stock as follows (i) 13,878 shares at $5.71, vested 25% on August 27, 2008 and 2.0833% per month thereafter; (ii) 13,878 shares at $6.16, vested 25% on September 26, 2008 and 2.0833% per month thereafter; (iii) an aggregate 89,000 shares at $6.50, which are presently-exercisable in full.

 

(b)  The members of Claudius may be deemed to share the power to vote or direct the voting of and to dispose or direct the disposition of the securities of the Issuer owned by Partners and International. Bruce F. Wesson, the President and sole director of Wesson Enterprises, Inc., may be deemed to have sole power to vote or direct the voting of and to dispose or direct the disposition of, the securities of the Issuer held by the Employee Fund. Each of the members of Claudius and Mr. Wesson disclaims beneficial ownership of all securities other than those he owns directly, if any, or by virtue of his indirect interest in the securities owned by Partners, International, and/or the Employee Fund.

 

(c)  Except as described in this statement, none of the Reporting Persons has effected any transaction in the Common Stock during the last 60 days.

 

(d)  Except as described in this statement, no other person has the power to direct the receipt of dividends on or the proceeds of sales of the shares of Common Stock owned by the Reporting Persons.

 

 

(e)  Not applicable.

 

Item 6.

Contracts, Arrangements, Undertakings or Relationships with Respect to Securities of the Issuer

 

 

Item 6 is hereby amended by adding the following thereto:

 

The Issuer's obligations under the Notes are secured by a lien on substantially all of the Issuer’s assets in favor of Partners, as collateral agent for the investors in the private placement, pursuant to a Security Agreement dated January 21, 2009 (the "Security Agreement") and a Pledge Agreement dated January 21, 2009 (the "Pledge Agreement"). The Security Agreement and the Pledge Agreement are attached hereto as Exhibits D and E, respectively, and any descriptions thereof are qualified in their entirety by reference thereto.

Pursuant to the Purchase Agreement, the Issuer is required to enter into a registration rights agreement in form reasonably satisfactory to the lead investors in the private placement on or prior to February 2, 2009. The registration rights agreement will require the Issuer to register the shares of Common Stock issued upon conversion of the Notes and exercise of the Warrants upon demand of the majority holders at any time after March 31, 2010.

 

Item 7.

Material to be filed as Exhibits

 

Exhibit A - Purchase Agreement (filed herewith)

 

Exhibit B - Form of Note (incorporated by reference to Exhibit 10.1 to the Issuer's Report on Form 8-K filed with the Commission on January 27, 2009)

 

Exhibit C - Form of Warrant (incorporated by reference to Exhibit 10.2 to the Issuer's Report on Form 8-K filed with the Commission on January 27, 2009)

 

Exhibit D - Security Agreement (filed herewith)

 

Exhibit E - Pledge Agreement (filed herewith)

Signature

 

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

 

 

CLAUDIUS IV, LLC

 

By:

/s/ Stacey L. Bauer

 

 

Attorney-in-Fact

 

GALEN PARTNERS IV, L.P.

 

By:

Claudius IV, LLC, its General Partner

 

By:

/s/ Stacey L. Bauer

 

 

Attorney-in-Fact

 

GALEN PARTNERS INTERNATIONAL IV, L.P.

 

By:

Claudius IV, LLC, its General Partner

 

By:

/s/ Stacey L. Bauer

 

 

Attorney-in-Fact

 

GALEN EMPLOYEE FUND IV, L.P.

 

By:

Wesson Enterprises, Inc., its General Partner

 

By:

/s/ Stacey L. Bauer

 

 

Attorney-in-Fact

 

 

Dated:

January 29, 2009

 

 

 

EX-99 2 exa_013009-petdrx.htm EXHIBIT A - PURCHASE AGREEMENT

EXECUTION COPY

 

PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 21st day of January, 2009 by and among Pet DRx Corporation, a Delaware corporation (the “Company”), and the Investors set forth on Schedule I, Schedule II and Schedule III attached hereto (each an “Investor” and collectively the “Investors”).

 

Recitals

 

A.        The Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D (“Regulation D”), as promulgated by the U.S. Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended;

 

B.        The Investors wish to purchase from the Company, and the Company wishes to sell and issue to the Investors, upon the terms and conditions stated in this Agreement, (i) up to $6,500,000 in aggregate principal amount of the 12% Senior Convertible Notes in the form attached hereto as Exhibit A (the “Notes”), which Notes are convertible into 650,000 shares of the Company’s Common Stock, par value $0.0001 per share (together with any securities into which such shares may be reclassified the “Common Stock”), at a conversion price of $10.00 per share (subject to adjustment as provided therein), and (ii) warrants to purchase an aggregate of up to 15,000,000 shares of Common Stock (subject to adjustment as provided therein) at an exercise price of $0.10 per share (subject to adjustment as provided therein) in the form attached hereto as Exhibit B (the “Warrants”); and

 

C.        In connection with the foregoing, the Company is executing and delivering (i) a Security Agreement, in the form attached hereto as Exhibit C (the “Security Agreement”), pursuant to which the Company will agree to grant to the Collateral Agent, for the benefit of the Investors, a first-priority security interest in all or substantially all of the assets of the Company and (ii) a Pledge Agreement, in the form attached hereto as Exhibit D (the “Pledge Agreement” and, together with the Security Agreement, the “Security Documents”), pursuant to which the Company will agree to pledge a first-priority security interest in the capital stock of Pet DRx Veterinary Group, Inc., a Delaware corporation, to the Collateral Agent, for the benefit of the Investors.

 

In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1.         Definitions. In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth below:

 

.

Affiliate” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common control with, such Person.

 

 

Agents” has the meaning set forth in Section 8.

 

Business Day” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

 

Camden” means Camden Partners Strategic Fund III, L.P., Camden Partners Strategic Fund III-A, L.P. and any of their Affiliates.

 

Collateral Agent” shall mean Galen Partners IV, L.P., or its successor then serving in such capacity. The Collateral Agent shall at all times be the same person that is the Majority Holder Representative.

 

Company’s Knowledge” means the actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the Company.

 

Control” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

Conversion Shares” means the shares of Common Stock issuable upon conversion of the Notes.

 

DVM Acquisition Notes” means certain promissory notes in existence on the date hereof issued to doctors of veterinary medicine by the Company and/or any of its Affiliates in connection with the acquisition by the Company of such doctors’ respective veterinary practice.

 

Galen” means Galen Partners IV, L.P., Galen Partners International IV, L.P., Galen Employee Fund IV, L.P. or any of their respective Affiliates.

 

Majority Holder Representative” shall mean Galen Partners IV, L.P., or its successor then serving in such capacity.

 

Majority Holders” means the Required Investors; provided, however, that if none of the Required Investors holds the applicable Threshold Amount, then the term “Majority Holders” shall refer to the Holders of a majority of the principal amount of the Company Notes issued pursuant to this Agreement then outstanding; provided further, however, that upon the conversion of all Notes into Conversion Shares, the term “Majority Holders” shall refer to the original owners of a majority of the Warrants then outstanding. Any consent or approval of, or other notice or instruction from, the Majority Holders shall be evidenced by the signature of an

 

-2-

authorized officer or representative of the Majority Holder Representative, which, as between the Investors and the Company, shall be binding and conclusive.

 

Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise) or business of the Company and its Subsidiaries taken as a whole as of December 31, 2008, or (ii) the ability of the Company to perform its obligations under the Transaction Documents in all material respects; provided, however, that none of the following shall be deemed to constitute a Material Adverse Effect or taken into account in determining whether there has been a Material Adverse Effect: (a) changes in GAAP or applicable laws; (b) the announcement of the execution of this Agreement or of the pendency or completion of the transactions contemplated hereby; (c) the effect of compliance by any of the parties with the terms of, or the taking of any action specifically required to be taken under, this Agreement; (d) changes in economic, financial, credit or securities markets, or political conditions generally, except to the extent such changes have a materially disproportionate effect on the Company and its Subsidiaries as compared to others engaged in the same businesses; (e) any act of terrorism or war (whether or not declared); (f) changes affecting generally the industries in which the Company and its Subsidiaries conduct business, except to the extent such changes have a materially disproportionate adverse effect on the Company and its Subsidiaries or as compared to others engaged in the same businesses; (g) the Company’s cash, short term assets, working capital, and liquidity position prior to the transactions contemplated hereby; (h) non-cash impairment charges recorded in accordance with GAAP; (i) the payment of outstanding indebtedness in accordance with its terms; or (j) the incurrence and payment of expenses and liabilities in the ordinary course of business.

 

 

Nasdaq” has the meaning set forth in Section 4.13.

 

Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

 

Principal Trading Market” means the Trading Market on which the Common Stock is primarily listed on and quoted for trading, which, as of the date of this Agreement and each Closing Date, shall be the Nasdaq.

 

Purchase Price” means up to Six Million Five Hundred Thousand Dollars ($6,500,000).

 

Registration Statement” has the meaning set forth in the New Financing Registration Rights Agreement.

 

Required Investors” means (i) Galen and Camden, if each of Galen and Camden holds the applicable Threshold Amount, (ii) Galen only, if Galen holds the Threshold Amount and Camden does not hold the Threshold Amount or (iii) Camden only, if Camden holds the Threshold Amount and Galen does not hold the Threshold Amount.

 

-3-

 

SEC Filings” has the meaning set forth in Section 4.6.

 

Securities” means the Notes, the Warrants, the Conversion Shares and the Warrant Shares.

 

Short Sales” include, without limitation, (i) all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the 1934 Act, whether or not against the box, and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, “put equivalent positions” (as defined in Rule 16a-1(h) under the 1934 Act) and similar arrangements (including on a total return basis), and (ii) sales and other transactions through non-U.S. broker dealers or foreign regulated brokers (but shall not be deemed to include the location and/or reservation of borrowable shares of Common Stock).

 

Standstill Provision” means a provision to be included in certain DVM Acquisition Notes that will provide, in substance, that the payment of principal and interest on such DVM Acquisition Notes will be suspended upon the occurrence of any (i) failure by the Company, on a consolidated basis with its Subsidiaries, to generate positive Modified Operating Cash Flow (as defined in the Notes) or (ii) failure by the Company to generate positive cash flow from operations after required debt service for any fiscal quarter in 2009 after the fiscal quarter ending March 31, 2009; provided, that such suspension will continue until such time as the Company shall have certified to the holders of such DVM Acquisition Notes that the Company, on a consolidated basis with its Subsidiaries, has generated positive cash flow from operations after required debt service for two consecutive calendar months.

 

 

Stockholder Approval” has the meaning set forth in Section 7.10.

 

Subsidiary” of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person.

 

Threshold Amount” means (i) with respect to Galen, an amount equal to at least $1,500,000 principal amount of the Company Notes issued to Galen pursuant to this Agreement and (ii) with respect to Camden, an amount equal to at least $750,000 principal amount of the Company Notes issued to Camden pursuant to this Agreement.

 

Trading Day” means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Trading Market, or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported in the “pink sheets” by Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

 

-4-

 

Trading Market” means whichever of the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

 

Transaction Documents” means this Agreement, the Notes, the Warrants, the Security Documents and the New Financing Registration Rights Agreement.

 

Warrant Shares” means the shares of Common Stock issuable upon the exercise of the Warrants.

 

1933 Act” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

1934 Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

2.         Purchase and Sale of the Notes and the Warrants. Subject to the terms and conditions of this Agreement, on each Closing Date, the Company shall, in exchange for the Purchase Price as specified in Section 3 below, sell and issue, and the following parties shall severally, and not jointly, purchase: (a) on the First Closing Date, the aggregate amount of Three Million Dollars ($3,000,000) of Notes and the Warrants to purchase 6,923,076.92 shares of Common Stock to Galen and Camden, in the individual respective amounts set forth opposite such Investors’ names on Schedule I attached hereto (the “Group A Investors”), (b) on the Second Closing Date, the aggregate amount of Two Million Dollars ($2,000,000) of the Notes and the Warrants to purchase 4,615,384.62 shares of Common Stock to certain accredited investors, which have been mutually-agreed upon by the Company, Galen and Camden, in the individual respective amounts set forth opposite such Investors’ names to be listed on Schedule II attached hereto (the “Group B Investors”) and (c) on the Third Closing Date, up to an aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000) of the Notes and the Warrants to purchase up to 3,461,538.46 shares of Common Stock to certain Additional Investors (as defined in Section 7.8 hereof), in the individual respective amounts set forth opposite such Investors’ names to be listed on Schedule III attached hereto (the “Group C Investors”); it being agreed and understood that Galen and Camden shall have the right to approve or deny (i) the participation of any proposed Group B Investor that has not received the prior approval of Galen and Camden, (ii) the amounts to be invested by any Group B Investor if such Group B Investor’s proposed investment would be greater than $500,000 or (iii) the participation of any Group C Investor and the respective amounts to be invested by such Group C Investor as provided in Section 7.8 hereof.

 

 

3.

Closing.

 

3.1       The First Closing.       Subject to the terms and conditions of this Agreement, the Company shall deliver to the Group A Investors the Notes and the Warrants, registered in such name or names as the Group A Investors may designate, upon payment in full of the specified portion of the Purchase Price set forth on Schedule I to the Company by the

 

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Group A Investors. Each Group A Investor’s pro rata portion of the Purchase Price is set forth on Schedule I attached hereto. The first closing (the “First Closing”) of the purchase and sale of the Notes and the Warrants shall take place at the offices of Ropes & Gray LLP, 1211 Avenue of the Americas, New York, New York 10036, at 10:00 a.m., New York, New York, time on January 21, 2009 (the “First Closing Date”) or at such other location and on such other date as the Company and the Group A Investors shall mutually agree.

 

3.2       The Second Closing.  Subject to the terms and conditions of this Agreement, including the Company’s acceptance of the applicable Group B Investor’s subscription for Securities, the Company shall deliver to the Group B Investors the Notes and the Warrants, registered in such name or names as the Group B Investors may designate, upon payment in full of the specified portion of the Purchase Price set forth on Schedule II to the Company by the Group B Investors. Each Group B Investor’s pro rata portion of the Purchase Price will be set forth on Schedule II attached hereto. This second closing (the “Second Closing”) of the purchase and sale of the Notes and Warrants shall take place at such location and on such date (the “Second Closing Date”) as the Company and the Group B Investors shall mutually agree; provided, however, that the Second Closing shall in no event occur later than February 2, 2009 without the consent of Galen and Camden.

 

3.3       The Third Closing.     Subject to the terms and conditions of this Agreement, including the Company’s acceptance of the applicable Group C Investor’s subscription for securities, the Company shall deliver to the Group C Investors the Notes and the Warrants, registered in such name or names as the Group C Investors may designate, upon payment in full of the specified portion of the Purchase Price set forth on Schedule III to the Company by the Group C Investors. Each Group C Investor’s pro rata portion of the Purchase Price will be set forth on Schedule III attached hereto. This third closing (the “Third Closing”) of the purchase and sale of the Notes and Warrants shall take place at such location and on such date (the “Third Closing Date”) as the Company and the Group C Investors shall mutually agree; provided, however, that the Third Closing shall in no event occur later than March 2, 2009 without the consent of Galen and Camden.

 

The First Closing Date, the Second Closing Date and the Third Closing Date shall be sometimes referred to herein as a “Closing Date”, and the First Closing, the Second Closing and the Third Closing shall be sometimes referred to herein as a “Closing”.

 

4.         Representations and Warranties of the Company. The Company hereby represents and warrants to the Investors that, except as set forth in the schedules delivered herewith (collectively, the “Disclosure Schedules”):

 

4. 1      Organization, Good Standing and Qualification. Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own its properties. Each of the Company and its Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or leasing necessary unless the failure to so qualify has not

 

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had and could not reasonably be expected to have a Material Adverse Effect. The Company’s Subsidiaries are listed on Schedule 4.1 hereto.

 

4.2       Authorization. The Company has full corporate power and authority and has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Transaction Documents, (ii) the authorization of the performance of all obligations of the Company hereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Notes and Warrants; provided, however, that the Investors hereby acknowledge and agree the issuance and reservation for issuance of the shares of Common Stock and/or Preferred Stock issuable upon the conversion of the Notes or exercise of the Warrants is subject to the receipt by the Company of the Stockholder Approval in accordance with Section 7.10 below. When delivered in accordance with the terms hereof, the Transaction Documents will constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

 

4.3       Capitalization. Except as set forth in the Company’s SEC Filings, the Company does not have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations. Except as set forth in the Company’s SEC Filings and the New Financing Registration Rights Agreement, the voting provision contained in Section 5.2 hereof and the voting agreements contemplated by Section 7.10 hereof, there are no voting agreements, buy-sell agreements, option or right of first purchase agreements or other agreements of any kind among the Company and any of the securityholders of the Company relating to the securities of the Company held by them.

 

Except as set forth in the Company’s SEC Filings, the Company does not have outstanding stockholder purchase rights or “poison pill” or any similar arrangement in effect giving any Person the right to purchase any equity interest in the Company upon the occurrence of certain events.

 

4.4       Valid Issuance. Upon receipt of the Stockholder Approval, the Conversion Shares will be duly and validly authorized and, when issued upon the due conversion of the Notes, will be validly issued, fully paid and nonassessable, and shall be free and clear of all encumbrances and restrictions (other than those created by the Investors), except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws. Upon receipt of the Stockholder Approval, the Warrants will be duly and validly authorized. The Warrant Shares have been duly and validly authorized and, when issued upon the due exercise of the Warrants, will be validly issued, fully paid and non-assessable free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws and except for those created by the Investors. From and after the date of the receipt of the Stockholder Approval, the Company will have reserved a sufficient number of shares of Common Stock for issuance upon the conversion of the Notes and upon exercise of the Warrants, free and clear of all encumbrances

 

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and restrictions, except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws and except for those created by the Investors.

 

4.5       Consents. The execution, delivery and performance by the Company of the Transaction Documents and the offer, issuance and sale of the Securities require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws and Nasdaq regulations which the Company undertakes to file within the applicable time periods. Subject to the accuracy of the representations and warranties of each Investor set forth in Section 5.1 hereof, the Company has taken all action necessary to exempt (i) the issuance and sale of the Securities, (ii) the issuance of the Conversion Shares upon the due conversion of the Notes and the issuance of the Warrant Shares upon due exercise of the Warrants, and (iii) the other transactions contemplated by the Transaction Documents from the provisions of any stockholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Certificate of Incorporation or Bylaws that is or could reasonably be expected to become applicable to the Investors as a result of the transactions contemplated hereby, including without limitation, the issuance of the Securities and the ownership, disposition or voting of the Securities by the Investors or the exercise of any right granted to the Investors pursuant to this Agreement or the other Transaction Documents.

 

4.6       Delivery of SEC Filings; Business. The Company has made available to the Investors through the IDEA and EDGAR systems, true and complete copies of the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (the “10-K”), and all other reports filed by the Company pursuant to the 1934 Act, including pursuant to Section 13(a) or 15(d) thereof, since the filing of the 10-K and prior to the date hereof (collectively, the “SEC Filings”).

 

4.7       Use of Proceeds. The net proceeds of the sale of the Notes and the Warrants hereunder shall be used by the Company and its Subsidiaries for working capital, capital expenditures, the potential acquisition of one radiology practice, repayment of indebtedness and general corporate purposes.

 

4.8       Certain Changes. Since September 30, 2008, except as identified and described in the SEC Filings, (i) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (ii) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock (other than in connection with repurchases of unvested stock issued to employees of the Company) and (iii) the Company has not issued any equity securities to any officer, director or Affiliate, except Common Stock issued in the ordinary course as dividends on outstanding preferred stock or issued pursuant to existing Company stock

 

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option or stock purchase plans or executive and director compensation arrangements disclosed in the SEC Filings.

 

4.9       SEC Filings. At the time of filing thereof, the SEC Filings complied as to form in all material respects with the requirements of the 1934 Act and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

 

4.10     No Conflict, Breach, Violation or Default. The execution, delivery and performance of the Transaction Documents by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Certificate of Incorporation or the Company’s Bylaws, both as in effect on the date hereof (true and complete copies of which have been filed with the Commission), or (ii)(a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company, any Subsidiary or any of their respective assets or properties, or (b) any agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or a Subsidiary is bound or to which any of their respective assets or properties is subject, except, in the case of clause (ii) only, such breaches, violations or defaults that individually or in the aggregate would not cause a Material Adverse Effect.

 

4.11     Litigation. There are no pending legal actions, suits or proceedings against or affecting the Company, its Subsidiaries or any of its or their properties that has had or are reasonably expected to have a Material Adverse Effect; and to the Company’s Knowledge, no such material actions, suits or proceedings have been threatened. To the Company’s Knowledge, there has not been, and there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the 1933 Act or the 1934 Act.

 

4.12     Financial Statements. The financial statements included in each SEC Filing present fairly, in all material respects, the consolidated financial position of the Company as of the dates shown and its consolidated results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with United States generally accepted accounting principles applied on a consistent basis (“GAAP”) (except as may be disclosed therein or in the notes thereto, and, in the case of quarterly financial statements, as permitted by Form 10-Q under the 1934 Act); provided, however, that the unaudited financial statements are subject to normal year-end audit adjustments (which are not expected to be material) and do not contain all footnotes required under GAAP.

 

4.13     NASDAQ Compliance. The Common Stock is registered pursuant to Section 12(g) of the 1934 Act and is listed on the Nasdaq Capital Market (the “Nasdaq”), and the Company has not received any notification that the Commission, the Nasdaq or the Financial Industry Regulatory Authority, Inc. is contemplating terminating such registration or listing.

 

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4.14     Brokers and Finders. No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.

 

4.15     No Directed Selling Efforts or General Solicitation. Neither the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.

 

4.16     No Integrated Offering. Neither the Company nor any person authorized by the Company, nor any Person acting on its or such authorized person’s behalf has, directly or indirectly, made any offers or sales of any Company security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(2) for the exemption from registration for the transactions contemplated hereby or would require registration of the Securities under the 1933 Act.

 

4.17     Private Placement. Assuming the accuracy of the Investors’ representations set forth in Section 5.1 hereof, the offer and sale of the Securities to the Investors as contemplated hereby is exempt from the registration requirements of the 1933 Act.

 

 

5.

Representations, Warranties and Covenants of the Investors.

 

5.1       Representations and Warranties of the Investors. Each of the Investors hereby severally, and not jointly, represents and warrants to the Company that:

 

(a)       Organization and Existence. If the Investor is an individual, such Investor represents and warrants that he or she has the full legal capacity to enter into this Agreement and to invest in the Securities pursuant to this Agreement. If the Investor is not an individual, such Investor is a validly existing corporation, limited partnership or limited liability company and has all requisite corporate, partnership or limited liability company power and authority to invest in the Securities pursuant to this Agreement.

 

(b)       Authorization. The execution, delivery and performance by such Investor of the Transaction Documents to which such Investor is a party have been duly authorized and will each constitute the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

 

(c)       Purchase Entirely for Own Account. The Securities to be received by such Investor hereunder will be acquired for such Investor’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the 1933 Act, and such Investor has no present intention of selling, granting any participation in, or

 

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otherwise distributing the same in violation of the 1933 Act without prejudice, however, to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws. Nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Securities for any period of time. Such Investor is not a broker-dealer registered with the Commission under the 1934 Act or an entity engaged in a business that would require it to be so registered.

 

(d)       Investment Experience. Such Investor acknowledges that it can bear the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby.

 

(e)       Disclosure of Information. Such Investor has had an opportunity to receive all information related to the Company requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities. Such Investor acknowledges receipt of copies of the SEC Filings. Neither such inquiries nor any other due diligence investigation conducted by such Investor shall modify, limit or otherwise affect such Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.

 

(f)        Restricted Securities; No Public Market. Such Investor understands that the Securities have not been, and will not be, registered under the 1933 Act, by reason of a specific exemption from the registration provisions of the 1933 Act that depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein. Such Investor understands that such Securities are “restricted securities” under applicable United States of America federal and state securities laws and that, pursuant to these laws, the Investor must hold such Securities indefinitely unless registered with the Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Such Investor further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company that are outside of the Investor’s control, and that the Company is under no obligation and may not be able to satisfy. Such Investor understands that no public market now exists for any of the Securities, and that the Company has made no assurances that a public market will ever exist for the Securities.

 

(g)       Legends. It is understood that, except as provided below, certificates evidencing the Securities may bear the following or any similar legend:

 

(i)        “The securities represented hereby have not been registered under the Securities Act of 1933, as amended (the “Act”) and may not be transferred unless (A) such securities have been registered for sale pursuant to the Act, (B) such securities may be sold without volume restriction pursuant to Rule 144, or (C) the Company has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Act or qualification under applicable state securities laws.”

 

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(ii)       If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority.

 

(h)       Accredited Investor. Such Investor is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

 

(i)        No General Solicitation. Such Investor did not learn of the investment in the Securities as a result of any general solicitation or general advertising.

 

(j)        Brokers and Finders. No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Investor.

 

(k)       Prohibited Transactions. Other than with respect to the transactions contemplated herein, since the time that such Investor was first contacted by the Company or any other Person regarding the transactions contemplated hereby, neither the Investor nor any Affiliate of such Investor which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to such Investor’s investments or trading or information concerning such Investor’s investments, including in respect of the Securities, and (z) is subject to such Investor’s review or input concerning such Affiliate’s investments or trading (collectively, “Trading Affiliates”) has directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with such Investor or Trading Affiliate, effected or agreed to effect any purchases or sales of the securities of the Company (including, without limitation, any Short Sales involving the Company’s securities). Notwithstanding the foregoing, in the case of a Investor and/or Trading Affiliate that is, individually or collectively, a multi-managed investment bank or vehicle whereby separate portfolio managers manage separate portions of such Investor’s or Trading Affiliate’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Investor’s or Trading Affiliate’s assets, the representation set forth above shall apply only with respect to the portion of assets managed by the portfolio manager that have knowledge about the financing transaction contemplated by this Agreement. Other than to other Persons party to this Agreement, such Investor has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow in order to effect short sales or similar transactions in the future.

 

(l)        Reliance on Exemptions. Such Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of the 1933 Act, the rules and regulations promulgated thereunder and state securities laws and that the Company is relying upon the truth and accuracy of, and the Investor’s compliance with, the representations, warranties, agreements, acknowledgments and

 

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understandings of the Investor set forth herein in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities.

 

(m)      Investment Decision. Such Investor understands that nothing in the Agreement or any other materials presented to such Investor in connection with the purchase and sale of the Securities constitutes legal, tax or investment advice. Such Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities. Such Investor acknowledges that it has, independently and without reliance upon the Agents or any other Investor and based on such documents and information as it has deemed necessary or appropriate, made its own analysis and decision to enter into this Agreement. Such Investor also acknowledges that it will, independently and without reliance upon the Agents or any other Investor and based on such documents and information as it shall from time to time deem necessary or appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any other Transaction Document.

 

(n)       Risk of Loss. Such Investor understands that its investment in the Securities involves a significant degree of risk, including a risk of total loss of such Investor’s investment, and such Investor has full cognizance of and understands all of the risk factors related to such Investor’s purchase of the Securities, including, but not limited to, those set forth under or incorporated by reference under the caption “Risk Factors” in the SEC Filings. Such Investor understands that the market price of the Common Stock has been volatile and that no representation is being made as to the future value of the Common Stock.

 

(o)       No Government Review. Such Investor understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

 

(p)       No Additional Representations. NONE OF THE COMPANY, ITS AFFILIATES, AND ANY OF ITS OFFICERS, DIRECTORS, SHAREHOLDERS AND ADVISERS (FINANCIAL, LEGAL OR OTHERWISE), MAKES OR HAS MADE ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER RELATING TO THE COMPANY OR THE BUSINESS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR AN INVESTMENT IN THE SECURITIES OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, OTHER THAN THOSE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH HEREIN, THE SCHEDULES ATTACHED HERETO AND THE DOCUMENTS CONTEMPLATED HEREBY.

 

(q)       Liquidity. Such Investor has sufficient liquid assets to fund and fulfill its Purchase Price commitment by the Closing Date contemplated by Section 3 hereof.

 

5.2       Voting Agreement. Each Investor hereby acknowledges that the Company shall not be obligated to issue the Warrant Shares prior to receiving the Stockholder Approval. Each Investor hereby agrees if the issuance of the Conversion Shares and Warrant Shares is submitted for stockholder approval at any annual or special meeting of the Company’s

 

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stockholders or by written consent, and such Investor beneficially owns any securities of the Company entitled to vote thereon or consent thereto, then such Investor shall (a) appear at such meeting or otherwise cause his, her or its shares of voting securities of the Company, whether now owned or hereafter acquired (together, the “Voting Securities”) to be counted as present thereat, and (b) vote or to act by written consent with respect to (or cause to be voted or acted upon by written consent), (i) all Voting Securities for which the Investor is the record holder or beneficial owner at the time of such vote or action by written consent and (ii) all Voting Securities as to which the Investor at the time of such vote or action by written consent has voting control, in each case, in favor of the issuance of the Conversion Shares and Warrant Shares, and if solicited by the Company, such increase in the authorized capital as may be reasonably requested by the Company. Each Investor hereby agrees to execute such proxies, additional voting agreements, or other instruments as may be reasonably requested by Galen, Camden or the Company in connection with this Section 5.2.

 

 

6. Conditions to each Closing.

 

6.1       Conditions to the Investors’ Obligations. The obligation of each Investor to purchase the Notes and the Warrants at each Closing is subject to the fulfillment, on or prior to such Closing Date, of the following conditions, any of which may be waived by such Investor (as to itself only):

 

(a)       The representations and warranties made by the Company in Section 4 hereof qualified as to materiality shall be true and correct on such Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and, the representations and warranties made by the Company in Section 4 hereof not qualified as to materiality shall be true and correct in all material respects on such Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date. The Company shall have performed in all material respects all obligations and covenants herein required to be performed by it on or prior to such Closing Date.

 

(b)       Other than the Stockholder Approval, the Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Securities and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect.

 

(c)       No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents.

 

(d)       The Company shall have delivered to such Investors a Certificate, executed on behalf of the Company by its Chief Executive Officer or its Chief Financial Officer,

 

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dated as of such Closing Date, certifying to the fulfillment of the conditions specified in subsections (a), (b), (c) and (g) of this Section 6.1.

 

(e)       The Company shall have delivered to such Investors a Certificate, executed on behalf of the Company by its Secretary, dated as of such Closing Date, certifying the resolutions adopted by the Board of Directors of the Company approving (i) the transactions contemplated by this Agreement and the other Transaction Documents and (ii) the issuance of the Securities, certifying the current versions of the Certificate of Incorporation and Bylaws of the Company and certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company.

 

(f)        No stop order or suspension of trading shall have been imposed by the Commission or any other governmental or regulatory body with respect to public trading in the Common Stock.

 

(g)       The Common Stock shall not have been suspended, as of such Closing Date, by the Commission or the Principal Trading Market from trading on the Principal Trading Market nor shall suspension, as of such Closing Date, by the Commission or the Principal Trading Market have been threatened.

 

 

6.2

Conditions to Obligations of the Company.

 

(a)       Conditions to Each Closing. The Company’s obligation to sell and issue the Notes and the Warrants at each Closing is subject to the fulfillment on or prior to each Closing Date of the following conditions, any of which may be waived by the Company. The representations and warranties made by such Investors in Section 5.1 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on such Closing Date with the same force and effect as if they had been made on and as of said date. Such Investors shall have performed in all material respects all obligations and covenants herein required to be performed by them on or prior to such Closing Date.     

 

(b)       Conditions to the First Closing. In addition to the satisfaction (or waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation to sell and issue the Notes and Warrants at the First Closing is subject to the delivery of the specified portion of the Purchase Price as set forth on Schedule I by the Group A Investors to the Company.

 

(c)       Conditions to the Second Closing. In addition to the satisfaction (or waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation to sell and issue the Notes and Warrants at the Second Closing is subject to (i) the delivery of the specified portion of the Purchase Price as set forth on Schedule II by the Group B Investors to the Company and (ii) the Company’s acceptance of the Group B Investors’ subscription for the Notes and Warrants as evidenced by an executed subscription agreement delivered to the Company by each of the Group B Investors.

 

(d)       Conditions to the Third Closing. In addition to the satisfaction (or waiver) of the conditions set forth in Section 6.2(a), the Company’s obligation to sell and issue

 

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the Notes and Warrants at the Third Closing is subject to (i) the delivery of the specified portion of the Purchase Price as set forth on Schedule III by the Group C Investors to the Company and (ii) the Company’s acceptance of the Group C Investors’ subscription for the Notes and Warrants as evidenced by an executed subscription agreement delivered to the Company by each of the Group C Investors.

 

 

7.

Covenants and Agreements of the Company.

 

7.1       Reservation of Common Stock. From and after the date of the receipt of the Stockholder Approval, the Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of providing for the conversion of the Notes, and the exercise of the Warrants, such number of shares of Common Stock as shall from time to time equal the Conversion Shares, and the Warrant Shares.

 

7.2       No Conflicting Agreements. The Company will not take any action, enter into any agreement or make any commitment that would conflict with the Company’s obligations to the Investors under the Transaction Documents in any material respect.

 

7.3       Compliance with Laws. The Company will comply in all material respects with all applicable laws, rules, regulations, orders and decrees of all governmental authorities.

 

7.4       Listing of Underlying Shares and Related Matters. If the Company applies to have its Common Stock or other securities traded on any stock exchange or market, it shall include in such application the Conversion Shares and the Warrant Shares and will take such other action as is necessary to cause such Common Stock to be so listed. Following any such listing, the Company will use commercially reasonable efforts to continue the listing and trading of its Common Stock on such stock exchange or market and, in accordance, therewith, will use commercially reasonable efforts to comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of such stock exchange or market, as applicable.

 

7.5       Termination of Covenants. The provisions of Sections 7.2 through 7.3 shall terminate and be of no further force and effect on the date on which the Company’s obligations under the New Financing Registration Rights Agreement to register or maintain the effectiveness of any registration covering the Registrable Securities (as such term is defined in the New Financing Registration Rights Agreement) shall terminate.

 

7.6       Removal of Legends. In connection with any sale or disposition of the Securities by an Investor pursuant to and in accordance with Rule 144 or pursuant to any other exemption under the 1933 Act such that the purchaser acquires freely tradable shares and upon compliance by the Investor with the requirements of this Agreement, the Company shall or, in the case of Common Stock, shall cause the transfer agent for the Common Stock (the “Transfer Agent”) to issue replacement certificates representing the Securities sold or disposed of without restrictive legends. At any time when one or more of the Securities may be freely sold, the Company shall, or shall cause the Transfer Agent to, promptly cause the Investor’s Securities to

 

-16-

be replaced with Securities which do not bear restrictive legends, and Conversion Shares subsequently issued upon the due conversion of the Notes and Warrant Shares subsequently issued upon due exercise of the Warrants shall not bear such restrictive legends provided such Securities may be freely sold or are covered by an effective Registration Statement.

 

7.7       Use of Proceeds. The Company shall use the net proceeds of the sale of the Notes and the Warrants as provided in Section 4.7.

 

7.8       Additional Issuance of Notes. Following the First Closing Date and prior to March 2, 2009, the Company may issue additional Notes with up to an aggregate principal amount of $1,500,000 and Warrants to purchase up to an aggregate of 3,461,538.46 shares of Common Stock to any doctor of veterinary medicine that is (a) employed by the Company or any of its Subsidiaries and (b) an “accredited investor” within the meaning of Regulation D promulgated by the Commission under the 1933 Act (the “Additional Investors”); provided, that simultaneous or prior to such issuance of additional Notes or sale of additional Warrants, each Additional Investor agrees, in a writing satisfactory to the Company, to be bound by the terms set forth in this Agreement as an “Investor”; provided, further that Galen and Camden will have the right to approve or deny (i) the participation of any prospective Additional Investor if such Additional Investor’s investment would be greater than $50,000 and (ii) the issuance of additional Notes over the $1,500,000 aggregate principal amount to be issued to the Additional Investors.

 

7.9       Observation and Information Rights. For as long as (a) Galen continues to hold at least $500,000 principal amount of the Notes issued to Galen on the First Closing Date (or, upon the conversion thereof, an equivalent amount of Conversion Shares) and (b) Galen has not otherwise designated a member to the Board of Directors, Galen shall have the right to have one observer attend (or participate by telephone in) all meetings of the Board of Directors of the Company; provided, however, that Galen hereby agrees to cause such representative to hold in trust and confidence, and to act in a fiduciary manner with respect to, all information so provided; and provided further that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or access to the material portions of any meeting of the independent directors relating to matters directly concerning the Securities, except that such representative shall not be excluded from any meeting or access to information relating to (A) transactions involving proposed mergers and acquisitions, (B) transactions that could result in a Change of Control (as defined in the Notes) of the Company, or (C) any future financing. The Company shall pay the observer an advisory fee equal to 50% of the highest number of options or equity awards granted (including pursuant to the Company’s 2008 Non-Employee Director Compensation Program) to any individual non-employee director as compensation for such director’s service as if the observer were a director on the Company’s Board of Directors; provided, however, in the event that Galen designates its representative to serve as a member on the Board of Directors (the date upon which such notice is given to the Company, the “Galen Director Designation Date”), then such representative shall be granted an amount of options and/or other equity awards equal to the difference between (x) the highest number of options and/or other equity awards issued to any non-employee director during the twelve-month period

 

-17-

prior to the Galen Director Designation Date and (y) the number of options and/or other equity awards actually received during such twelve-month period prior to the Galen Director Designation Date. The Company shall also pay the reasonable out-of-pocket expenses of such observer to attend such meetings. Such observer shall receive all reports, meeting materials, notices and other materials as and when provided to the members of the Board of Directors or any committee thereof in connection with a vote or such meetings of the Board of Directors or committees thereof. The Company will not, at any time, fill the vacant seat on the Board of Directors to which Galen is entitled to designate a successor unless Galen exercises its right to so designate a successor to fill such vacancy.

 

7.10     Stockholder Approval.           The Company shall use commercially reasonable efforts to obtain, (i) on or before March 2, 2009, executed copies of voting agreements from the holders of shares of the Common Stock that control, as of the First Closing Date, at least a majority of the aggregate voting power of the Company, agreeing to vote for the authorization of the Company to issue the Conversion Shares and the Warrant Shares (in compliance with applicable Nasdaq rules) at the Company’s next annual meeting, and (ii) on or before October 31, 2009, the approval of its stockholders of the issuance of the Securities in accordance with Nasdaq rules (the “Stockholder Approval”).

 

7.11     Subordination of DVM Acquisition Notes.   The Company shall use commercially reasonable efforts to obtain subordination agreements from certain holders of the DVM Acquisition Notes, on terms reasonably satisfactory to Galen and Camden, that would result in the effective subordination of such holders’ DVM Acquisition Notes to the Notes.

 

7.12     Registration Rights. On or prior to February 2, 2009, the Company shall enter into a registration rights agreement (the “New Financing Registration Rights Agreement”) in form reasonably satisfactory to Galen and Camden pursuant to which the Company will agree to register the Conversion Shares and Warrant Shares under the 1933 Act, upon demand of the Majority Holders at any time after March 31, 2010 on terms and conditions substantially similar to those set forth in the Amended and Restated Registration Rights Agreement, dated as of February 12, 2008, among the Company and the parties thereto (the “Merger Registration Rights Agreement”). The Investors hereby agree that (i) the Conversion Shares and Warrant Shares shall not be deemed “Registrable Securities” as such term is defined in the Merger Registration Rights Agreement, except in the case of a Piggy-Back Registration (as defined in the Merger Registration Rights Agreement) thereunder and (ii) not to request a Demand Registration (as defined in the Merger Registration Rights Agreement) under the Merger Registration Rights Agreement prior to March 31, 2010.

 

 

8.

Majority Holder Representative and Collateral Agent.

 

8.1       Designation of Majority Holder Representative and Collateral Agent. Each Investor, by its execution and delivery of this Agreement (or a joinder instrument agreeing to be bound hereby), hereby designates and appoints Galen Partners IV, L.P., or its successor then serving in such capacity, (i) as Majority Holder Representative, and authorizes the Majority Holder Representative to take all actions required or permitted to be taken by the Majority Holder Representative in this Agreement, in the Notes and in the other Transaction Documents

 

-18-

and (ii) as Collateral Agent, and authorizes the Collateral Agent to take all actions required or permitted to be taken by the Collateral Agent in the Security Documents. The Majority Holder Representative may resign, upon at least thirty (30) days’ prior written notice to the Investors and the Company, provided that such resignation shall not be effective until a successor Majority Holder Representative (which shall be an Investor) shall have been appointed by the Majority Holders and shall have assumed its rights and obligations as such in a writing delivered to the Company and the Investors. The Collateral Agent shall be at all times the same person that is the Majority Holder Representative. Written notice of resignation by the Collateral Agent as Majority Holder Representative pursuant to this Agreement shall also constitute notice of resignation as the Collateral Agent under the Security Documents. Upon the acceptance of any appointment as the Majority Holder Representative by a successor Collateral Agent, that successor Majority Holder Representative shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent under the Security Documents. For purposes of this Section 8, the Majority Holder Representative and the Collateral Agent are referred to collectively as the “Agents”.

 

Without limiting the generality of the foregoing, the Agents are hereby expressly authorized to execute any and all documents (including releases) with respect to the Collateral and the rights of the Secured Parties with respect thereto, as contemplated by and in accordance with the provisions of this Agreement and the Security Documents.

 

8.2       Absence of Fiduciary Relationship; Duties.      Neither Agent shall have any duties or obligations except those expressly set forth in the Transaction Documents. Without limiting the generality of the foregoing, (a) neither Agent shall be subject to any fiduciary or other implied duties, regardless of whether an Event of Default (as defined in the Notes) has occurred and is continuing, (b) neither Agent shall have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that such Agent is instructed in writing to exercise by the Majority Holders, and (c) except as expressly set forth in the Transaction Documents, neither Agent shall have any duty to disclose, nor shall it be liable for the failure to disclose, any information relating to the Company or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent and/or Collateral Agent or any of its Affiliates. Neither Agent shall be liable for any action taken or not taken by it with the consent or at the request of the Majority Holders or in the absence of its own gross negligence or willful misconduct, neither Agent shall be deemed to have knowledge of any Event of Default unless and until written notice thereof is given to such Agent by the Company and neither Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Transaction Document, (ii) the contents of any certificate, report or other document delivered thereunder or in connection therewith or (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Transaction Document, (iv) the validity, enforceability, effectiveness or genuineness of any Transaction Document or any other agreement, instrument or document.

 

8.3       Reliance. Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the

 

-19-

proper person. Each Agent may also rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper person, and shall not incur any liability for relying thereon. Each Agent may consult with legal counsel (who may be counsel for the Company), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

 

 

9.

Miscellaneous.

 

 

9.1

Transfer and Exchange of Notes; Successors and Assigns.

 

(a)       The Notes may be assigned or transferred in whole, or in part in increments of $100,000, as herein provided and subject to compliance with all applicable federal and state securities laws. The Company shall maintain a register (the “Register”) for the recordation of the names and addresses of the Investors and the principal amounts of the Notes, which shall be numbered R-1 and upwards in order of issuance. The entries in the Register shall be conclusive and binding for all purposes, absent manifest error. The Notes may be assigned or transferred, whether in whole or in part, only by registration of such assignment or transfer on the Register. Upon surrender for registration of transfer of any Note at the Company’s chief executive office, (i) duly endorsed by, or accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and duly executed by the registered owner or his attorney duly authorized in writing, and (ii) unless the assignee or transferee is already a party to this Agreement, accompanied by a joinder agreement satisfactory to the Company in which the assignee or transferee agrees to be bound by this Agreement, whereupon the Company shall execute and deliver in the name of the transferee or transferees a new Note or Notes for the principal amount so assigned, and in the case of partial assignments and transfers, shall issue a replacement Note to the transferor in the principal amount not so assigned or transferred. Notes may be exchanged at said office of the Company for a like aggregate principal amount of Notes in minimum denominations of $100,000. The Company shall execute and deliver Notes bearing numbers not contemporaneously then outstanding. The Company shall not be required to register the transfer of or exchange any Note during the period of fifteen days next preceding each June 30 and each December 31, nor during the period of fifteen days next preceding mailing of a notice of redemption of any Notes. As to any Note, the Person in whose name such Note shall be registered shall be deemed and regarded as the absolute owner thereof for all purposes, and payment of or on account of either principal of, or interest or premium on, any Note shall be made only to or upon the order of the registered owner thereof or his legal representative, but such registration may be changed as hereinabove provided. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Note to the extent of the sum or sums so paid.

 

(b)       This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Investors, as applicable; provided, however, that an Investor may assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a third party acquiring some or all of its Securities in a transaction complying with the provisions of the Notes and applicable securities laws without the prior written consent of the Company or the other Investors. The provisions of this Agreement shall inure to the benefit of

 

-20-

and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

9.2       Counterparts; Faxes. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and transmitted via facsimile, or by portable document format via electronic mail, each of which shall be deemed an original.

 

9.3       Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

9.4       Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex or telecopier, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one Business Day after delivery to such carrier. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party:

 

 

If to the Company:

 

Pet DRx Corporation

215 Centerview Drive, Suite 360

Brentwood, Tennessee 37027

Attention: General Counsel

 

Fax:

(408) 521-2168

 

with a copy to:

 

Bryan Cave LLP

One Atlantic Center, Fourteenth Floor

1201 West Peachtree Street, NW

Atlanta, GA 30309-3488

Attention: Rick Miller

Fax: (404) 572-6999

 

 

If to the Investors:

 

-21-

 

to the addresses set forth on Schedule I, Schedule II and Schedule III attached hereto.

 

9.5       Expenses. The parties hereto shall pay their own costs and expenses in connection herewith, except that the Company shall pay the reasonable fees and expenses of Galen and Camden actually incurred up to an aggregate maximum of $100,000, regardless of whether the transactions contemplated hereby are consummated. Such expenses shall be paid upon demand and receipt by the Company of supporting documentation evidencing the expenses. The Company shall reimburse the Investors upon demand for the reasonable attorneys’ fees for one law firm representing the Investors as a group, in connection with any amendment, modification or waiver of this Agreement or the other Transaction Documents. In the event that legal proceedings are commenced by any party to this Agreement against another party to this Agreement in connection with this Agreement or the other Transaction Documents, the party or parties which do not prevail in such proceedings shall severally, but not jointly, pay their pro rata share of the reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.

 

9.6       Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Majority Holders. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities issued under this Agreement at the time outstanding, each future holder of all such Securities, and the Company.

 

9.7       Publicity. Except as set forth below, no public release or announcement concerning the transactions contemplated hereby shall be issued by the Company or the Investors without the prior consent of the Company (in the case of a release or announcement by the Investors) or the Majority Holders (in the case of a release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any securities exchange or securities market, in which case the Company or the Investors, as the case may be, shall allow the Investors or the Company, as applicable, to the extent reasonably practicable in the circumstances, reasonable time to comment on such release or announcement in advance of such issuance. As soon as practicable but no later than four Business Days following the First Closing Date, the Company will publicly disclose the transactions contemplated hereby in a press release and, in connection therewith, will, no later than four Business Days following the First Closing Date, file with the Commission either a Current Report on Form 8-K or a Quarterly Report on Form 10-Q, to the extent permissible, which may attach as exhibits copies of the Transaction Documents.

 

9.8       Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent

 

-22-

permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

 

9.9       Entire Agreement. This Agreement, including the Exhibits and the Disclosure Schedules, and the other Transaction Documents constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof.

 

9.10     Further Assurances. The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

 

9.11     Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to any law or principles that would make this choice of law provision invalid. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

9.12     Payment Set Aside. To the extent that the Company makes a payment or payments to any Investor pursuant to any Transaction Document or a Investor enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

9.13     Adjustments in Share Numbers and Prices. In the event of any stock split, subdivision, dividend or distribution payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of

 

-23-

Common Stock), combination or other similar recapitalization or event occurring after the date hereof and prior to the First Closing, each reference in any Transaction Document to a number of shares or a price per share shall be deemed to be amended to appropriately account for such event.

 

9.14     Independent Nature of Investors’ Obligations and Rights. The obligations of each Investor under any Transaction Document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under any Transaction Document. The decision of each Investor to purchase Securities pursuant to the Transaction Documents has been made by such Investor independently of any other Investor. Nothing contained herein or in any Transaction Document, and no action taken by any Investor pursuant thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Investor acknowledges that no other Investor has acted as agent for such Investor in connection with making its investment hereunder and that no Investor will be acting as agent of such Investor in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. Each Investor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that each of the Investors has been provided with the same Transaction Documents for the purpose of closing a transaction with multiple Investors and not because it was required or requested to do so by any Investor.

 

[signature pages follow]

 

-24-

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

 

The Company:

PET DRX CORPORATION

 

By:

 

 

Name:

 

Title:

 

 

-25-

The Investors:

GALEN PARTNERS IV, L.P.

 

By:       Claudius IV, LLC, Its General Partner

 

By:

 

 

Name: Zubeen Shroff

 

Title: Managing Member

 

GALEN PARTNERS INTERNATIONAL IV, L.P.

 

By:       Claudius IV, LLC, Its General Partner

 

By:

 

 

Name: Zubeen Shroff

 

Title: Managing Member

 

GALEN EMPLOYEE FUND IV, L.P.

 

By:       Wesson Enterprises, Inc.

 

By:

 

 

Name: Bruce F. Wesson

 

Title: President

 

 

-26-

 

Camden Partners Strategic Fund III, L.P.

By:

Camden Partners Strategic III, LLC

Its:

General Partner

By:

Camden Partners Strategic Manager, LLC

Its:

Managing Member

By:

 

 

Richard M. Johnston

 

Managing Member

Camden Partners Strategic Fund III-A, L.P.

By:

Camden Partners Strategic III, LLC

Its:

General Partner

By:

Camden Partners Strategic Manager, LLC

Its:

Managing Member

By:

 

 

Richard M. Johnston

 

Managing Member

 

 

.

Consented and agreed to

for the sole purpose of accepting

its rights and duties as Collateral Agent

and Majority Holder Representative:

 

 

GALEN PARTNERS IV, L.P.

By:

Claudius IV, LLC, Its General Partner

By:

 

Name:

Zubeen Shroff

Title:

Managing Member

 

 

-28-

SCHEDULE I

 

 

Group A Investor

Purchase Price

Principal Amount of Notes

Number of Warrant Shares

Address

Galen Partners IV, L.P.

$1,850,170.75

$1,850,170.75

4,269,624.81

(1)

Galen Partners International IV, L.P.

$146,976.18

$146,976.18

339,175.80

(1)

Galen Employee Fund IV, L.P.

$2,853.07

$2,853.07

6,584.01

(1)

Camden Partners Strategic Fund III, L.P.

$960,100.00

$960,100.00

2,215,615.38

(2)

Camden Partners Strategic Fund III-A, L.P.

$39,900.00

$39,900.00

92,076.92

(2)

 

 

 

 

 

Total

$3,000,000

$3,000,000

6,923,076.92

 

 

 

(1)

Notices to each of Galen Partners IV, L.P., Galen Partners International IV, L.P. and Galen Employee Fund IV, L.P. should be sent to: 680 Washington Boulevard, 11th Floor, Stamford, CT 06901, or by fax: (203) 653-6499.

 

(2)

Notices to each of Camden Partners Strategic Fund III, L.P. and Camden Strategic Fund III-A, L.P. should be sent to: 500 East Pratt Street, Suite 1200, Baltimore, Maryland 21202, or by fax: (410) 878-6850.

 

.

SCHEDULE II

 

[TO BE UPDATED AND DELIVERED

PURSUANT TO SECTION 6 OF THE PURCHASE AGREEMENT]

 

Group B Investor

Purchase Price

Principal Amount of Notes

Number of Warrant Shares

Address

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

[Up to $2,000,000]

[Up to $2,000,000]

[Up to 4,615,384.62]

 

 

 

.

SCHEDULE III

 

[TO BE UPDATED AND DELIVERED

PURSUANT TO SECTION 6 OF THE PURCHASE AGREEMENT]

 

Group C Investor

Purchase Price

Principal Amount of Notes

Number of Warrant Shares

Address

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

[Up to $1,500,000]

[Up to $1,500,000]

[Up to 3,461,538.46]

 

 

 

.

 

 

EX-99 3 exd_013009-petdrx.htm SECURITY AGREEMENT - EXHIBIT D

EXECUTION COPY

 

 

SECURITY AGREEMENT

 

Date: January 21, 2009

 

THIS SECURITY AGREEMENT (hereinafter, the “Agreement”) is made by and between

 

GALEN PARTNERS IV, L.P., as collateral agent (in such capacity, the “Collateral Agent”), for the Secured Parties (as defined below),

 

and

 

 

PET DRX CORPORATION, a Delaware corporation (the “Debtor”).

 

Recitals

 

A.        Pursuant to the terms, conditions and provisions of the purchase agreement dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the “Purchase Agreement”), among the Debtor and the Investors identified therein, the Debtor is issuing 12% Senior Convertible Notes due 2013 (the “Notes”); and

 

B.        The Debtor is executing and delivering this Agreement pursuant to the terms of the Purchase Agreement to induce the Investors to purchase the Notes.

 

In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

 

ARTICLE 1.

DEFINITIONS

 

Capitalized terms used herein shall have the respective meanings ascribed thereto in the Purchase Agreement unless otherwise defined herein. Unless the context otherwise requires, when used herein the following terms shall have the meaning indicated:

 

Accounts” means all “accounts,” as such term is defined in the Code, now owned or hereafter acquired by the Debtor, including (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper or Instruments), (including any such obligations that may be characterized as an account or contract right under the Code), (b) all of the Debtor’s rights in, to and under all purchase orders or receipts for goods or services, (c) all of the Debtor’s rights to any goods represented by any of the foregoing (including unpaid sellers’ rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all rights to payment due to the Debtor for property sold, leased, licensed, assigned or otherwise disposed of, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy

provided or to be provided, for the use or hire of a vessel under a charter or other contract, arising out of the use of a credit card or charge card, or for services rendered or to be rendered by the Debtor or in connection with any other transaction (whether or not yet earned by performance on the part of the Debtor), and (e) all collateral security of any kind, now or hereafter in existence, given by any Account Debtor or other Person with respect to any of the foregoing.

 

 

Account Debtor” has the meaning given that term in the Code.

 

 

Agreement” is defined in the Preamble.

 

 

Chattel Paper” has the meaning given that term in the Code.

 

Code” means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of New York; provided, that to the extent that the Code is used to define any term herein or in any Transaction Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, the Collateral Agent’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

 

 

Collateral” is defined in Section 2.1.

 

 

Collateral Agent’s Rights and Remedies” is defined in Section 6.6.

 

Contractual Obligations” means, as applied to any Person, any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject, including without limitation, the Transactions Documents.

 

Contract Rights” includes, without limitation, “contract rights” as now or formerly defined in the Code and also any right to payment under a contract not yet earned by performance and not evidenced by an instrument or Chattel Paper.

 

Copyright License” means any and all rights nor owned or hereafter acquired by the Debtor under any written agreement granting any right to use any Copyright or Copyright registration.

 

Copyrights” means all of the following now owned or hereafter adopted or acquired by the Debtor: (a) all copyrights and General Intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright

 

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Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; and (b) all reissues, extensions or renewals thereof.

 

Costs of Collection” includes, without limitation, all attorneys’ reasonable fees and reasonable out-of-pocket expenses incurred by the Collateral Agent’s attorneys (including in-house counsel), accounting, consulting, brokerage or other similar professional fees or expenses, and all reasonable costs incurred by the Collateral Agent in the administration of the Obligations and/or the Transaction Documents, including, without limitation, reasonable costs and expenses associated with travel on behalf of the Collateral Agent, which costs and expenses are directly or indirectly related to or in respect of the Collateral Agent’s: administration and management of the Obligations; negotiation, documentation, and amendment of any Transaction Document; or efforts to preserve, protect, collect, or enforce the Collateral, the Obligations, and/or the Collateral Agent’s Rights and Remedies and/or any of the Collateral Agent’s rights and remedies against or in respect of any guarantor or other person liable in respect of the Obligations (whether or not suit is instituted in connection with such efforts). The Costs of Collection are Obligations, and if not paid within thirty (30) days after the Debtor is invoiced thereof, at the Collateral Agent’s option may bear interest at the highest post-default rate which the Collateral Agent may charge the Debtor hereunder as if such had been lent, advanced, and credited by the Collateral Agent to, or for the benefit of, the Debtor.

 

 

Debtor” is defined in the Preamble.

 

 

Deposit Account” has the meaning given that term in the Code.

 

 

Documents” has the meaning given that term in the Code.

 

 

Documents of Title” has the meaning given that term in the Code.

 

Equipment” means all “equipment,” as such term is defined in the Code, now owned or hereafter acquired by the Debtor, wherever located and, in any event, including all the Debtor’s machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment, including embedded software and peripheral equipment and all engineering, processing and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures and fixtures not forming a part of real property, together with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto.

 

 

Financial Asset” has the meaning given that term in the Code.

 

Fixtures” means all “fixtures” as such term is defined in the Code, now owned or hereafter acquired by the Debtor.

 

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General Intangibles” means “general intangibles,” as such term is defined in the Code, now owned or hereafter acquired by the Debtor, including all right, title and interest that the Debtor may now or hereafter have in or under any Contractual Obligation, all payment intangibles, customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights to receive dividends, distributions, cash, Instruments and other property in respect of or in exchange for pledged Stock and Investment Property, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Debtor or any computer bureau or service company from time to time acting for the Debtor.

 

 

Goods” has the meaning given that term in the Code.

 

Holder” means a Person in whose name a Note is registered in the Debtor’s Register for the Notes.

 

Instruments” means all “instruments,” as such term is defined in the Code, now owned or hereafter acquired by the Debtor, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all promissory notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper.

 

Intellectual Property” means any and all Licenses, Patents, Copyrights, Trademarks, and the goodwill associated with such Trademarks.

 

Inventory” means any “inventory,” as such term is defined in the Code, now owned or hereafter acquired by the Debtor, wherever located, including inventory, merchandise, goods and other personal property that are held by or on behalf of the Debtor for sale or lease or are furnished or are to be furnished under a contract of service, or that constitute raw materials, work in process, finished goods, returned goods, supplies or materials of any kind, nature or description used or consumed or to be used or consumed in the Debtor’s business or in the processing, production, packaging, promotion, delivery or shipping of the same, including all supplies and embedded software.

 

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Investment Property” means all “investment property,” as such term is defined in the Code, now owned or hereafter acquired by the Debtor, wherever located, including: (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of the Debtor, including the rights of the Debtor to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all securities accounts of the Debtor; (iv) all commodity contracts of the Debtor; and (v) all commodity accounts held by the Debtor.

 

Letter-of-Credit Right” has the meaning given that term in Code and also refers to any right to payment or performance under a letter of credit, whether or not the beneficiary has demanded or is at the time entitled to demand payment or performance.

 

License” means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by the Debtor.

 

Lien” means any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction).

 

Obligations” means (a) the due and punctual payment by the Debtor of (i) the unpaid principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Notes, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other monetary obligations of the Debtor to any of the Secured Parties under the Notes, including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), (b) the due and punctual performance of all the obligations of the Debtor under or pursuant to this Agreement and each of the other Transaction Documents.

 

Patent License” means rights under any written agreement now owned or hereafter acquired by the Debtor granting any right with respect to any invention on which a Patent is in existence.

 

Patents” means all of the following in which the Debtor now holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or of any other country, including registrations, recordings and applications in the United States Patent and

 

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Trademark Office or in any similar office or agency of the United States, any State or any other country, and (b) all reissues, continuations, continuations in part or extensions thereof.

 

Payment Intangible” as defined in the Code and also any General Intangible under which the Account Debtor’s primary obligation is a monetary obligation.

 

Proceeds” include, without limitation, “Proceeds” as defined in the Code, and each type of property described in Section 2.1.

 

Receivables Collateral”: the Debtor’s Accounts, Accounts Receivable, Contract Rights, General Intangibles, Payment Intangibles, Chattel Paper, Instruments, Documents of Title, Documents, Securities, letters of credit for the benefit of the Debtor, and bankers’ acceptances held by the Debtor, and any rights to payment.

 

Secured Parties” means (a) the Collateral Agent, (b) each Holder of the Notes, and (c) the successors and permitted assigns of each of the foregoing.

 

 

Securities” has the meaning given that term in the Code.

 

 

Security Interest” is defined in Section 2.1.

 

Stock” means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934).

 

Supporting Obligation” has the meaning given that term in the Code and also refers to a Letter-of-Credit Right or secondary obligation which supports the payment or performance of an Account, Chattel Paper, a Document, a General Intangible, an Instrument, or Investment Property.

 

Trademark License” means rights under any written agreement now owned or hereafter acquired by the Debtor granting any right to use any Trademark.

 

Trademarks” means all of the following now owned or hereafter adopted or acquired by the Debtor: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, internet domain names, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the foregoing.

 

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Transfer” is defined in Section 4.1.

 

 

ARTICLE 2.

GRANT OF SECURITY INTEREST

 

2.1       Grant of Security Interest. To secure the Debtor’s prompt, punctual, and faithful performance of all and each of the Obligations, the Debtor hereby grants to the Collateral Agent, its successors and permitted assigns, for the ratable benefit of the Secured Parties, a continuing security interest (the “Security Interest”) in and to, and assigns to the Collateral Agent, its successors and permitted assigns, for the ratable benefit of the Secured Parties, all of the Debtor’s right, title and interest in, to and under the following, and each item thereof, whether now owned or now due, or in which the Debtor has an interest, or hereafter acquired, arising, or to become due, or in which the Debtor obtains an interest, and all products, Proceeds, substitutions, and accessions of or to any of the following (all of which, together with any other property in which the Collateral Agent may in the future be granted a security interest, is referred to herein as the “Collateral”): All assets of the Debtor, including, without limitation, all Accounts and accounts receivable; Inventory; Contract Rights; Instruments; Deposit Accounts; General Intangibles; Letter of Credit Rights, Payment Intangibles, Supporting Obligations, Investment Property; Equipment; Goods; Securities; Documents; Documents of Title; Fixtures; Chattel Paper; Financial Assets, policies and certificates of insurance, money, cash, or other property; all insurance proceeds, refunds, and premium rebates, including, without limitation, proceeds of fire and credit insurance, whether any of such proceeds, refunds, and premium rebates arise out of any of the foregoing; all liens, guaranties, rights, remedies, and privileges pertaining to any of the foregoing including the right of stoppage in transit all books, records, and information relating to the Collateral and/or to the operation of the Debtor’s business, and all rights of access to such books, records, and information, and all property in which such books, records, and information are stored, recorded, and maintained; provided, however, that notwithstanding anything to the contrary contained in this Agreement, the term “Collateral” shall in no event include any Account, lease, License, contract, agreement or other property if, and for so long as, the grant of such security interest therein shall constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of Debtor therein or (ii) a breach or termination pursuant to the terms of, or a default under, any Account, lease, License, contract or agreement to which Debtor or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, further, that the term “Collateral” shall include such Account, lease, License, contract, agreement or other property immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall immediately include any portion of such Account, lease, License, contract, agreement or property that does not result in any of the consequences specified in (i) or (ii) above.

 

2.2       Commercial Tort Claims. If the Debtor shall at any time acquire a commercial tort claim, the Debtor shall promptly notify the Collateral Agent in a writing signed by the Debtor of the brief details thereof and grant to the Collateral Agent, its successors and permitted

 

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assigns, for the ratable benefit of the Secured Parties, in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Collateral Agent.

 

2.3       Authorization to File. The Debtor hereby authorizes the Collateral Agent to file financing statements, without notice to the Debtor, with all appropriate jurisdictions in order to perfect or protect the interest or rights hereunder of the Collateral Agent, for the benefit of the Secured Parties, which financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in the Collateral Agent’s discretion.

 

 

ARTICLE 3.

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

The Debtor, in addition to all other representations, warranties and covenants made by the Debtor in any other Transaction Document, makes those covenants included in this Agreement. To induce the Holders to purchase the Notes, the Debtor represents, warrants and covenants to the Collateral Agent, for the benefit of the Secured Parties that:

 

 

3.1

Due Organization Authorization; No Conflicts.

 

(a)       The Debtor presently is and shall hereafter remain in good standing in its jurisdiction of formation and is and shall hereafter remain duly qualified and in good standing in every other State in which, by reason of the nature or location of the Debtor’s assets or operation of the Debtor’s business, such qualification may be necessary, except where the failure to be so qualified could reasonably be expected to have a Material Adverse Effect.

 

(b)       The Debtor has all requisite corporate power and authority to execute and deliver to the Collateral Agent, for the benefit of the Secured Parties, this Agreement and all other Transaction Documents to which the Debtor is a party and has and will hereafter retain all requisite corporate power to perform all and singular Obligations.

 

(c)       When delivered, this Agreement will constitute the legal, valid and binding obligation of the Debtor, enforceable against the Debtor in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

 

3.2       Security Interest. The Security Interest constitutes a legal and valid security interest in the Collateral securing the payment and performance of the Obligations. The Security Interest is and shall be a first-priority security interest, prior to any other Lien on any of the Collateral.

 

3.3       Additional Assurances. The Debtor shall execute and deliver to the Collateral Agent, for the benefit of the Secured Parties, such instruments, documents, and papers, and shall do all such things from time to time hereafter as the Collateral Agent may reasonably request to

 

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carry into effect the provisions and intent of this Agreement and to comply with all applicable statutes and laws. The Debtor shall execute all such instruments as reasonably may reasonably be required by the Collateral Agent with respect to the recordation and/or perfection of the security interests created herein.

 

 

ARTICLE 4.

NEGATIVE COVENANTS

 

The Debtor covenants and agrees that, without the prior written consent of the Collateral Agent, the Debtor will not do any of the following:

 

4.1       Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), all or any part of its business or property, other than Transfers: (i) of inventory in the ordinary course of business; (ii) of non-exclusive Licenses and similar arrangements for the use of the property of the Debtor in the ordinary course of business; (iii) that constitute payment of normal and usual operating expenses in the ordinary course of business and payment of any other amounts for any purpose not expressly prohibited in the Transaction Documents; (iv) of worn-out or obsolete Equipment; or (v) subject to the consent of the Majority Holders, permitted by Section 5(b)(viii) of the Notes.

 

4.2       Location of Collateral. The Debtor hereby certifies that no Collateral is in the possession of any third party bailee (such as at a warehouse). In the event that the Debtor, after the date hereof, intends to store or otherwise deliver the Collateral to such a bailee, then the Debtor shall use reasonable best efforts to secure in writing from such bailee an acknowledgment that the bailee is holding such Collateral for the benefit of the Collateral Agent (for the benefit of the Secured Parties).

 

 

ARTICLE 5.

EVENTS OF DEFAULT

 

Upon the occurrence of any Event of Default (as defined in the Notes), all Obligations of the Debtor to the Investors may be declared immediately due and payable in accordance with the terms of the Notes. The occurrence of any Event of Default shall also constitute, without notice or demand, a default under all other Transaction Documents between the Collateral Agent and the Debtor, whether such Transaction Documents now exist or hereafter arise.

 

 

ARTICLE 6.

RIGHTS AND REMEDIES UPON DEFAULT

 

In addition to all of the rights, remedies, powers, privileges, and discretions which the Collateral Agent is provided under the Transaction Documents or applicable law prior to the occurrence of an Event of Default, the Collateral Agent shall have the following rights and remedies upon the occurrence and during the continuance of any Event of Default.

 

6.1       Rights of Enforcement. The Collateral Agent, for the benefit of the Secured Parties, shall have all of the rights and remedies of a secured party upon default under the Code, in addition to which the Collateral Agent shall have all and each of the following rights and remedies:

 

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(a)       To collect the Receivables Collateral with or without the taking of possession of any of the Collateral.

 

(b)       To apply the Receivables Collateral or the proceeds of the Collateral towards (but not necessarily in complete satisfaction of) the Obligations.

 

 

(c)

To take possession of all or any portion of the Collateral.

 

(d)       To sell, lease, or otherwise dispose of any or all of the Collateral, in its then condition or following such preparation or processing as the Collateral Agent reasonably deems necessary and with or without the taking of possession of any of the Collateral.

 

(e )      To exercise all or any of the rights, remedies, powers, privileges, and discretions under all or any of the Transaction Documents.

 

(f)        To apply to the Obligations any balances and deposits in any Deposit Accounts of the Debtor which the Collateral Agent holds or is in control of.

 

 

6.2

Sale of Collateral.

 

(a)       Any sale or other disposition of the Collateral may be at public or private sale upon such terms and in such manner as the Collateral Agent deems advisable, having due regard to compliance with any statute or regulation which might affect, limit, or apply to the Collateral Agent’s disposition of the Collateral.

 

(b)       Unless the Collateral is perishable or threatens to decline speedily in value, or is of a type customarily sold on a recognized market (in which event the Collateral Agent shall provide the Debtor with such notice as may be practicable under the circumstances), the Collateral Agent shall give the Debtor at least ten (10) days’ prior written notice of the date, time, and place of any proposed public sale, and of the date after which any private sale or other disposition of the Collateral may be made. The Debtor agrees that such written notice shall satisfy all requirements for notice to the Debtor which are imposed under the Code or other applicable law with respect to the Collateral Agent’s exercise of the Collateral Agent’s rights and remedies upon default.

 

(c)       The Collateral Agent may purchase the Collateral, or any portion of it at any sale held under this Article.

 

(d)       The Collateral Agent shall apply the proceeds of any exercise of the Collateral Agent’s Rights and Remedies under this Article as well as any Collateral consisting of cash, as follows:

 

FIRST, to the payment of all Costs of Collection and indemnification amounts incurred by the Collateral Agent in connection with this Agreement or any of the Obligations, the repayment of all advances made by the Collateral Agent

 

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hereunder on behalf of the Debtor and any other reasonable costs or expenses incurred in connection with the exercise of any right or remedy hereunder;

 

SECOND, to the payment in full of the other Obligations (the amounts so applied to be distributed among the Secured Parties pro rata in accordance with the respective amounts of the Obligations owed to them on the date of any such distribution); and

 

THIRD, to the Debtor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct.

 

The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement. Upon the request of the Collateral Agent prior to any distribution under this Section 6.2, an authorized representative of each applicable Secured Party shall provide to the Collateral Agent certificates, in form and substance reasonably satisfactory to the Collateral Agent, setting forth the respective amounts referred to in this Section 6.2, that each applicable Secured Party or their authorized representatives believes it is entitled to receive, and the Collateral Agent shall be fully entitled to rely on such certificates. Upon any sale of Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the purchase money by the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.

 

6.3       Occupation of Business Location. In connection with the Collateral Agent’s exercise of the Collateral Agent’s rights under this Article, the Collateral Agent may enter upon, occupy, and use any premises owned or occupied by the Debtor, and may exclude the Debtor from such premises or portion thereof as may have been so entered upon, occupied, or used by the Collateral Agent. The Collateral Agent shall not be required to remove any of the Collateral from any such premises upon the Collateral Agent’s taking possession thereof, and may render any Collateral unusable to the Debtor. In no event shall the Collateral Agent be liable to the Debtor for use or occupancy by the Collateral Agent of any premises pursuant to this Article, nor for any charge (such as wages for the Debtor’s employees and utilities) incurred in connection with the Collateral Agent’s exercise of the Collateral Agent’s Rights and Remedies.

 

6.4       Grant of Nonexclusive License. The Debtor hereby grants to the Collateral Agent, its successors and permitted assigns, for the benefit of the Secured Parties, a royalty free nonexclusive irrevocable license to use, apply, and affix any trademark, trade name, logo, or the like in which the Debtor now or hereafter has rights, such license being with respect to the Collateral Agent’s exercise of the rights hereunder including, without limitation, in connection with any completion of the manufacture of Inventory or sale or other disposition of Inventory.

 

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6.5       Assembly of Collateral. The Collateral Agent may require the Debtor to assemble the Collateral and make it available to the Collateral Agent at the Debtor’s sole risk and expense at a place or places which are reasonably convenient to both the Collateral Agent and the Debtor.

 

6.6       Rights and Remedies. The rights, remedies, powers, privileges, and discretions of the Collateral Agent (for the benefit of the Secured Parties) hereunder (herein, the “Collateral Agent’s Rights and Remedies”) shall be cumulative and not exclusive of any rights or remedies which it would otherwise have. No delay or omission by the Collateral Agent in exercising or enforcing any of the Collateral Agent’s Rights and Remedies shall operate as, or constitute, a waiver thereof. No waiver by the Collateral Agent of any Event of Default or of any default under any other agreement shall operate as a waiver of any other default hereunder or under any other agreement. No single or partial exercise of any of the Collateral Agent’s Rights or Remedies, and no express or implied agreement or transaction of whatever nature entered into between the Collateral Agent and any person, at any time, shall preclude the other or further exercise of the Collateral Agent’s Rights and Remedies. No waiver by the Collateral Agent of any of the Collateral Agent’s Rights and Remedies on anyone occasion shall be deemed a waiver on any subsequent occasion, nor shall it be deemed a continuing waiver. All of the Collateral Agent’s Rights and Remedies and all of the Collateral Agent’s rights, remedies, powers, privileges, and discretions under any other agreement or transaction are cumulative, and not alternative or exclusive, and may be exercised by the Collateral Agent at such time or times and in such order of preference as the Collateral Agent in its sale discretion may determine. The Collateral Agent’s Rights and Remedies may be exercised without resort or regard to any other

source of satisfaction of the Obligations.

 

 

ARTICLE 7.

GENERAL

 

7.1       Successors and Assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the permitted successors and assigns of such party; and all covenants, promises and agreements by or on behalf of the Debtor or the Collateral Agent that are contained in this Agreement shall bind and inure to the benefit of their respective permitted successors and assigns. The Collateral Agent hereunder shall at all times be the same person that is the Majority Holder Representative. Written notice of resignation by the Collateral Agent as Majority Holder Representative pursuant to the Purchase Agreement shall also constitute notice of resignation as the Collateral Agent under this Agreement. Upon the acceptance of any appointment as the Majority Holder Representative by a successor Collateral Agent, that successor Majority Holder Representative shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent pursuant hereto.

 

7.2       Severability. Any determination that any provision of this Agreement or any application thereof is invalid, illegal, or unenforceable in any respect in any instance shall not affect the validity, legality, or enforceability of such provision in any other instance, or the

validity, legality, or enforceability of any other provision of this Agreement.

 

7.3       Integration; Amendments; Course of Dealing. This Agreement and the other Transaction Documents are intended by the parties as the final. complete and exclusive statement

 

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of the transactions evidenced by this Agreement and the other Transaction Documents. All prior or contemporaneous promises, agreements and understandings, whether oral or written, express or implied, are deemed to be superseded by this Agreement and the other Transaction Documents, and no party is relying on any promise, agreement or understanding not set forth in this Agreement and the other Transaction Documents. No such discussions, negotiations, custom, usage, or course of dealings shall limit, modify, or otherwise affect the provisions thereof. This Agreement may not be amended or modified except by a written instrument describing such amendment or modification executed by the Debtor and the Collateral Agent, subject to the consent of Majority Holders of the Notes. No failure by the Collateral Agent to give notice to the Debtor of the Debtor’s having failed to observe and comply with any warranty or covenant included in any Transaction Document shall constitute a waiver of such warranty or covenant or the amendment of the subject Transaction Document.

 

7.4       Power of Attorney. The Debtor hereby irrevocably constitutes and appoints the Collateral Agent (acting through any authorized representative of the Collateral Agent) as the Debtor’s true and lawful attorney, with full power of substitution, following the occurrence and during the continuation of an) Event of Default. The rights and powers granted the Collateral Agent by this appointment include but are not limited to the fight and power to: (i) prosecute, defend, compromise, or release any action relating to the Collateral; (ii) sign change of address forms to change the address to which the Debtor’s mail is to be sent to such address as the Collateral Agent shall designate; receive and open the Debtor’s mail; (iii) endorse the name of the Debtor in favor of the Collateral Agent upon any and all checks, drafts, notes, acceptances, or other items or instruments; sign and endorse the name of the Debtor on, and receive as secured party, any of the Collateral, any invoices, schedules of Collateral, freight or express receipts, or bills of lading, storage receipts, warehouse receipts, or other documents of title respectively relating to the Collateral; (iv) sign the name of the Debtor on any notice to the Debtor’s Account Debtors or; sign the Debtor’s name on any proof of claim in bankruptcy against Account Debtors, and on notices of lien, claims of mechanic’s liens, or assignments or releases of mechanic’s liens securing the Accounts; (v) take all such action as may be necessary to obtain the payment of any letter of credit and/or banker’s acceptance of which the Debtor is a beneficiary; (vi) repair, manufacture, assemble, complete, package, deliver, alter or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any customer of the Debtor and (vii) use, license or transfer any or all General Intangibles of the Debtor. In connection with all powers of attorney described above, the Debtor hereby grants unto the Collateral Agent (acting through any of its authorized representatives) full power to do any and all things necessary or appropriate in connection with the exercise of such powers as fully and effectually as the Debtor might or could do, hereby ratifying all that said attorney shall do or cause to be done by virtue of this Agreement. No power of attorney set forth above shall be affected by any disability or incapacity suffered by the Debtor and each shall survive the same. All powers conferred upon the Collateral Agent herein, being coupled with an interest, shall be irrevocable until this Agreement is terminated by a written instrument executed by a duly authorized representative of the Collateral Agent. Notwithstanding anything herein to the contrary, the Debtor hereby appoints Collateral Agent its power of attorney to sign the Debtor’s name on any documents necessary to perfect or continue the perfection of any security interest regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Collateral Agent is under no further obligation to make loans or advances hereunder.

 

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The Collateral Agent and the other Secured Parties shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to the Debtor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.

 

7.5       Collateral Agent’s Costs and Expenses; Indemnification. The Debtor shall pay on demand all Costs of Collection and all reasonable expenses of the Collateral Agent in connection with the preparation, execution, and delivery of this Agreement, and any and all documents, instruments and agreements delivered to the Collateral Agent in connection herewith, whether evidencing the Obligations, or granting the Collateral Agent (for the benefit of the Secured Parties) certain rights with respect to the Debtor, or its shares of stock, and of any Transaction Documents, whether now existing or hereafter arising, and all other reasonable expenses which may be incurred by the Collateral Agent in preparing or amending this Agreement and all other agreements, instruments, and documents related thereto, or otherwise incurred with respect to the Obligations. The Debtor agrees to indemnify the Collateral Agent and any of its Affiliates (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees, charges and disbursements (limited to not more than one counsel, plus, if necessary, one local counsel per jurisdiction), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of, (i) the execution or delivery of this Agreement, the performance by the parties hereto of their respective obligations hereunder, (ii) the use of proceeds of the Notes or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, including without limitation, any claim, litigation, investigation or proceeding relating to the Collateral.

 

7.6       Copies and Facsimiles. This Agreement and all documents which relate thereto, which have been or may be hereinafter furnished the Collateral Agent may be reproduced by the Collateral Agent by any photographic, microfilm, xerographic, digital imaging, or other process, and the Collateral Agent may destroy any document so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business).

 

7.7       Security Interest Absolute. All rights of the Collateral Agent hereunder, the Security Interest in the Collateral and all obligations of the Debtor hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Notes, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Notes or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Debtor in respect of the Obligations or this Agreement (other than a defense of payment or performance).

 

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7.8       New York Law. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE TRANSACTION DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE TRANSACTION DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THE DEBTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE DEBTOR AND THE COLLATERAL AGENT PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS; PROVIDED THAT THE DEBTOR AND THE COLLATERAL AGENT ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY AND; PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE COLLATERAL AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE COLLATERAL AGENT. THE DEBTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE DEBTOR HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. THE DEBTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE DEBTOR AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF THE DEBTOR’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID.

 

7.9       Right of Set-Off. The Debtor and any guarantor hereby grant to the Collateral Agent, for the benefit of the Secured Parties, a lien, security interest and right of setoff as security for all Obligations and obligations to the Collateral Agent, for the benefit of the Secured Parties, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Collateral Agent or any entity under the control of the Collateral Agent and its successors and assigns or in transit to any of them. At any time, without demand or notice (any such notice being expressly waived by the Debtor), the Collateral Agent may set off the same or any part thereof and apply the same to any liability or obligation of the Debtor and any guarantor even though unmatured and regardless of the adequacy of any other collateral securing the loan. ANY AND ALL

 

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RIGHTS TO REQUIRE THE COLLATERAL AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE NOTES, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE DEBTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

 

7.10

Waivers.

 

(a)       The Debtor (and all guarantors, endorsers, and sureties of the Obligations) makes each of the waivers included in subsection (b) below, knowingly, voluntarily, and intentionally, and understands that the Collateral Agent, in entering into the financial arrangements contemplated hereby and in the other Transaction Documents, whether now or in the future, is relying on such waivers included in subsection (b).

 

(b)       THE DEBTOR, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY RESPECTIVELY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE FOLLOWING:

 

(i)        Except as otherwise specifically required hereby or by any other Transaction Document, notice of non-payment, demand, presentment, protest and all forms of demand and notice, both with respect to the Obligations.

 

(ii)       Except as otherwise specifically required hereby or by any other Transaction Document, the right to notice and/or hearing prior to the Collateral Agent’s exercising of the Collateral Agent’s rights upon the occurrence and continuation of an Event of Default.

 

(iii)      THE DEBTOR AND COLLATERAL AGENT MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE COLLATERAL AGENT OR IN WHICH THE COLLATERAL AGENT IS JOINED AS A PARTY LITIGANT), INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE COLLATERAL AGENT RELATING TO THE ADMINISTRATION OF THIS AGREEMENT OR ENFORCEMENT OF THE TRANSACTION DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, THE DEBTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER

 

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IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.

 

 

7.11

Termination or Release.

 

(a)       (i) This Agreement, the Security Interest and all other security interests granted hereby, shall automatically terminate and/or be released all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Debtor, as of the date when all the Obligations (other than contingent or unliquidated obligations or liabilities not then due, and other than any Obligations relating to Warrants or other Securities after the Notes are no longer outstanding) have been paid in full in cash or immediately available funds; provided that, upon payment in full of the Obligations, the Collateral Agent may assume that no Obligations are outstanding unless otherwise advised in writing by the Debtor; and (ii) this Agreement, the Security Interest and all other security interests granted hereby, shall automatically terminate as of the date when the Majority Holders (as defined in the Notes) consent to the termination of this Agreement, such termination to include, without limitation, the termination of the Security Interest.

 

(b)       Upon any sale or other transfer by the Debtor of any Collateral that is permitted under the Notes to any Person, or upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to the Notes, the security interest in such Collateral shall be automatically released, all without delivery of any instrument or performance of any act by any party;

 

(c)       In connection with any termination or release pursuant to this Section 7.11, the Collateral Agent shall execute and deliver to the Debtor, at the Debtor’s expense, all documents that the Debtor shall reasonably request to evidence such termination or release (including, without limitation, UCC termination statements), and will duly assign and transfer to the Debtor, such of the Collateral that may be in the possession of the Collateral Agent and has not theretofore been sold or otherwise applied or released pursuant to this Agreement. Any execution and delivery of documents pursuant to this Section 7.11 shall be without recourse to or warranty by the Collateral Agent. In connection with any release pursuant to this Section 7.11, the Debtor shall be permitted to take any action in connection therewith consistent with such release including, without limitation, the filing of UCC termination statements.

 

[signature pages follow]

 

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EXECUTED as of the date first written above.

 

PET DRX CORPORATION, as Debtor

By:

 

Name:

Title:

 

 

GALEN PARTNERS IV, L.P., as Collateral Agent

By:       Claudius IV, LLC, Its General Partner

By:

 

Name: Zubeen Shroff

Title: Managing Member

 

 

 

 

EX-99 4 exe_013009-petdrx.htm PLEDGE AGREEMENT - EXHIBIT E

EXECUTION COPY

 

 

PLEDGE AGREEMENT

(CAPITAL STOCK OF PET DRX VETERINARY GROUP, INC.)

 

THIS PLEDGE AGREEMENT, dated as of January 21, 2009, made by the undersigned (“Pledgor”), in favor of GALEN PARTNERS IV, L.P., as collateral agent (in such capacity, “Secured Party”)forthe Investors (as hereinafter defined).

W I T N E S S E T H:

 

WHEREAS, Pledgor is the record and beneficial owner of all of the authorized, issued and outstanding shares of Capital Stock (as hereinafter defined), in PET DRX VETERINARY GROUP, INC., a Delaware corporation (“Issuer”), all as more particularly described in Schedule I attached hereto (the “Pledged Shares”); and

WHEREAS, as a condition precedent (among others) to the purchase by the Investors of the Notes (defined below) pursuant to the Purchase Agreement (defined below), the Investors and Secured Party are requiring that Pledgor shall have executed and delivered in favor of Secured Party this Agreement pledging to Secured Party, for the benefit the Investors, all such Pledged Shares as security for the payment of the “Secured Obligations” (as hereinafter defined);

NOW, THEREFORE, in consideration of the premises and to induce the Investors to provide financial accommodations to Pledgor under the Purchase Agreement, Pledgor hereby agrees in favor of Secured Party, for the benefit of Secured Party and the Investors, as follows:

1.     Definitions. In addition to the terms defined above, unless otherwise defined herein, terms defined in the Purchase Agreement are used herein as therein defined, and the following shall have (unless otherwise provided elsewhere in this Agreement) the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined):

Act” shall mean the Securities Act of 1933, as amended (or any successor statute thereafter in effect).

Agreement” shall mean this Pledge Agreement, and shall include all further amendments, modifications and supplements hereto and shall refer to this Agreement, as the same may be in effect at the time such reference becomes operative.

Bankruptcy Code” shall mean Title 11, United States Code, as amended from time to time, and any successor statute thereto.

Capital Stock” shall mean and include common stock, preferred stock, warrants, partnership interests, membership interests or other interests representing or constituting equity ownership in the Issuer.

Event of Default” shall have the meaning assigned to such term in the Notes.

Notes” shall mean the 12% Senior Convertible Notes issued or to be issued in the maximum aggregate original principal amount of $6,500,000, as the same may be modified, amended, restated or extended from time to time.

Pledged Collateral” shall have the meaning assigned to such term in Section 2 hereof.

Purchase Agreement” shall mean the Purchase Agreement, dated as of January 21, 2009, made between Pledgor and the Investors party thereto, as it may be amended, supplemented or modified from time to time, pursuant to which the Notes are issued from time to time.

Secured Obligations” shall have the meaning assigned to such term in Section 3 hereof.

Transaction Documents” shall mean the Notes, the Purchase Agreement, this Agreement and any and all other documents, instruments or agreements now or hereafter executed and delivered by Pledgor or its Subsidiaries and evidencing or securing the Secured Obligations.

UCC” shall mean the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of New York.

2.         Pledge. Pledgor hereby pledges, assigns, hypothecates, transfers and grants to Secured Party, for the benefit of Secured Party and the Investors, a first priority security interest in, all of the following (all of the following, herein, collectively, the “Pledged Collateral”):

(a)       the Pledged Shares, and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares;

(b)       all additional shares of Capital Stock of any of the Issuers from time to time acquired by Pledgor in any manner, including, without limitation, stock dividends or distributions in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares, stock split, spin-off or split-off (all of which shares shall constitute additional Pledged Shares), and the certificates representing such additional Pledged Shares and all dividends, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such additional Pledged Shares; and

(c)       all options and rights, whether as an addition to, in substitution of or in exchange for any such Pledged Shares, and all such dividends, cash, instruments and other property or proceeds.

3.         Security for Obligations. This Agreement secures, and the Pledged Collateral is security for, (a) the due and punctual payment by the Pledgor of (i) the unpaid

 

 

2

principal of and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Notes, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (ii) all other monetary obligations of the Pledgor to any of the Investors under the Notes, including obligations to pay fees, expense reimbursement obligations and indemnification obligations, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), (b) the due and punctual performance of all the obligations of the Pledgor under or pursuant to this Agreement and each of the other Transaction Documents (herein, collectively, the “Secured Obligations”).

4.         Delivery of Pledged Collateral. All certificates representing or evidencing the Pledged Shares shall be delivered to and held by or on behalf of Secured Party pursuant hereto and shall be accompanied by duly executed instruments of transfer or assignment in blank. Pledgor hereby authorizes Issuer, upon demand by Secured Party, to deliver any certificates, instruments or other distributions issued in connection with the Pledged Collateral directly to Secured Party, in each case to be held by Secured Party, subject to the terms hereof.

5.         Representations and Warranties. To induce the Investors to purchase the Notes, Pledgor makes the following representations and warranties to Secured Party on each Closing Date, and to the Investors on the Closing Date on which they initially purchase Notes:

(a)       Sole Holder of Record. Pledgor is, and at the time of delivery of any additional Pledged Shares to Secured Party pursuant to Section 4 hereof will be, the sole holder of record and the sole beneficial owner of the Pledged Collateral free and clear of any lien thereon or affecting the title thereto except for the lien and security interest created by this Agreement.

(b)       Authorized Shares. All of the Pledged Shares have been duly authorized, are validly issued and are fully paid and non-assessable.

(c)       No Restrictions on Transfer. There are no restrictions on transfer of the Pledged Shares contained in any organizational or charter documents of Issuer which have not otherwise been enforceably and legally waived by the necessary parties.

(d)       Capital Stock of Issuers. On the date hereof, the authorized Capital Stock of Issuer consists of the number of shares of Capital Stock, with the number of shares issued and outstanding, that are described in Schedule I hereto. As of the date hereof, (i) no subscription, warrant, option or other right to purchase or acquire any shares of any class of Capital Stock of Issuer is authorized and outstanding, and (ii) there is no commitment by Issuer to issue any such shares, warrants, options or other such rights or securities. The Pledged Shares constitute all of the issued and outstanding shares of Capital Stock of Issuer.

(f)        First Priority Security Interest. The pledge, assignment and delivery of the Pledged Collateral pursuant to this Agreement will create a valid first priority lien on and a first

 

 

3

priority perfected security interest in the Pledged Collateral and the proceeds thereof, securing the payment of the Secured Obligations.

6.         Covenants. Pledgor covenants and agrees that until the Secured Obligations have been paid in full or this Agreement has otherwise been terminated, cancelled or fully released:

(a)       Without the prior written consent of Secured Party, Pledgor will not sell, assign, transfer, convey, or otherwise dispose of its rights in or to the Pledged Collateral or any interest therein; nor will Pledgor create, incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or any security interest whatsoever with respect to any of the Pledged Collateral or any unpaid dividends or other distributions or payments with respect thereto or the proceeds thereof other than that created hereby.

(b)       Pledgor will, at its expense, promptly execute, acknowledge and deliver all such instruments and take all such action as Secured Party from time to time may reasonably request in order to ensure to Secured Party the benefits of the lien and security interest in and to the Pledged Collateral intended to be created by this Agreement, including, but without limitation, delivering to Secured Party upon the occurrence of an Event of Default, and during its continuance, irrevocable proxies in respect of the Pledged Collateral in form satisfactory to Secured Party. Until receipt thereof, after the occurrence of any Event of Default, this Agreement shall constitute Pledgor’s proxy to Secured Party or its nominee to vote all shares of Pledged Collateral then registered in Pledgor’s name during any such period that an Event of Default shall be continuing.

(c)       Pledgor has and will defend the title to the Pledged Collateral and the lien and security interest of Secured Party thereon against the claim of any Person and will maintain and preserve such lien and security interest until the date of termination of the Purchase Agreement and payment in full of the Secured Obligations.

(d)       Pledgor will pay all taxes, assessments and charges levied, assessed or imposed upon the Pledged Collateral before the same become delinquent or become liens upon any of the Pledged Collateral except where the same may be contested in good faith by appropriate proceedings and as to which adequate reserves have been provided.

 

7.

Pledgor’s Rights; Termination of Rights.

 

(a)

As long as no Event of Default shall have occurred and be continuing:

(i)        Pledgor shall have the right, from time to time, to vote and give consents with respect to the Pledged Collateral or any part thereof for all purposes not inconsistent with the provisions of this Agreement, the Purchase Agreement or any other Transaction Documents;

(ii)       Pledgor shall be entitled, from time to time, to collect and receive, for Pledgor’s own use, all dividends paid in respect of the Pledged Shares, to the extent then permitted to be paid under the Notes, other than any and all (A) dividends paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise

 

 

4

distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Collateral in connection with a partial or total liquidation or dissolution, and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral; provided, however, that until actually paid all rights to such dividends shall remain subject to the lien created by this Agreement.

(b)       Upon the occurrence of an Event of Default and during the continuance thereof, all of Pledgor’s rights to exercise voting and other consensual rights pursuant to Section 7(a)(i) hereof and all of Pledgor’s rights to receive any cash dividends pursuant to Section 7(a)(ii) hereof shall cease and all such rights shall thereupon become vested in Secured Party who shall have the sole and exclusive right to exercise the voting and other consensual rights which Pledgor would otherwise be authorized to exercise pursuant to Section 7(a)(i) hereof and to receive and retain the dividends which Pledgor would otherwise be authorized to receive and retain pursuant to Section 7(a)(ii) hereof; provided, however, that notwithstanding anything contained in this Agreement to the contrary, no voting or other consensual rights shall be vested in Secured Party, unless and until Secured Party gives written notice to Pledgor that Secured Party intends to have such voting or other consensual rights vest in itself.

8.         Defaults and Remedies. (a) Upon the occurrence and during the continuation of an Event of Default, Secured Party may exercise all rights of a secured party under the UCC. In addition, Secured Party is hereby authorized and empowered to (i) transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, (ii) exercise the voting rights with respect thereto, (iii) exercise all corporate rights with respect to the Pledged Collateral including, without limitation, all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any shares of the Pledged Collateral as if it were the absolute owner thereof, including, but without limitation, the right to exchange, at its discretion, any or all of the Pledged Collateral upon the merger, consolidation, reorganization, recapitalization or other readjustment of Issuer, as issuer thereof, or upon the exercise by Issuer of any right, privilege or option pertaining to any of the Pledged Collateral, and, in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depository, transfer agent, registrar or other designated agent upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, (iv) collect and receive all cash dividends and other distributions made thereon, (v) sell in one or more sales after ten (10) Business Days’ notice of the time and place of any public sale or of the time after which a private sale is to take place (which notice Pledgor agrees is commercially reasonable), but without any previous notice or advertisement, the whole or any part of the Pledged Collateral and (vi) otherwise act with respect to the Pledged Collateral as though Secured Party was the outright owner thereof. Any sale shall be made at a public or private sale at Secured Party’s place of business, or at any public building in the City of New York, New York or elsewhere to be named in the notice of sale, either for cash or upon credit or for future delivery at such price as Secured Party may deem fair, and Secured Party may be the purchaser of the whole or any part of the Pledged Collateral so sold and hold the same thereafter in its own right free from any claim of Pledgor or any right of redemption, which Pledgor hereby waives to the maximum extent permitted by applicable law. Each sale shall be made to the highest bidder, but Secured Party reserves the right to reject any and all bids at such sale which, in its discretion, it shall deem inadequate. Demands of performance, except as otherwise herein specifically provided for, notices of sale, advertisements and the presence of

 

 

5

property at sale are hereby waived and any sale hereunder may be conducted by an auctioneer or any officer or agent of Secured Party.

(b)       If, at the original time or times appointed for the sale of the whole or any part of the Pledged Collateral, the highest bid, if there be but one sale, shall be inadequate to discharge in full all the Secured Obligations, or if the Pledged Collateral be offered for sale in lots, if at any of such sales, the highest bid for the lot offered for sale would indicate to Secured Party, in its reasonable discretion, the unlikelihood of the proceeds of the sales of the whole of the Pledged Collateral being sufficient to discharge all the Secured Obligations, Secured Party may, on one or more occasions and in its reasonable discretion, postpone any of said sales by public announcement at the time of sale or the time of previous postponement of sale, and no other notice of such postponement or postponements of sale need be given, any other notice being hereby waived; provided, however, that any sale or sales made after such postponement shall be after ten (10) days’ notice to Pledgor.

(c)       If, at any time Secured Party shall determine to exercise its rights to sell the whole or any part of the Pledged Collateral hereunder, such Pledged Collateral or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Act, Secured Party may, in its reasonable discretion (subject only to applicable requirements of law), sell such Pledged Collateral or part thereof by private sale in such manner and under such circumstances as Secured Party may deem necessary or advisable, and shall not be required to effect such registration or to cause the same to be effected. Without limiting the generality of the foregoing, in any such event Secured Party, in its discretion (i) may, in accordance with applicable securities laws, proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Collateral or part thereof could be or shall have been filed under the Act, (ii) may approach and negotiate with a single possible purchaser to effect such sale, (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing of its own account, for investment and not with a view to the distribution or sale of such Pledged Collateral or part thereof, and (iv) may place all or any part of the Pledged Collateral with an investment banking firm for private placement which firm shall be entitled to purchase all or any part of the Pledged Collateral for its own account. In addition to a private sale as provided above in this Section 8, if any of the Pledged Collateral shall not be freely distributable to the public without registration under the Act at the time of any proposed sale pursuant to this Section 8, then Secured Party shall not be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions (i) as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale, (ii) as to the content of legends to be placed upon any certificates representing the Pledged Collateral sold in such sale, including restrictions on future transfer thereof, (iii) as to the representations required to be made by each Person bidding or purchasing at such sale relating to that Person’s access to financial information about Pledgor’s and such Person’s intentions as to the holding of the Pledged Collateral so sold for investment, for its own account, and not with a view of the distribution thereof, and (iv) as to such other matters as Secured Party may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure so to register) may be effected in compliance with the UCC and other laws affecting the enforcement of creditors’ rights and the Act and all applicable state securities laws.

 

 

6

(d)       Pledgor recognizes that Secured Party may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof. Pledgor also acknowledges that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. Secured Party shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit Pledgor to cause such securities to be registered for public sale under the Act, or under applicable state securities laws, even if Pledgor would agree to do so.

(e)       Pledgor agrees that following the occurrence and during the continuance of an Event of Default it will not at any time plead, claim or take the benefit of any appraisal, valuation, stay, extension, moratorium or redemption law now or hereafter in force in order to prevent or delay the enforcement of this Agreement, or the absolute sale of the whole or any part of the Pledged Collateral or the possession thereof by any purchaser at any sale hereunder, and Pledgor waives the benefit of all such laws to the extent it lawfully may do so. No failure or delay on the part of Secured Party to exercise any such right, power or remedy and no notice or demand which may be given to or made upon Pledgor by Secured Party with respect to any such remedies shall operate as a waiver thereof, or limit or impair Secured Party’s or any Secured Party’s right to take any action or to exercise any power or remedy hereunder, without notice or demand, or prejudice its rights as against Pledgor in any respect. Pledgor waives all claims, damages and demands against Secured Party arising out of the repossession, retention or sale of the Pledged Collateral except such as result from Secured Party’s gross negligence or willful misconduct.

9.         Application of Proceeds. Any cash held by Secured Party as Pledged Collateral and all cash proceeds received by Secured Party in respect of any sale of, liquidation of, or other realization upon all or any part of the Pledged Collateral shall be applied or distributed by Secured Party first, to the payment of all costs, expenses and charges of Secured Party, as such, or the reimbursement of Secured Party for the prior payment of such costs, expenses and charges incurred in connection with the care and safekeeping of any of the Pledged Collateral (including, without limitation, the expenses of any sale or other proceeding, the expenses of any taking, reasonable attorneys’ fees and expenses, court costs, any other expenses incurred or expenditures or advances made by Secured Party in the protection, enforcement or exercise of its rights, powers or remedies hereunder) with interest on any such reimbursement at the rate prescribed in the Notes from the date of payment; second, to the payment of all other Secured Obligations (in whatever order Secured Party elects); third, to such Persons as required by applicable law including, without limitation, Section 9-615 of the UCC and then, to the extent of any surplus thereafter remaining, to Pledgor or as a court of competent jurisdiction may direct. In the event that the proceeds of any collection, recovery, receipt, appropriation, realization or sale are insufficient to satisfy the Secured Obligations, Pledgor shall be liable for the deficiency together with interest thereon at the rate prescribed in the Notes plus the reasonable fees of any attorneys employed by Secured Party to collect such deficiency.

10.       Power of Attorney. Pledgor appoints Secured Party as Pledgor’s attorney, with power to endorse Pledgor’s name on any checks, notes, acceptances, money orders, drafts or other form of payment or security representing a portion of the Pledged Collateral that may

 

 

7

come into Secured Party’s possession and to do all things necessary to carry out this Agreement. Pledgor ratifies and approves all such acts of such attorney. Secured Party, as attorney hereunder, will not be liable for any acts or omissions, nor for any errors of judgment or mistakes of fact or law, except for such acts, omissions or errors in judgment determined by a court of competent jurisdiction in a final proceeding to have resulted primarily from Secured Party’s gross negligence or willful misconduct. This power, coupled with an interest, is irrevocable until the payment in full of the Secured Obligations.

11.       Waiver. No delay on Secured Party’s part in exercising any power of sale, lien, option or other right hereunder, and no notice or demand which may be given to or made upon Pledgor by Secured Party with respect to any power of sale, lien, option or other right hereunder, shall constitute a waiver thereof, or limit or impair Secured Party’s right to take any action or to exercise any power of sale, lien, option, or any other right hereunder, without notice or demand, or prejudice Secured Party’s or any Secured Party’s rights as against Pledgor in any respect.

12.       Termination. Promptly upon the payment in full of the Secured Obligations (other than contingent or unliquidated obligations or liabilities not then due, and other than any Secured Obligations relating to Warrants or other Securities after the Notes are no longer outstanding), Secured Party promptly deliver to Pledgor the Pledged Collateral pledged by Pledgor at the time subject to this Agreement and all instruments of assignment executed in connection therewith, free and clear of the liens hereof and all of Pledgor’s obligations hereunder shall at such time automatically terminate.

 

13.

Miscellaneous.

(a)       No Liability to Secured Party. The recitals of fact herein shall be taken as statements of Pledgor for which Secured Party assumes no responsibility. Secured Party makes no representation to anyone as to the value of the Pledged Collateral or any part thereof or as to the validity or adequacy of the security afforded or intended to be afforded thereby or as to the validity of this Agreement. Secured Party shall be protected in relying upon any notice, consent, request or other paper or document believed by it to be genuine and correct and to have been signed by a proper person. The permissive rights of Secured Party hereunder shall not be construed as duties of Secured Party. Secured Party shall be under no obligation to take any action toward the enforcement of this Agreement or rights or remedies in respect of any of the Pledged Collateral. Secured Party nor any of its respective officers, directors, employees, agents or counsel shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own gross negligence or willful misconduct.

(b)       No Oral Changes. No term, covenant or condition of this Agreement can be changed or terminated orally.

(c)       Successors and Assigns. All of the rights, privileges, remedies and options given to Secured Party or the Investors hereunder shall inure to the benefit of their permitted successors and assigns; and all the terms, conditions, promises, covenants, provisions and warranties of this Agreement shall inure to the benefit of and shall bind the representatives,

 

 

8

successors and assigns of Secured Party and Pledgor. Pledgor may not assign this Agreement to any Person without the prior consent of the Majority Holders (as defined in the Notes).

(d)       Interpretation. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. In case any security interest or other right of Secured Party shall be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other security interest or other right, privilege or power granted under this Agreement.

(e)       Expense Reimbursement. Pledgor shall reimburse Secured Party for all of Secured Party’s reasonable and documented out-of-pocket costs and expenses (i) incurred in connection with the execution, delivery, administration and enforcement of this Agreement, including, without limitation, the reasonable fees and out-of-pocket disbursements of Secured Party’s legal counsel, accountants and any other third Persons, and (ii) incurred by Secured Party (including reasonable attorney’s fees and out-of-pocket disbursements) to: (A) commence, defend or intervene in any court proceeding; (B) file a petition, complaint, answer, motion or other pleadings, or to take any other action in or with respect to any suit or proceeding (bankruptcy or otherwise) relating to this Agreement; and (C) enforce any of Secured Party’s rights to collect any of the Secured Obligations. Pledgor also agrees to pay, and to save harmless Secured Party from any delay in paying, any intangibles, documentary stamp and other taxes, if any, which may be payable in connection with the execution and delivery of this Agreement.

(f)        Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applied to contracts to be performed wholly within the State of New York.

(g)       Notices. Any notice or request hereunder shall be given to Pledgor or to Secured Party in the manner prescribed therefor in the Purchase Agreement.

(h)       Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which when taken together shall constitute one and the same instrument.

(i)        Recapture. Anything in this Agreement to the contrary notwithstanding, if Secured Party or the Investors receives any payment or payments on account of the Secured Obligations, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver, or any other party under the United States Bankruptcy Code, as amended, or any other federal or state bankruptcy, reorganization, moratorium or insolvency law relating to or affecting the enforcement of creditors’ rights generally, common law or equitable doctrine, then to the extent of any sum not finally retained by Secured Party or the Investors, as the case may be, Pledgor’s obligations to Secured Party hereunder shall be reinstated and this Agreement shall remain in full force and effect (or be reinstated) until payment shall have been made to Secured Party or the Investors (as the case may be), which payment shall be due on demand.

 

 

9

(j)        Section Headings. Any section headings used herein are solely for the convenience of the parties and shall be without legal effect.

(k)       Time of Essence. Time is of the essence in all matters pertaining to the payment or performance by Pledgor of its obligations hereunder.

 

 

10

IN WITNESS WHEREOF, Pledgor has executed this Agreement or caused this Agreement to be executed by its officers thereunto duly authorized as of the date first above written.

 

    “PLEDGOR”

 

PET DRX CORPORATION

By:

 

Name:

Title:

 

 

SCHEDULE I

 

PLEDGED SHARES

 

 

 

 

Issuer

 

 

Place of Organization

 

 

Class of

Capital Stock

 

Number of

Shares Issued

and Outstanding

 

Stock Certificate Numbers of

Pledged Shares

 

Percentage

of

Shares Pledged

 

 

Number of

Shares Pledged

PET DRX VETERINARY GROUP, INC.

Delaware

Common

1,000

1

100%

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSIGNMENT

(SEPARATE FROM CERTIFICATE)

 

FOR VALUE RECEIVED, the undersigned does hereby sell, assign and convey unto _____________________________________________ all right, title and interest of the undersigned in and to ____1,000______ shares of the shares of common stock of PET DRX VETERINARY GROUP, INC., a Delaware corporation, standing in the name of the undersigned on the books of said company, and represented by Certificate No. ______1_______ to which this stock assignment is appended, with full power of substitution in the premises as attorney-in-fact for the undersigned.

 

     Dated: _______________, ______

 

PET DRX CORPORATION

By:

 

Name:

Title:

 

 

 

 

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